9911796707
TMI Blog1980 (12) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... a manufacturer of diverse excisable goods including rubber tyres and tubes for motor vehicles, cycles and other vehicles and also of various rubber products. The respondent has a factory at Sahaganj, in the district of Hooghly, West Bengal and another factory at Madras. The respondent has been paying excise duty as levied by the Central Excise Authorities on the 'basic price' of rubber tyres and tubes for Motor Vehicles manufactured at the said Sahaganj factory since 1951. It is the case of the respondent that the products of the respondent are sold to the dealers who are appointed by it at various places all over India. The price fixed by the respondent in respect of each product is uniform throughout India, but actual sales to consumers are made by the dealers and not by the respondent. The price payable by the dealer to the respondent includes the basic price, and the excise duty levied by the appellants on the basic price consists of manufacturing costs and post-manufacturing profits or selling profits. The post-manufacturing expenses include all selling and administrative expenses e.g. salaries, wages and bonus, rates and taxes, depreciation, rents, insurance, advertisement an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1951-1971 were illegal, inoperative and void and was without jurisdiction and, as such, should be set aside and the appellants should be directed to refund to the respondent the sum of Rs. 7,95,90,000/- for the year 1951-1971 as mentioned in the Schedule to the writ application. Prayers were made in the writ petition for the issuance of appropriate writ or writs in that regard. 4. As stated already, the learned Judge, after considering the facts and circumstances of the case and the submission made on behalf of either part, overruled the contentions of the respondent and discharged the Rule Nisi so far as the claim of the respondent to the setting aside of the assessment orders for the years 1951-1971 and the refund of the said sum of Rs. 7,95,90,000/- were concerned. The learned Judge, however, directed the appellants to deal with the pending applications of the respondent relating to the levy of excise duty under Section 4(a) of the Central Excises and Salt Act, 1944, (hereinafter referred to as the "Act"), on the principles of law laid down by the Supreme Court in the Voltas Case (Supra), i.e., on the basis of the wholesale cash price comprising only manufacturing costs and m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lants, the Central Excise Authorities, that excise duty should be levied on the wholesale cash price of excisable goods manufactured by the respondent at its Sahaganj factory in terms of the provision of Section 4(a) of the Act. On the other hand, Mr. Subrata Roy Choudhury, learned Counsel appearing on behalf of the respondent, submits that excise duty can be levied only on the manufacturing costs and manufacturing profit of any excisable goods and not on post-manufacturing cost and post-manufacturing profit. It is contended by him that if the wholesale cash price of any excisable goods consists of not only manufacturing costs and manufacturing profit, but also post-manufacturing cost and post-manufacturing profit, it is illegal to levy excise duty on such wholesale cash price. In such a case, in assessing and levying excise duty the post-manufacturing cost and post-manufacturing profit should be deducted from the wholesale cash price of the goods concerned. The learned Counsel submits that Section 3(1) of the Act which is the charging section authorises the Central Excise Authorities to levy and collect duty on the manufacturing of excisable goods and postulate that such duty can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns, the learned Counsel for the respondent has placed reliance on a number of decisions of some High Courts, besides the decision of the Supreme Court in Voltas case (Supra) and in Atic Industries Ltd. v. Asstt. Collector, Central Excise, 1978 E.L.T. (J 444)= A.I.R. 1975 S.C. 96(). The said decisions are : Madras Rubber Factory v. Union of India (1975) Census 101 D (Kerala); Bangalore Belting Co. v. Union of India - 1978 E.L.T. (J 561) (Ker.) Indian Tobacco Company Ltd. v. Union of India Ors. - 1978 E.L.T. (J 137); Union of India v. Jyoti Ltd., Baroda - 1978 E.L.T. (J 238) (Patna); Madras Rubber Factory Ltd. v. Asstt. Collector of C.E., Kottayam Ors. - 1979 E.L.T. (J 399) (Ker.), Cibatul Ltd. v. Union of India Ors. - 1979 E.L.T. (J 407) (Gujarat); Nepal Petro-Chem. Ltd. v. Asstt. Collector of Central Excise, Madras -1979 E.L.T. (J 117) (Madras); Bombay Tyres International Ltd. v. Union of India Ors. - 1979 E.L.T. (J 625) (Bombay); Indian Tobacco Company Ltd. v. Union of India Ors. - 1979 E.L.T. (J 476) (Bombay); Indo-National Ltd., Nellore-4 v. Union of India Ors. - 1979 E.L.T. (J 334) (A.P.); Madras Rubber Factory Ltd. v. Union of India Ors. - 1979 E.L.T. (J 173) (De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctory. In these two unreported decisions of the Madras High Court a similar view has been taken, namely, that before levying excise duty on the wholesale cash price, the post-manufacturing cost and post-manufacturing profit should be deducted. The respondent succeeded before the Madras High Court. In all the above decisions, the conclusion that post-manufacturing cost and post-manufacturing profit should be deducted from the wholesale cash price was reached on the interpretation of the observations made by the Supreme Court in Voltas' case and in Atic's case. It is, therefore, not necessary for us to consider in detail those decisions separately, but we propose to consider the contentions of the parties on the interpretation of the provisions of sections 3 and 4 of the Act in the light of the said two Supreme Court decisions. 10. There can be no doubt that section 3 is the charging section and section 4 is the machinery provision for the purpose of levying excise duty. The question that arises for our consideration relates to the construction of the term "wholesale cash price" used in section 4. The excise duty has to be levied on the value of the article. By a deeming provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of lubricating oil of a particular manufacture and mark. They sold it direct to numerous customers, never to dealers. The price they charged was the same whether a large or small quantity was brought, except that if a consumer contracted to buy from them all his requirements for a year, he was entitled to a discount from 21/2to 15 per cent according to the quantity bought in the year. No other lubricating oil of a like kind and quality was sold in Bombay. On the question whether the appellant was bound to pay customs duty on the basis of clause (a) or clause (b) of section 30 of the Sea Customs Act, 1978, the Privy Council held that since the sales were to customers direct, the real value of the goods cannot be ascertained under clause (a) of section 30 and that clause (b) of section 30 was applicable. Their Lordships said that in determining the price which is to represent the real value of the goods to be taxed," the price must be conservative in every respect and free in particular from any loading for any post-importation charges incurred in relation to the goods". "The price is to be a price for goods, as they are both at the `time' and `place' of importation. It is to be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in paragraph 20 of the judgment explaining as to what the real meaning of the term 'wholesale cash price' is. As the Privy Council has observed the term means that the sale must be wholesale and not a retail one in order that the price realised may be termed the "whole-sale cash price". As in clause (a) or clause (b) of section 30 of the Sea Customs Act, 1878, so in clause (a) or clause (b) of section 4 of the Act with which we are concerned, the words 'wholesale cash price' have been used in contradistinction to 'retail price'. In Voltas case excise duty was levied on the retail price and not on the wholesale cash price. There can be no doubt that in a retail sale, besides the manufacturing cost and manufacturing profit some more expenses are incurred by the retailer and he sells the articles at a profit, that is, at a higher price than the wholesale price at which he purchased the article. What the statute directs is to levy excise duty on the wholesale cash price and not on the retail price which is higher than the former. In the context of the facts of the case before the Supreme Court, it has been observed that excise is levied only on the amount representing manufacturing cos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cise authorities took the price at which I.C.I. and Atul Products Ltd. sold part of the goods in wholesale to distributors. In setting aside the assessments to excise duty and in directing the Excise Authorities to refund to the appellant the amount collected in excess of the correct duty of excise leviable, Bhagwati J. who delivered the judgment of the court observed as follows :- "12. In the first place, as pointed out by Mathew J. in Voltas' case (supra) excise is a tax on the production and manufacture of goods, section 4 of the Act, therefore, provides that the real value should be found after deducting the selling cost and selling profit and that the real value can include only the manufacturing cost and 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 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with a post-manufacturing element, namely, selling cost and selling profit of the wholesale dealer. That would be plainly contrary to the true nature of excise as explained in the Voltas' case (supra). Secondly, this would also violate the concept of the factory gate sale which is the basis of determination of value of the goods for the purpose of excise "13. I there can, therefore, be no doubt that where a manufacturer sells the goods manufactured by him in wholesale to a wholesale dealer at arms length and in the usual course of business, the wholesale cash price charged by him to the wholesale dealer less trade discount would represent the value of the goods for the purpose of assessment of excise. That would be the wholesale cash price for which the goods are sold at the factory gate within the meaning of section 4(a). The price received by the wholesale dealer who purchases the goods from the manufacturer and in his turn sells the same in wholesale to other dealers would be irrelevant to the determination of the value and the goods would not be chargeable to excise on that basis. The conclusion is, therefore, inescapable that the assessable value of the dye-stuffs manufactur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew expressed in Golden Tobacco Company's case (supra). It is also submitted by the learned Counsel that in Electric Lap Manufacturers (India) Pvt. Ltd. v. Collector of Central Excise, 1980 (II) C.H.N. 49, hereinafter referred to as ELMI's case, My Lord the Chief Justice and S.C. Ghosh J. has referred to Vazir Sultans case and has taken a similar view. In Vazir Sultan's case, it has been observed that even if on the first sale to the first wholesale dealer there was an element other than that of manufacturing costs and manufacturing profits and so the first price charged to the wholesaler includes post-manufacturing costs, such post manufacturing costs must be deducted by the Excise Authorities in assessing the duty leviable on manufacturing costs and manufacturing profits. We have already expressed our view on the question and, we are afraid we are unable to agree to the proposition of law as laid down to Vazir Sultan's case it is not correct to say that in ELMI's (supra), this Court has expressed the same view as in Vazir Sultan's case, in ELMl's case, this Court has followed the principles of law as laid down by the Supreme Court in Voltas' case and Atic's case that the real valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alers. So, in view of the provision of Section 4(a), there is no market for the goods at the factory gate of the respondent and, therefore, there is no question of wholesale cash price at the factory gate. In the absence of a market at the factory gate, the different depots at which the respondent sells the goods in wholesale will obviously be the nearest place where such market exists within the meaning of Section 4(a). It may be that the price at which the goods of the respondent are sold at the depots includes some additional costs, nevertheless that price should be regarded as the wholesale cash price within the meaning of Section 4(a). In this connection, we may refer to the explanation to Section 4 of the Act. It provides inter alia that in determining the price of an article no abatement or deduction shall be allowed except the trade discount and any duty payable at the time of removal of the article. In case the Legislature had intended that the cost that might be incurred by a manufacturer for wholesale of the goods chargeable to excise duty at the nearest place where a market for such goods might exist, it would have surely made a provision in that regard. But what has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f excise duty, the value of the article is the wholesale cash price at the factory gate or at the nearest place where the article is sold. Such wholesale cash price will undoubtedly include all costs incurred by the manufacturer plus the profit. To a purchaser who purchases the article in wholesale, the wholesale price that he has to pay will be the value of the article. Accordingly, section 4 provides that the value of any article shall be deemed to be the wholesale cash price of the article at the places mentioned in the section, excluding, however, the trade discount and the duty leviable on it at the time of its removal. Thus the wholesale cash price which represents the value of the article does not include within it any post-manufacturing cost and profit. 17. There may be cases where even the wholesale cash price at the factory gate may include some cost which is unrelated to the manufacture of the goods in question. For instance, in the case of a manufacturer having a very big factory, the goods after they are manufactured, have to be carried to the factory gate, and that means labour and cost. It is not the contention of either party that such cost should also be regarde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which the purchaser purchased the article in wholesale and the price at which he sells the same in retail or wholesale, is the aggregate of cost that he incurs in selling the article in retail or in wholesale and the profit he earns. The subsequent cost and the profit are undoubtedly the selling cost and selling profit as in the Supreme Court decisions in Voltas case and Atic's case. This is quite understandable. But what is not readily understandable is the selling profit or post-manufacturing profit in the first wholesale cash price of the goods. The respondent manufactures the goods in question at its factory at Sahagunj. If the goods were sold at the factory gate, the wholesale cash price would consist of manufacturing cost and manufacturing profit. The goods are, however, taken to the depots of the respondent through its selling organisation for selling them in wholesale to the dealers. There can be no doubt that in taking the goods to the depots, the respondent incurs cost. No doubt the respondent adds this cost to the manufacturing cost, so that the wholesale price at which the respondent sells the goods to the dealers is the aggregate of the manufacturing cost, the subseque ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessments and in realising the sum, the Central Excise Authorities have acted illegally and without jurisdiction or in excess of jurisdiction. It may be stated that at the time of the assessments of excise duty, the respondent placed before the assessing authority the price lists of the goods manufactured by it. The price lists, copies of which have been annexed to the writ petition, only show the 'basic price' of the goods and the excise duty paid thereon at the time of removal of the goods from the factory. It was never the case of the respondent before the assessing authority at any stage of assessment during the period from 1951 to 1971 that the basic price included within it several Items of post-manufacturing expenses and post-manufacturing profits. No attempt was made by the respondent to place before the assessing authority the break up of the basic price alleged to include selling costs and selling profits. The assessing authority accepted the basic price as submitted by the respondent as the wholesale cash price and levied excise duty accordingly. It is, however, contended on behalf of the respondent that all the particulars as to the break up of the basic price could be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 3 of the Act. No other point has been urged on behalf of either party. 22. In spite of all the above, we are unable to finally dispose of the appeal and the cross-objection for the reasons stated hereafter. We are told by the learned Counsel for the respondent that recently a judgment was delivered by a Division Bench of this Court on the identical question and it was submitted by him that the said judgment should also be considered by us As the judgment was not then available, we could not consider the same during the hearing. After the conclusion of the hearing and while we had proceeded much in writing out this judgment, the judgment of the Division Bench dated 3-10-1980 in East Anglia Plastics (India) v. The Collector of Central Excise, Calcutta (Appeal No. 231 of 1975) was available to us. In that case, it appears, the Division Bench consisting of S.C. Ghosh and R.N. Pyne JJ. had to consider a similar question as involved in this appeal and cross-objection, and expressed a view contrary to that expressed by us. It has been held that if any post-manufacturing cost or profit arising from post-manufacturing operation is included in the price charged by the manufacturer ..... X X X X Extracts X X X X X X X X Extracts X X X X
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