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TMI Blog1980 (5) TMI 38X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the making of the application under Article 226 of the Constitution by the appellant are null and void and refused to order reassessment of the same on the basis of the law laid down by the Supreme Court in the said case A.K. Roy Anr. v. Voltas Limited. 2. Against the order mentioned earlier passed by Mausd, J. in favour of the appellants the respondents have also filed cross-objection. 3. The appellant is a manufacturer of diverse electric lamps such as incandescent lamps, flourescent lamps, miniature, pre-focus and gaseous discharged lamps otherwise known as M.V.D. Lamps. The said goods are excisable goods falling under Item No. 32(1), 32(2) and 32(3) of the First Schedule of the Central Excises and Salt Act, 1944 (hereinafter mentioned as the "said Act"). 4. The appellant has a factory at No. 1, Taratola Road, Garden Reach, Calcutta known as "ELMI factory". The appellant in the said factory besides the above mentioned lamps also manufacture lamp components some of which are exigible under Item No. 23(A)(3) of the First Schedule of the said Act; but are exempted at present. The other lamp component, manufactured by the appellant are not exigible. 5. From the very c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant sells its goods to customer-companies represents the manufacturing cost plus the manufacturing profits incurred and/or made by the appellant. 9. Since 1968 Excise duty is levied upon and collected on the products of the appellant under the Self Removal Procedure. Ever since the introduction of the said Procedure in 1968, the appellant has been filing with the proper officer for its approval a list in the approved form in quadruplicate under Rule 173B of the Central Excise Rules (hereinafter referred to as the said Rules) and has been also filing with the proper officer for his approval price-list in the form and manner showing the price of each class of goods under Rule 173C of the said Rules. The appellant maintains an account current with the Chief Accounts Officer, Central Excise, Calcutta and Orissa within the jurisdiction of this Court. In regard to all payments of duty required to be made under said Rules lump sum payments are made by the appellant to the Respondent No. 2 at Calcutta within the said Jurisdiction. The appellant deposits such lump sum amount in the account of the appellant with the Reserve Bank of India at its Calcutta office at No. 15, Netaji S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment and levy and collection of duty to the extent the assessment made by the respondents on ad valorem to this Honourable Court so that the same shall be quashed and conscionable justice is done. (b) A Writ of and/or an order and/or direction in the nature of Mandamus directing the respondents to assess and recover excise duty in accordance with law on the manufacturing cost and manufacturing profits, if any, of the products of your petitioner and/or refrain from levying and collecting any duty from your petitioner anything else than the manufacturing cost and manufacturing profits. (c) An order and/or direction declaring all assessments to Central Excise duty made by the respondents themselves by their agents or servants for the period 1961 till date as void and illegal and not binding on your petitioner to the extent the said purported assessments have been made on the basis of customer-companies selling costs and selling profits. (d) A Writ of and/or an order and/or direction in the nature of Mandamus directing the respondents to forthwith refund to your petitioner the sum of Rs. 1,98,40,969.70 and interest thereon illegally levied upon, demanded and collected from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the provisions of the said S. 3 of the said Act. Section 4 of the said Act lays down the method for determining value for levying duty. The said Ss. 3 and 4 are set out hereunder. - "3. Duties specified in the First Schedule to be levied. - (1) 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 and a duty on salt manufactured in, or imported by land into any part of India as, and at the rates, set forth in the First Schedule. (1A) The provisions of sub-section (l) shall apply in respect of all excisable goods other than salt which are produced or manufactured in India by or on behalf of, the Government of a State (other than a Union Territory) and used for the purposes of a trade or business of any kind carried on by, or on behalf of that Government, or of any operations connected with such trade or business as they apply in respect of goods which are not produced or manufactured by any Government. (2) The Central Government may, by notification in the Official Gazette, fix for the purpose of levying the said duties, tariff values of any articles enu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0-71. 67% in 1969-70, 56% in 1968-69, 46% in 1967-68, 45% in 1966-67 and 38% in 1965-66. In all those years, the appellant company declared dividend which varied from 8% to 15% to its shareholders. From the very beginning, according to M. Roy Choudhury, assessments were made in excess of the jurisdiction conferred by S. 3 of the said Act. Mr. Roy Choudhury also challenges the correctness of the findings of the learned Judge that appellant had already collected Excise duty paid from its customers, or any order of refund, if made, would lead to unjust enrichment on the part of the appellant, and an anomalous position as the Excise duty collected in excess have already been distributed amongst various States of the Union of India in accordance with the recommendations of the different Finance Commissions. Mr. Roy Choudhury, in support of his submissions refe- rred to various authorities to which we shall advert later in our judgment. 18. Mr. Ajit Roy Mukherjee appearing on behalf of the respondents, submitted that the case related to thousands of assessment orders made between 1961 to 1972. The appellant wants to have all the said assessments set aside and tax collected in excess to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessments were made on post manufacturing profit. (3) The assessable value was given by the assessee itself and thus it could not discover a mistake of law. In any event, no such mistake has been proved. (4) The assessee's contentions that the assessments were vitiated by error of law on ground that the respondent proceeded on the basis that the assessee's transactions were not in course of normal trade, has not been alleged in the petition. (5) As submitted already the appellant admitted in the price lists submitted by them that the duty was assessable as shown in the said price lists and cannot now turn round and submit that no assessment can be made on the said price shown in the above-mentioned price lists. 19. Mr. Mukherjee also in support of his contentions relied on various authorities to which we shall refer later in the judgment. 20. Mr. Biswarup Gupta in reply pointed to page-343 of the Paper Book and the judgment of the learned Trial Judge and submitted that the learned Trial Judge has noted that the case of mistake has been urged by the appellant and it could not be said that the case of mistake was not alleged by the appellant either in the petition or at t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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." 22. In Atic Industries Ltd., Appellant v. H.H. Dave, Assistant Collector of Central Excise Ors. Respondents reported in AIR 1975 SC 960 = 1978 E.L.T. (J 444), S. 4 (a) of the said Act again came to be considered by the Supreme Court. The facts of the said case are stated hereunder. The Attic Industries Ltd. hereinafter referred to as the Atic carry on business of manufacture in dye-stuffs in a factory situate in a small township called Atul in Bulsar District in the State of Gujarat. The dye-stuffs manufactured by the Atic throughout the period relevant in the appeal, were sold by them in wholesale units to two wholesale buyers, namely ICI (India) Ltd. (hereinafter referred to as ICI) and Atul Products Ltd. (hereinafter referred to as Atul) under respective agreements entered into by them with ICI and Atul. Seventy per cent of dye-stuffs manufactured by the Atic w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... horities that for the purpose of assessing the excise duty, the value of the dye-stuffs manufactured by the Atic should be taken to be the price at which the appellants sold the same wholesale units to ICI and Atul, less a uniform trade discount of 18% which the Attic at the relevant time gave to these two wholesale buyers. This contention was not accepted by the Superintendent of Central Excise who was the original assessing authority. He took the view that the value of the dye-stuffs for the purposes of assessments of excise duty should be taken to be price at which ICI and Atul sold the dye-stuffs to the distributors and no deduction should be allowed in respect of the discount given by them to the distributors since it was not uniform being 10% in case of ICI and 21/2% in case of Atul. The Attic appealed against the assessment to the Assistant Collector of Central Excise, but the appeal was unsuccessful and the assessment was confirmed. The Attic preferred an appeal to the Collector of Central Excise. The Collector of Central Excise, in determining the assessable value allowed trade discount of 21/2% which was given by Atul to the distributors to be deducted from the prices cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... price charged by the appellants for sales in wholesale made to ICI and Atul less trade discount of 18% was, therefore, clearly `wholesale price' within the meaning of S. 4(a) and it did not make any difference that the wholesale dealings of the appellants were confined exclusively to ICI and Atul and apart from these two, no independent buyers could purchase the dye-stuffs in wholesale from the appellants." **** "The value of the goods for the purpose of excise must take into -account only the manufacturing cost and the manufacturing profit and it must not be loaded with post-manufacturing cost or profit arising from post-manufacturing operation. The price charged by the manufacturer for sale of the goods in wholesale would, therefore, represent the real value of the goods for the purpose of assessment of excise duty. If the price charged by the wholesale dealer who purchases the goods from the manufacturer and sells them in wholesale to another dealer were taken as the value of the goods, it would include not only the manufacturing cost and the manufacturing profit of the manufacturer but also the wholesale dealer's selling cost and selling profit and that would be wholly inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded the agreements were entered into at arms' length and in the ordinary course of business." 29. In the case of M/s. Hind Lamps Limited v. Union of India Ors.- (1975) III CENCUS C44 = 1978 E.L.T.(J 78), it was held by a Division Bench of Allahabad High Court that in a case where a manufacturing company was selling to agents who purchased its entire production, that would not lead to the conclusion that the manufacturing company was indeed a dummy company or that the manufacturing company was not the manufacturer. 30. The facts of the said case were similar to those of the instant one which has come up for consideration before us. M/s. Hind Lamps Limited, the appellant in the said case was a public limited company incorporated in 1951 had also carried on and carries on business of manufacture and sale of electric bulbs, flourescent bulbs, miniature bulbs and their components at its factory at Sikohabad. The entire share-holding of the said company was held by six limited companies. Of them four were foreign companies. Since the very inception the said company had long term agreements with six other companies which were the subsidiary companies of the six companies which were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld to the said customer companies were branded with the trade marks of the said customer companies as per the direction of the said customer companies. The customer companies sold the said lamps under their names at much higher prices than the price charged by the petitioner-company. On the said -goods also the Central Excise Authorities purported to levy excise but on the basis of the price charged by the customer companies from their buyers. The said assessments made by the Central Excise Authorities were quashed by the Allahabad High Court in the Civil Misc. Writ No. 2189 of 1973. The Allahabad High Court held that the price at which the petitioner-company sold its products to the customer companies should be valued for levying the excise duty and not price at which the customer companies sold the said goods to wholesalers or other buyers. In the case under consideration before the Allahabad High Court, the Central Excise Authorities contended that the previous decision of the Allahabad High Court reported in (1975) CENCUS C44 on the basis of S.4 of the said Act before the same was amended by the Central Excises and Salt (Amendment) Act, 1973 (hereinafter referred to as the Amen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the time of removal, to dealers (not being related persons) or where such goods are not sold to such dealers, to dealers (not being related persons) or where such goods are not sold to such dealers, to dealers, (being related persons) who sell such goods in retail; (b) where the normal price of such goods is not ascertainable for the reasons that such goods are not sold or for any other reason, the nearest ascertainable equivalent thereof determined in such manner as may be prescribed. (2) Where, in relation to any excisable goods the price thereof for delivery at the place of removal is not known and the value thereof is determined with reference to the price for delivery at a place other than the place of removal, the cost of transporation from the place of removal to the place of delivery shall be excluded from such price. (4) For the purposes of this section :- (a) ................................................ (b) ................................................ (c) ........ "related person" means a person who is so associated with the assessee that they have interest directly or indirectly in the business of each other and includes a holding company, a subsidi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y in the business of the customer-companies. It was emphasised that even though Bajaj Electrical Limited held 50% of the Equity Shares of the petitioner-company it was not shown how the petitioner company had any interest directly or indirectly in the business of the Bajaj Electricals Limited. It was held in the said case that it was open to the Central Excise Authorities to examine whether or not the five customer-companies are favoured customers and whether the prices at which the petitioner company sold its products to them were the normal price at which such gods were originally sold by a manufacturer in the course of wholesale trade for delivery at the time and place of removal. With such observation, the petition was allowed by the Allahabad High Court. 34. Similarly in the instant case it does not appear from the facts recorded in the pleadings of all the parties that the transactions between the appellant and the customer-companies mentioned hereinabove were not at arms, length or that the customer-companies were treated as favoured buyers and allowed any extra-commercial benefit out of the transactions between the appellant and the customer-companies. Nor is the appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to the respondent, favoured customer and/or related person because of the relationship between the customer companies and the holding-company of the customer companies as well as that of the appellant as stated hereinbefore. But because of the aforesaid facts we are unable to hold that the customer-companies are favoured customers or related person especially in view of the decisions mentioned hereinabove in M/s. Hind Lamp v. Union of India Ors. - [1977 E.L.T. (J 1)] and Hind Lamp Limited v. Union of India Ors. - [1978 E.L.T. (J 78)]. In our opinion it cannot be denied that the transaction is at arms length. The impugned assessments in the instant case appears to us to be vitiated by error of law apparent on the records because ex-facie assessments were made on the basis of the price lists of the customer companies. The mistake came to be discovered as has been stated, on coming to know, of the decision in the Volta's case. It has to be held that the principle of law laid down in the said case shall have to be treated to have always been implicit in S. 4 (a) of the said Act, that is to say the "wholesale cash price" must be construed as price that includes only manufacturin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1962 SC 1621 (2) K.M. Shanmugam, Proprietor, K.M.S, Transport Tanjore, Madras State, Appellant v. The SRVS (P) Ltd. Ors., Respondents, AIR 1963 SC 1626, (3) State of Madhya Pradesh Anr., Appellants v. Bhailal Bhai Ors., Respondents, AIR 1964 SC 1006, (4) M/s. Mamala Mills Ltd. Appellant v. State of Bombay, Respondent, 1965 SC 1942, (5) Union of India, Appellant v. Tarachand Gupta Bros, Respondents, AIR 1971 SC 1558 (6). Shri M.L. Sethi, Appellant v. Shri R.P. Kapur, Respondents, AIR 1972 SC 2379. 42. For the reasons stated hereinabove, we allow the appeal and set aside the judgment of the court of first Instance in so far as it relates to the asse ssments already made and quash and set aside the assessments of Excise duty made by the Excise Authorities between 1961 and the date of the application on the products manufactured by the appellant. We direct the respondents to assess the products manufactured by the appellant on the basis of manufacturing cost and manufacturing profit only for the years 1961 to the date of the application and direct the respondents to refund to the appellant the amount found to have been levied and collected in excess of the correct duty of Exc ..... 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