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TMI Blog1980 (4) TMI 107X X X X Extracts X X X X X X X X Extracts X X X X ..... in expenses under all these heads. The petitioner appealed against the order to the Appellate Collector of Central Excise who confirmed it. 2. Under the aforesaid circumstances, the petitioner has filed this petition in which two questions are raised for our decision : (1) Assessable value for excise duty cannot include post-manufacturing expenses because excise duty is a tax on manufacture or production. (2) If post-manufacturing expenses are included in the assessable value, Section 4 of the Central Excises and Salt Act, 1944, would be ultra vires the legislative competence of Parliament under Article 246 of the Constitution read with Entry 84 in List I and Entry 54 in List II 3. In order to answer the questions which have been raised before us, it is necessary to make a short reference to a few decisions which have a bearing on the first question. Some of them have interpreted Section 4 as it was before it was amended in 1975 and the others have interpreted the new Section. 4. Section 4 | before | it | was | amended | on | 1st October, | 1975 reads as under : "Where under this Act, any article is chargeable with duty at a rate dependent on the value of the ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or delivery at the place of removal is not known and its value has been determined with reference to the price for delivery at a place other than the place of removal. Sub-secs. (3) and (4) are not material for the purpose of the present case. 6. In terms of the amended Sec. 4, the question which we are required to answer is this. What is "the normal price" of lhe excisable goods and whether it includes certain costs or expenses which follow the completion of the manufacturing process ? 7. In Cibatul Limited v. Union of India and Others - 1979 (4) E.L.T. (J 407), this Court whilst striking down the expression, "where the buyer is not a related person" used in clause (a) of sub-section (1) of Section 4 and while striking down clause (iii) in the proviso to clause (a) of sub-section (1) of Section 4 examined the question of determining the assessable value of an excisable goods. After having examined several decisions of the Federal Court and the Supreme Court, this Court observed in paragraph 15 of the report that the excise is a tax on the production and manufacture of goods and that the excise duty can be levied only on the amount representing the manufacturing cost plus the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on has also been invited by Mr. Divan to certain other decisions which have a direct or indirect bearing on the subject-matter of controversy before us. 10. In The Union of India and Others v. The Vazir Sultan Tobacco Co. Ltd., Hyderabad - 1978 Taxation Law Reports, 1824 = 1978 (2) E.L.T. (J 461), a Division Bench of the Andhra Pradesh High Court has laid down that the excise duty, which is a duty payable on the manufacture or production of goods, can only be on the aggregate of manufacturing costs and manufacturing profit. It has been further observed: "If there are any items of costs, which are necessarily incidental to the process of manufacture, they will also be a part of the manufacturing costs. But if it can be demonstrated by a particular manufacturer that, even on the first sale to the first wholesale dealer there is an element other than that of manufacturing cost and manufacturing profit and thus the price charged to the first wholesaler includes post-manufacturing cost, such post-manufacturing cost must be eliminated by the excise authorities from their calculations." In that case,, en earlier decision of this Court reported in Special Civil Application No. 858 of 197 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levy excise duty on an assessable value consisting of manufacturing costs and manufacturing profits and loaded with certain other post-manufacturing costs or expenses would be ultra vires the legislative competence of Parliament under Entry 84 in the Union List read with Entry 54 in the State List. Therefore, to expand the concept of "normal price" specified in Sec. 4 (as amended) and to include therein something which has no reference to the manufacturing activity is to render Sec. 4 ultra vires Art. 246 read with Entry 84 in the Union List. It is, therefore, necessary to confine the operation of Sec. 4 (as amended) so as to determine the assessable value or the "normal price" of an excisable goods which represents only the manufacturing costs and manufacturing profits. 15. Let us in that light see whether expenses under four heads specified above can be included in the manufacturing costs so as to determine a higher assessable value for the purpose of levy and collection of excise duty. The first head of expenses of which the petitioner seeks exclusion from the assessable value or normal price relates to storage of the excisable goods at various depots. The question of storin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wholesale buyer to pay the price of the goods sold to him. They do not fall within the range of manufacturing activity but they fall within the range of sale of the excisable goods. They, in our opinion, have nothing to do with the manufacturing activities and, therefore, they do not have reference or relation to the manufacturing activities. 18. The last head under which the petitioner seeks benefit relates to advertisement expenses. What is good in case of storage expenses, marketing or distribution expenses and Bank charges does not necessarily hold good in respect of advertisement expenses. Before the excisable goods is manufactured or produced, it may be advertised in order to secure market for it in future. Expenses incurred on such advertisements would necessarily have reference or relation to the manufacturing activity and can form a part of manufacturing costs leading to the determination of assessable value on that busts However, an excisable commodity may be advertised even after it has been manufactured or produced. Expenses incurred on such advertisements would fall clearly within the realm of the sale of that commodity rather than within the realm of its manufacture ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acture of goods but would violate even the basic factory gate concept because the price would be loaded with post-manufacturing elements after the article has entered the stream of wholesale trade." 20. In paragraph 14 of the report, it has been observed by this Court : "The post manufacturing element or the -selling cost and selling profit of the wholesale dealer would enter in the picture if the basis taken is the second or the subsequent price arid not the first wholesale price charged by the manufacturer himself in wholesale to a wholesale dealer at arms length and the usual course of business, of course, less the trade discount envisaged by the Explanation." It has been observed in that decision "such a not wholesale cash price for the goods sold at the factory gate within the meaning of Section 4(a) would be properly falling within the concept of excise." Proceeding further, this Court observed : "The whole aspect of post-manufacturing expenses would come in only after the first wholesale sale at the stage of subsequent wholesale price or retail price is not to be the basis for this excise levy it is obvious that no adjustment could be made by way of any such apportio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition succeeds. It is declared that the aforesaid expenses incurred by the petitioner on the excisable goods, after they have been manufactured (except advertisement expenses) cannot form a part of a "normal price" within the meaning of Sec. 4(1)(a) of the Central Excises and Salt Act, 1944, and cannot, therefore, enter into the assessable value of its product for the purpose of collection of excise duty. So far as advertisement expenses are concerned, a part of it will enter into the manufacturing cost and, therefore, the "normal price" which is the basis for determining the assessable value. It would be open to central excise authorities to determine in each case how much of advertisement expenses shall be included within the "normal price" for the purpose of assessing excise duty and how much shall be excluded, indeed depending upon what part has relation or reference to the manufacturing activity and what part has relation to the saleability or marketability of the commodity after it has been manufactured. 24. On behalf of the petitioner, Mr. Divan has also raised the question whether the value of corrugated fibre containers (CFC) or wooden cases can be included in the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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