9911796707
TMI Blog2015 (5) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... place from where the said goods are to be sold after their clearance from the factory of the job-worker. The Legislature had to evolve some measure or mode of computation and calculation and, therefore, inserted Rule 10A. The object and purpose of introducing or inserting it is apparent if one peruses the proviso and explanation to Rule 10A. The proviso clarifies that the cost of transport, if any, from the premises wherefrom the goods are sold to the place of delivery shall not be included in the value of the excisable goods. The explanation denotes as to how the term "job-worker" has to be understood and throughout this rule by the Legislature. If the job-worker means a person engaged in the manufacture or production of goods on behalf of the principal manufacturer from any inputs or goods supplied by the said principal manufacturer or by any person authorised by him, then, it is clear that the job-work or the effort which has been taken by the job-worker for and on behalf of the principal manufacturer enables the principal manufacturer to sell the completed product or finished goods. It cannot be, therefore, that the Legislature must only take the price which parties like the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acter of levy rejected. - We have established sufficiently in the foregoing paragraphs the nexus that Rule 10A has with the essential character of levy. In these circumstances, we do not think that the arguments based on this essential submission and elaborated in writing can be accepted by us. We are also not sustaining the legality and validity of Rule 10A on any notion of Revenue leakage. However, we are mindful of the fact that every arrangement devised by the parties like the petitioners and M/s. Tata Motors Limited could not be presumed to be genuine. It could be, in a given case, a device to avoid payment of excise duty in terms of the rate set out in the schedule. Therefore, to plug the loopholes and to discourage such arrangements as would be not conducive to the recovery of the duty that a comprehensive and complete mode has been prescribed by the Rules. We cannot find any fault with the Rule if this is also one of the object sought to be achieved. Petitioners and in the given facts and circumstances can urge that they have not manufactured the goods on behalf of another person or that their relationship with M/s. Tata Motors Limited is on principal to principal bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Excisable Goods) Rules, 2000 (for short Valuation Rules, 2000 ). The challenge is that this Rule is ultra vires being beyond the legislative competence of the Parliament. It is not subject matter of the Union List and given its sweep, it cannot be saved by taking recourse to the residual entry viz. List-I Entry 97 read with Article 248 of the Constitution of India. 4. The other challenge is that this Rule travels beyond sections 3 and 4 read with section 37 of the Central Excise Act, 1944. The same also violates the mandate of Article 14 and 19 (1)(g) of the Constitution of India. As a consequence of the above, the petitioners are seeking to quash and set aside a Circular dated 20th October, 2009 of the Central Board of Excise and Customs and the final order dated 30th November, 2012 of the Customs, Excise and Service Tax Appellate Tribunal. 5. The facts necessary to appreciate the above challenge are that the petitioners engage themselves, inter-alia, in the activity of building body on the motor vehicle chassis supplied by various chassis manufacturers such as M/s. Tata Motors Limited, M/s. Ashok Leyland Limited etc. at their various factories located across the country. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se Department as far as this method of valuation adopted by the petitioners for the period prior to 1st April, 2007. 9. Post 1st April, 2007, the respondents started computing the assessable value of the complete vehicle for the purpose of payment of excise duty but that was not on the footing or basis indicated above. In other words, according to the respondents, the assessable value of the complete vehicle cleared by the petitioners on which they were liable to pay excise duty should be based on the price at which M/s. Tata Motors Limited sold the vehicle to their buyers. This insistence of the respondents came in the light of introduction of Rule 10A in the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, with effect from 1st April, 2007. 10. The petitioners state that they have made the correct computation or calculation for the purpose of assessment of central excise duty, relied on the excise invoices and copies of purchase orders. The petitioners also relied upon the term transaction value as defined in section 4(1) clause (a) of the Central Excise Act, 1944. Thus, for the position prior to 1st April, 2007, the petitioners rely on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been filed. The other writ petitions may be referring to factual details giving rise to the adjudication and the appellate orders but it is common ground that the said writ petitions also put in issue the legality and validity of Rule 10A of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. 14. Mr. Sridharan, learned senior counsel appearing on behalf of the petitioners submits that when a person adds/contributes his own material to the material supplied by the customers and manufactures goods, it is not job-work. It could be job-work only if the worker adds from his end only minor items or minor or incidental items. In that regard, he relies upon the judgment of the Hon'ble Supreme Court rendered in the case of Preventive Engineering (India) Limited vs. Commissioner of Central Excise, 1994 (73) Excise Law Times, Pg. 497. 15. Mr. Sridharan has also invited our attention to the explanation to Rule 10A which defines the term job-work . Mr. Sridharan submits that for the purpose of manufacture of the body, all the raw materials are purchased by the petitioners. They are not supplied by M/s. Tata Motors Limited who, according to Mr. Sri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he chassis so as to make it a bus or a truck and this activity is undertaken for various persons. Therefore, it is not the price, which the brand name holders affix on the vehicle, command in the market on which the value should be determined. The Hon'ble Supreme Court, according to Mr. Sridharan, has held that excise duty is payable on the market value fetched by manufacturers and such goods cannot be assessed on the basis of the market value obtained by the brand name holders who also add to the value of the manufactured goods, the value of their own property in the goodwill of the brand name. Hence, it is alleged that the expression on behalf of has to be interpreted in the light of the judicial pronouncements and the meaning assigned to these words by the courts. Thus, the petitioners cannot be considered as manufacturers on behalf of the principal manufacturer. Mr. Sridharan also made an attempt to distinguish the expression on behalf of for, and on behalf of . According to Mr. Sridharan on behalf of is a narrow expression and different from for, and or behalf of . In that regard, he invites our attention to sections 65(19)(v) of the Finance Act, 1994. 18. Mr. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Thus, even interpreted this way, the rule may be ultra vires the parent Act viz. The Central Excise Act, 1944, particularly sections 3 and 4 thereof. 20. Mr. Sridharan develops the argument on ultra vires by urging that the price charged by the manufacturer forms the measure of tax. He relies upon the judgments of the Hon'ble Supreme Court to urge that the assessable value of goods exigible to excise duty in terms of section 4 is the price which the manufacturer has charged to his buyer. As far as the measure of levy in the case of job work transaction is concerned, Mr. Sridharan submits that several judgments of the Hon'ble Supreme Court clarify the position that a provision enacting measure of tax or how tax is to be measured should be consistent with the levy or impost. It cannot be contrary thereto or inconsistent therewith. The interpretation which the respondents suggest would go contrary to this legal position according to Mr. Sridharan. He submits that section 4 is only a machinery provision. With effect from 1st July, 2000 also, the measure is the price charged by the manufacturer. He invites our attention to section 4(1) clause (a) of the Central Excise Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds has been adopted as the value of the manufactured goods for the purpose of levy of excise duty though this value would include marketing and administrative cost of the manufacturer. It is settled law that this measure cannot be stretched to adopt sale price of customer of the manufacturer on the ground of administrative convenience. Rule 10A provides the value at which the customer of the job worker sells the goods to its customer (of customer). Hence, Rule 10A is in contravention of Entry 84 of Union List, Section 3(1) and Section 4 of Central Excise Act, 1944. It is submitted that the measure provided by Rule 10A is beyond the subject of the levy, since it ceases to have nexus with the essential character of the levy. 23. The sale price of the finished goods charged by the principal manufacturer would naturally include the selling expenses and profits of the principal manufacturer. A measure which demands duty on the selling expenses and profits of the principal manufacturer would be divorced from the fundamental concept of the subject of the levy. 24. He, therefore, submits that the machinery provisions relating to the computation and collection of levy cannot go beyond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the price at which the principal manufacturer is selling the goods then Rule 10A is difficult and impossible to implement. It is impractical and imperfect. He, therefore, submits that the Ministry of Law, Government of India, has rightly opined that Rule 10A cannot be sustained and may be vulnerable. It can be ultra vires the Act itself. 26. Mr. Sridharan submits and alternatively that Rule 10A can be saved only if it is applied in the case of agency and not where the transaction is on principal to principal basis. 27. Mr. Sridharan, therefore, would submit that the petition deserves to be allowed. Mr. Sridharan has relied upon the following judgments in support of his above contentions. (1) Preventive Engineering (India) Limited vs. Commissioner of Central Excise, 1994 (73) Excise Law Times, Pg. 497. (2) A.K. Roy vs. Voltas Limited 1977 (1) Excise Law Times (J 177) (SC) (3) Atic Industries Ltd. vs. H.H. Dave, Assistant Collector of Central Excise Ors. 1978 (2) Excise Law Times (J 444) (SC) (4) Union of India vs. Bombay Tyre International Limited, 1984 (1) SCC Pg. 467 (SC). (5) Pawan Biscuits Co. Ltd. vs. Commissioner of Central Excise, Patna, 2000 (120) Exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erial used by them in the body building. These are transactions undertaken on behalf of M/s. Tata Motors Limited and others. The interpretation that is placed by the petitioners on Rule 10A would mean that clearance of the chassis to M/s. Tata Motors Limited after body building on it would be a sale. Every jobwork would then be deemed as a sale. This is not a levy on any such transaction but on manufacture. If job-work is manufacture and that is what is done by the petitioners for parties like M/s. Tata Motors Limited, then, they cannot claim that they are only selling the body. It is when the body is mounted on the chassis that it becomes a complete motor vehicle. It is that activity which is carried out and which is deemed as manufacture. The petitioners are not contending that they are supplying the body to M/s. Tata Motors Limited and others and these parties, in turn, get this body fitted on the chassis by a third person. In this case the petitioners are fabricating the body, bit by bit, on the chassis for producing an integrated complete motor vehicle. Therefore, they cannot urge that they only supply body to M/s. Tata Motors Limited and not a complete motor vehicle. In the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncludes any process - (i) incidental or ancillary to the completion of a manufactured product; (ii) which is specified in relation to any goods in the section or Chapter notes of [The First Schedule] to the Central Excise Tariff Act, 1985 (5 of 1986) as amounting to manufacture; or (iii) which in relation to the goods specified in the Third Schedule, involves packing or repacking of such goods in a unit container or labelling or re-labelling of containers including the declaration or alternation of retail sale price on it or adoption of any other treatment on the goods to render the product marketable to the consumer. and the word manufacture shall be construed accordingly and shall include not only a person who employs hired labour in the production or manufacture of excisable goods, but also any person who engages in their production or manufacture on his own account; 31. A bare perusal of this definition would indicate as to how the term or word is defined in an inclusive manner so as to include any process incidental or ancillary to the completion of a manufactured product. Sub-clause (iii) to clause (f) of section 2 came to be substituted by Act 32 of 2003 so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods for which a tariff value has been fixed under sub-section (2) of section 3. (3) For the purpose of this section,- (a) assessee means the person who is liable to pay the duty of excise under this Act and includes his agent; (b) persons shall be deemed to be related if - (i) they are inter-connected undertakings; (ii) they are relatives; (iii) amongst them the buyer is a relative and a distributor of the assessee, or a sub-distributor of such distributor; or (iv) they are so associated that they have interest, directly or indirectly, in the business of each other. Explanation. - In this clause - (i) inter-connected undertakings means two or more undertakings which are inter-connected with each other in any of the following manners, namely:- (A) if one owns or controls the other; (B) where the undertakings are owned by firms, if such firms have one or more common partners; (C) where the undertakings are owned by bodies corporate,- (I) if one body corporate manages the other body (II) if one body corporate is a subsidiary of the other body corporate; or (III) if the bodies corporate are under the same management; or (IV) if o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lding, whether independently or along with its or their subsidiary or subsidiaries, not less than one-fourth of the equity shares in one body corporate, also hold not less than one-fourth of the equity shares in the other; or (vii) if not less than one-fourth of the total voting power in relation to each of the two bodies corporate is exercised or controlled by the same individual (whether independently or together with its subsidiaries); or (viii) if not less than one-fourth of the total voting power in relation to each of the two bodies corporate is exercised or controlled by the same individuals belonging to a group or by the same bodies corporate belonging to a group, or jointly by such individual or individuals and one or more of such bodies corporate; or (ix) if the directors of one such body corporate are accustomed to act in accordance with the directions or instructions of one or more of the directors of the other, or if the directors of both the bodies corporate are accustomed to act in accordance with the directions or instructions of an individual, whether belonging to a group or not. Explanation II.- If a group exercises control over a body corporate, that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter shall also be deemed to be an associated person in relation to the former;] (ii) relative shall have the meaning assigned to it in clause (41) of section (2) of the Companies Act, 1956 (1 of 1956); (c) place of removal means - (i) a factory or any other place or premises of production or manufacture of the excisable goods; (ii) a warehouse or any other place or premises wherein the excisable goods have been permitted to be deposited without payment of duty; (iii) a depot, premises of a consignment agent or any other place or premises from where the excisable goods are to be sold after their clearance from the factory; from where such goods are removed; (cc) time of removal , in respect of the excisable goods removed from the place of removal referred to in subclause (iii) of clause (c), shall be deemed to be the time at which such goods are cleared from the factory; (d) transaction value means the price actually paid or payable for the goods, when sold, and includes in addition to the amount charged as price, any amount that the buyer is liable to pay to, or on behalf of, the assessee, by reason of, or in connection with the sale, whether payable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee, by reason of, or in connection with the sale, whether payable at the time of the sale or at any other time, including, but not limited to, any amount charged for, or to make provision for, advertising or publicity, marketing etc., but excludes the amount of duty of excise, sales tax and other taxes, if any, actually paid or actually payable on such goods. Thus, valuation of excisable goods for purposes of charging any duty of excise on each removal thereof shall be the value in cases covered by clause (b) of sub-section (1) of section 4, the manner of determination whereof as maybe prescribed. 34. It is in pursuance of this provision that The Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, have been framed. 35. It has not been disputed before us that there is a power to frame such rules. If any reference is required to be made, it would be sufficient if one has a look at section 37 falling under Chapter VII of the Act which confers a power on the Central Government to make rules. This power enables the Central Government in particular and without prejudice to the generality of the power, to make such rules which may provide for det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e are explanations to Rule 6, but which only indicate as to how the transaction value by a deeming fiction is determined in the circumstances referred by Rule 6. Rule 7 deals with a situation where the excisable goods are not sold by the assessee at the time and place of removal but are transferred to a depot, premises of a consignment agent or any other place or premises from where the excisable goods are to be sold after their clearance from the place of removal and where the assessee and the buyer of the said goods are not related and the price is the sole consideration for the sale, the value shall be the normal transaction value of such goods sold from such other place at or about the same time and, where such goods are not sold at or about the same time, at the time nearest to the time of removal of goods under assessment. Thus, we find a situation where valuation of excisable goods for purpose of charging a duty of excise is to be determined on each removal of the goods. In cases covered by clause (a) where the goods are sold by the assessee for delivery at the time and place of removal and the assessee and the buyer are not related and the price is the sole consideration fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me time and, where such goods are not sold at or about the same time, at the time nearest to the time of removal of said goods from the factory or job-worker; (iii) in a case not covered under clause (I) or (ii), the provisions of foregoing rules, wherever applicable, shall mutatis mutandis apply for determination of the value of the excisable goods; Provided that the cost of transportation, if any, from the premises, wherefrom the goods are sold, to the place of delivery shall not be included in the value of excisable goods. Explanation. - For the purposes of this rule, job-worker means a person engaged in the manufacture or production of goods on behalf of a principal manufacturer, from any inputs or goods supplied by the said principal manufacturer or by any other person authorised by him. 37. A very careful perusal of this Rule which has been inserted with effect from 1st April, 2007, by Notification No.9 of 2007 dated 1st March,2007, reveals that the said Rule deals with cases of excisable goods produced or manufactured by a job-worker. The second requirement for applicability of Rule 10A is the job-worker manufacturing or producing excisable goods on behalf of a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her condition being fulfilled the value of the excisable goods is taken to be the transaction value of the said goods sold by the principal manufacturer. Clause (ii) deals with a situation where the goods are not sold by the principal manufacturer at the time of removal of the goods from the factory of the job-worker, but are transferred to some other place from where the said goods are to be sold after their clearance from the factory of the job-worker. Then and where the principal manufacturer and buyer of goods are not related and the price is the sole consideration for the sale, the value of excisable goods shall be the normal transaction value of such goods sold from such other place at or about the same time and where the goods are not sold at or about the same time, at the time nearest to the time of removal of the said goods from the factory of the job-worker. If the goods are not sold by the manufacturer at the time of removal of the goods from the factory of the job-worker then this clause (ii) applies. That also applies when the goods are transferred to some other place from where they were to be sold after their clearance from the factory of the job-worker. Therefore, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue and, therefore, Mr. Sridharan submits that we should proceed for the present petition and the dealings and transactions referred therein on the footing that the petitioners are covered by Rule 10A of the Valuation Rules. It is on these premises and foundation that we have proceeded. 41. Before we analyse the rule further, it would be advantageous to refer to the settled principles which have to be applied for determining the larger issue. In the case of Gujarat Ambuja Cements Limited Anr. vs. Union of India and Anr., reported in AIR 2005 SC 3020, the Hon'ble Supreme Court held as under: 35. The point at which the collection of the tax is to be made is a question of legislative convenience and part of the machinery for realization and recovery of the tax. The manner of the collection has been described as an accident of administration; it is not of the essence of the duty . It will not change and does not affect the essential nature of the tax. Subject to the legislative competence of the Taxing Authority a duty can be imposed at the stage which the authority finds to be convenient and the most effective whatever stage it may be. The Central Government is theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot be done unless the provisions of the Second Schedule are taken into consideration. For the purpose of levying any charge, not only the charge has to be authorized by law, it has also to be computed. The charging provision and the computation provision may be found at one place or at two different places depending on the draftsman's art of drafting and methodology employed. In the latter case, the charging provision and the computation provision, though placed in two parts of the enactment, shall have to be read together as constituting one integrated provision. The charging provision and the computation provision do differ qualitatively. In case of conflict, the computation provision shall give way to the charging provision. In case of doubt or ambiguity the computing provision shall be so interpreted as to act in aid of charging provision. If the two can be read together homogeneously then both shall be given effect to, more so, when it is clear from the computation provision that it is meant to supplement the charging provision and is, on its own, a substantive provision in the sense that but for the computation provision the charging provision alone would not work. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etermined in terms of the rules. We have referred to each rule falling in Chapter II of the Valuation Rules, 2000, together with the definition of the term normal transaction value and value for the purpose of emphasizing that in all cases, it is the price and that is apparent from Rules 4, 5, 6 and 7. It is further clear from a reading of Rules 8, 9 and 10 as to how everywhere the words normal transaction value have been appearing. In the circumstances, Rule 10A and the insertion thereof by Notification No.9 of 2007 is relevant. It is clear that all cases which were, therefore, covered in the preceding rules did not apparently cover the job-worker. That is why Rule 10A has been introduced / inserted. Therefore, when the goods are sold by the principal manufacturer for delivery at the time of removal of the goods from the factory of the job-worker and the principal manufacturer and the buyer of the goods are not related and the price is the sole consideration then it is the transaction value which should be the value of excisable goods. In cases where the goods are not sold by the principal manufacturer at the time of removal of the goods from the factory of the job-worker, b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be the true measure of the tax according to the Legislature. 44. In this context it would be useful to refer to a judgment of the Hon'ble Supreme Court in the case of Dugar Electronics vs. Collector of Central Excise, Calcutta reported in AIR 2003 SC 716. In that case, in absence of a Rule like 10A, the transaction value as disclosed and declared by a party like the petitioners does not represent full commercial value . In this behalf, following paragraphs of this judgment are relevant for they indicate why Rule 10A was introduced : 2. The assessee is the manufacturer of tape recorders in the brand name of 'Philips'. Moulds and some other parts of the tape recorders were got prepared by Pieco (Philips) at its costs from third parties and supplied free of costs to the assessee. The assessee declared the price of tape recorders which was not accepted as correct assessable value of goods by the Excise authorities as well as the Tribunal. The Tribunal found that the price declared by the assessee was not full commercial value because the moulds etc. which were got produced by Pieco and were supplied free to the assessee resulted in an element of consideration p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) where, in accordance with the normal practice of the wholesale trade in 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 any law for the time being in force or at a price, being the maximum, fixed under any such law, then, notwithstanding anything contained in clause (iii) of this proviso, the price or the maximum price, as the case may be, so fixed, shall, in relation to the goods so sold, be deemed to be the normal price thereof; (iii) where the assessee so arranges that the goods are generally not sold by him in the course of wholesale trade except to or through a related person, the normal price of the goods sold by the assessee to or through such related person shall be deemed to be the price at which they are ordinarily sold by the related person in the course of wholes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , all the provisions of the foregoing rules viz. rules earlier to Rule 10A wherever applicable shall mutatis mutandis apply for determination of the value of excisable goods. Therefore, Rule 10A is a rule enabling determination of the value of excisable goods and hence cannot be read as a stand-alone or isolated provision. It would have to be read together and harmoniously with other rules so also sections 3 and 4 of the Central Excise Act, 1944. So read, there is neither any merit in the challenge to the validity and legality nor is it necessary to read the Rule down or restrict its application as prayed for by the petitioners before us. It is a reading of the rule which assists and enables us to conclude as above. 46. There are several cases in which the Parliamentary measures of this nature have been held as being in tune with the constitutional mandate. In the case of Gujarat Ambuja Cements (supra) itself such instances and cases have been referred by this Hon'ble Supreme Court. In paragraphs 24 to 29 and in the context of a challenge to the constitutional validity of section 116 and 117 of the Finance Act, 2000, section 158 of the Finance Act, 2003, by which the decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s carried by vehicles plying entirely along the national highways. According to them this was solely within the power of the Centre under Entry 23 read with 97 of List I. The submission was held to be patently fallacious by this Court. It was held that Entry 56 of List II did not exclude national highways so that the passengers and goods carried on national highways would fall directly and squarely within Entry 56 of List II. It was said that the State played a role in the maintenance of the national highway and there was sufficient nexus between the tax and passengers goods carried on the national highway to justify the imposition. 27. The writ petitioners in this case have, relying on this judgment, argued that the Act falls squarely within Entry 56 of List II and, therefore, could not be referred to Entry 97 of List I. We do not agree. 28. There is a distinction between the object of tax, the incidence of tax and the machinery for the collection of the tax. The distinction is important but is apt to be confused. Legislative competence is to be determined with reference to the object of the levy and not with reference to its incidence or machinery. There is a further distin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so: Sainik Motor Jodhpur v. The State of Rajasthan 1962 (1) SCR 517). 29. Having determined the parameters of the two legislative entries the principles for determining the constitutionality of a Statute come into play. These principles may briefly be summarized thus: a) The substance of the impugned Act must be looked at to determine whether it is in pith and substance within a particular entry whatever its ancillary effect may be. (Prafulla Kumar Mukherjee v. Bank of Commerce Ltd. And others (AIR 1947 PC 60, 65; A.S. Krishna v. State of Madras, 1957 SCR 399; State of Rajasthan v. G. Chawla (1959 Supp. (1) SCR 904; Katra Education Society v. State of U.P., 1996 (3) SCR 328; D.C. Johar and Sons (P) Ltd. v. STO Ernakulam, 1971 (27) STC 120; Kanan Devan Hills Produce v. State of Kerala (1972) 2 SCC 218). b) Where the encroachment is ostensibly ancillary but in truth beyond the competence of the enacting authority, the statute will be a colourable piece of legislation and constitutionally invalid (A.S. Krishna v. State of Madras (supra); A.B. Abdul Kadir v. State of Kerala (1976) 3 SCC 219, 232; Federation of Hotel and Restaurant v. Union of India (supra at p.651). If the sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... valuation of the service tax includes the freight charges, but is not limited to it. 32. It is clear therefore that Section 66 read with Section 65(41)(j) and (ma) Chapter V of the Finance Act, 1994 do not seek to levy tax on goods or passengers. The subject matter of tax under those provisions of the Finance Act, 1994 is not goods and passengers, but the service of transportation itself. It is a levy distinct from the levy envisaged under Entry 56. It may be that both the levies are to be measured on the same basis, but that does not make the levy the same. As was held in Federation of Hotel and Restaurant Association of India etc. v. Union of India and others (1989) 3 SCC 634 : ... subjects which in one aspect and for one purpose fall within the power of a particular legislature may in another aspect and for another purpose fall within another legislative power.... Indeed, the law 'with respect to' a subject might incidentally 'affect' another subject in some way, but that is not the same thing as the law being on the latter subject. There might be overlapping; but the overlapping must be in law. The same transaction may involve two or more taxable events ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atute has to be determined by examining the pith and substance of the statute and by paying more attention to the charging section than to the basis or machinery adopted for assessment and collection of tax for the nature of tax is different from the measure of tax. Thus, there are three components of a taxing statute viz. subject of tax, person liable to pay the tax and the rate at which the tax is levied. The Constitution Bench of the Hon'ble Supreme Court in the case of State of West Bengal Anr. vs. Kesoram Industries Limited Ors., AIR 2005 SC 1646 had an occasion to consider the constitutional validity of the statutes levying cess on coal bearing land. The majority opinion and the minority views are to be found in a lengthy judgment but what is material for us is only the principles which have been summarized in paragraphs 33 and 135 of this judgment. 33. We now proceed to enter a deeper dimension in the field of tax legislation by considering the problem of devising the measure of taxation. This aspect has been dealt with in detail in Union of India and others v. Bombay Tyre International Ltd., (1983) 4 SCC 210. Tracing the principles from the leading authority of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (3) The nature of tax levied is different from the measure of tax. While the subject of tax is clear and well defined, the amount of tax is capable of being measured in many ways for the purpose of quantification. Defining the subject of tax is a simple task; devising the measure of taxation is a far more complex exercise and therefore the legislature has to be given much more flexibility in the latter field. The mechanism and method chosen by Legislature for quantification of tax is not decisive of the nature of tax though it may constitute one relevant factor out of many for throwing light on determining the general character of the tax. (4) Entries 52, 53 and 54 in List I are not heads of taxation. They are general entries. Fields of taxation covered by Entries 49 and 50 in List II continue to remain with State Legislatures in spite of Union having enacted laws by reference to Entries 52, 53, 54 in List I. It is for the Union to legislate and impose limitations on State's otherwise plenary power to levy taxes on mineral rights or taxes on lands (including mineral bearing lands) by reference to Entry 50 and 49 in List II and lay down the limitations on State's power, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thin the power of State Legislature cannot be annulled as unconstitutional merely because it may have an effect on the price of the commodity. A State legislation, which makes provisions for levying a cess, whether by way of tax to augment the revenue resources of the State or by way of fee to render services as quid pro quo but without any intention of regulating and controlling the subject of the levy, cannot be said to have encroached upon the field of 'regulation and control' belonging to the Central Government by reason of the incidence of levy being permissible to be passed on to the buyer or consumer, and thereby affecting the price of the commodity or goods. Entry 23 in List II speaks of regulation of mines and mineral development subject to the provisions of List I with respect to regulation and development under the control of the Union. Entries 52 and 54 of List I are both qualified by the expression declared by Parliament by law to be expedient in the public interest . A reading in juxtaposition shows that the declaration by Parliament must be for the 'control of industries' in Entry 52 and 'for regulation of mines or for mineral development' in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... List I. So long as a tax or fee on mineral rights remains in pith and substance a tax for augmenting the revenue resources of the State or a fee for rendering services by the State and it does not impinge upon regulation of mines and mineral development or upon control of industry by the Central Government, it is not unconstitutional. 49. We have applied these very tests and we do not find that while valuing excisable goods for purposes of charging the duty of excise in the case of job-worker by taking into consideration the transaction value of the goods sold by the principal manufacturer, the rule in any way travels beyond the Act or alters the character or nature of the tax or duty. 50. Once we deal with this principal contention of the petitioners and do not find any merit in it, then, the petitioners cannot be permitted to argue anything contrary to the factual foundation or basis on which we have proceeded. This foundation or basis is laid in the writ petition itself. None of the factual aspects that we have noted have been taken by us from anywhere else, save and except the Memo of the writ petition and the written submissions. 51. We do not find that any assistan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e components or elements and particularly of the expenses which have to be borne in mind. In the circumstances, we find that if the goods manufactured have to be sold then the wholesale cash price is to be taken into consideration. How that wholesale cash price is to be determined is discussed in details and ultimately decided by the Hon'ble Supreme Court. We are, therefore, not referring to the further paragraphs which Mr. Sridharan relied upon, particularly those discussing as to what could be the meaning of the expression related person . 53. We need not refer to the judgment in the case of M/s. Ujagar Prints vs. Union of India Ors. 1988 (38) Excise Law Times, 535 and the subsequent clarificatory order for the simple reason that we find that there is no merit in the contention of Mr. Sridharan that Rule 10A and insertion thereof was beyond the legislative competence and by that process of reasoning, the rule cannot be sustained. Mr. Sridharan was fair to point out that in this regard the powers of the Parliament are very wide. So long as the Parliament can take the aid of Article 248(2) and Entry 97 of List I of the VII Schedule to the Constitution of India, then, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... termining the valuation of excisable goods for the purpose of levy of excise duty when such goods are manufactured or produced by a job-worker. Therefore, this decision has no application. 55. The clarificatory judgment in the case of M/s. Ujagar Prints Ors. vs. Union of India reported in 1989 (39) Excise Law Times, 493 must be read together with the Constitution Bench main judgment of the Hon'ble Supreme Court in the same case reported in 1988 (38) Excise Law Times, Pg. 535. That being the case of a processor of grey cloth and he being the job worker, the clarification as sought has been given. This clarification has come in the backdrop of the applicability of the Central Excise Rules. The Civil Miscellaneous Petition for clarification was filed to seek a clarification as noted in the order. The Supreme Court clarified that the assessable value of the processed fabric would be the value of grey-cloth in the hands of the processor plus the value of job-work done plus manufacturing profit and manufacturing expenses whatever these may be, which will either be included in the price at the factory gate or deemed to be the price at the factory gate for the processed fabric. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1)(b). We are really concerned with section 4(1)(b) and the Valuation Rules. 58. We have, therefore, no hesitation in rejecting Mr. Sridharan's argument that measure provided by Rule 10A is beyond the subject since it ceases to have nexus with the essential character of levy. We have established sufficiently in the foregoing paragraphs the nexus that Rule 10A has with the essential character of levy. In these circumstances, we do not think that the arguments based on this essential submission and elaborated in writing can be accepted by us. 59. We are also not in agreement with Mr. Sridharan's submission that Rule 10A contravenes section 2(f) read with section 3(1) of the Central Excise Act, 1944. It may be that the transactions between the principal manufacturer and the buyer of goods is taken as the measure but that, as clarified above, does not in any manner contravene section 2(f). The term manufacture is defined in section 2(f) and we have already noted as to how that definition is worded and has been interpreted. Once the levy is on production or manufacture in India on all excisable goods, then, we do not see how this conclusion can be inferred. Similarly, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... If that price is taken as the basis or the measure, then depending on the facts and circumstances in each case, it would be open for the Revenue and if called upon to make proper enquiry and seek details of the transactions with the buyers and the price at which the goods have been sold by the principal manufacturer. Eventually all investigations and enquiries incidental to the valuation, assessment and recovery of taxes can be made and there need not be a specific provision in that behalf. It is only in specific instances and wherein there are clear allegations that such enquiries and investigations would be held. That would not be necessitated on some vague complaint or a general grievance. In such circumstances, we do not see any merit in this grievance as well. 63. Finally, and in the light of the view that we have taken we need not go into all the contentions and with regard to applicability of Rule 10A. We do not think that the petitioners and in the given facts and circumstances can urge that they have not manufactured the goods on behalf of another person or that their relationship with M/s. Tata Motors Limited is on principal to principal basis. The argument on relatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty of Rule 10A is a matter which can be independently dealt with and depending on the facts and circumstances in each case. Therefore, it is not possible to lay down a general rule as to when can the process be said to be a jobwork and undertaken on behalf of a person named as principal manufacturer from any inputs or goods supplied by him or by any other person authorised by him. The contentions on the applicability of Rule 10A thus can be canvassed irrespective of Rule 10A being upheld by us. 65. Therefore, all the judgments in the compilation Vol. 2 need not be referred in further details. 66. As a result of the above discussion, we do not find any merit in each of these writ petitions. Rule is discharged in each of them. Each of the writ petition is, accordingly, dismissed. In the circumstances, there will be no order as to costs. 67. We have discharged Rule in each of these Writ Petitions. However, we find that there was a pure legal challenge and which ultimately was not sustained by this Court. However, the foundation or basis being a provision of law, there is no justification to sustain the penalties on either the Company or any of its Directors or Officers. In th ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
