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TMI Blog1981 (7) TMI 69X X X X Extracts X X X X X X X X Extracts X X X X ..... o fix tariff value for many excisable goods including plywood. By Notification No. 8/79, dated 3-1-1979 the tariff value was refixed by the Government. Ext. P2 is the copy of that notification. The value for plywood for tea-chest was re-fixed at Rs. 10.60 per square metre. But under Rules 96ZA to 96ZG there was a special procedure for levying excise duty on a compounded basis from the manufacturers like the petitioners. This enabling provision was withdrawn with effect from 1-7-1979 by an amendment of the Central Excise Rules, namely, Rules 96ZA to 96ZG were omitted from the Rules. Consequently the petitioners became liable to pay excise duty on plywood tea chest at 10% of Rs. 10.60. They feel aggrieved. 2. The contention of the petitioners is that a fixation at a flat rate of Rs. 10.60 per Sq. Metre is invalid in that instead of providing for the fixation of the value for duty at manufacturing cost and manufacturing profit of the petitioners, an arbitrary value is fixed by the notification. According to them Section 3(1) permits only levy of excisable duty on goods produced or manufactured in India and this has been judicially understood in the case of ad valorem duty to mean a t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ist of Government of India Act 1935. By this entry uncontrolled by any other provision, a tax on articles produced or manufactured for home consumption may be imposed at any stage from production to consumption. In other words, a mere definition of excise duties is of little assistance in determining the extent of the legislative power to impose them. Then the learned Chief Justice making a harmonious reading of the Federal list No. 45 and provincial entries relating to tax on sale of goods construed the scope of the Federal entry 45 to mean only a duty on production or manufacture of articles. In other words the time and manner of collection is spelled out in that context of other entries and in that way the power of taxation of the Central Legislature was limited to tax the event of production or manufacture only. That is to say, the taxable event comprehended by Entry No. 45 Federal List was taken to be the stage of production or manufacture of the articles. 4. This understanding of the scope of the Federal Legislative power was affirmed in later cases decided by the Federal Court and the Privy Council, - See Madras Province v. Boddu Paidanna & Sons 1942 F.C. 33 = 1978 E.L.T (J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facturing cost and profit alone can be included in 'wholesale cash price' and not post-manufacturing expenses. We will have occasion to refer to this case later. At this stage we only want to observe that decision does not deal with the ambit and scope of Entry 84 of List I. Legislative competence to levy excise duty on production and manufacture is traceable to Entry 84. How the duty should be levied or collected are all matters within the exercise of the power. They relate to machinery of collection and does not affect legislative competence. 7. Then we come to the main point of controversy. According to the petitioners Counsel the legislature having stated that levy of duty on certain goods will be in relation to their value, and as the value of goods may vary from manufacturer to manufacturer provision for individual assessment of value alone is permissible. According to him the fixation of tariff value by the Government will change the character of the imposition and the levy will cease to be a duty ad valorem. It will be a duty on production of a fixed quantity, as in this case a square metre of plywood tea-chest. This, according to the petitioner, is excessive delegation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he sales being to a related person or not. Section 4(1)(a) lays down that `normal price' will be the price at which the 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 assessee and the buyer have no interest directly or indirectly in the business of each other and the price is the sole consideration for the sale. A perusal of the entire Section suggests that the value of excisable goods is not always assessed at the actual consideration for sale. Sub-Section (1) itself begins with a statement that the value as determined under the Section shall be `deemed to be' the value for the purpose of levy. That means the Legislature states how the value should be fixed. Very often the real value may not be the deemed value and vice versa. But for purpose of charging excise duty a fictional value is arrived at. This being only a machinery provided for by the Legislature the validity of the same is not open to challenge and is also not challenged. The meaning and scope of the unamended Section had been the subject matter in a number of cases. The leading case on it is A.K. Roy v. Voltas Ltd. - AIR 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 474 :- "This procedure envisaged by the Section controls, as is seems to us fixation by the Central Government of the tariff values under sub-Section (2); That this is so has not been disputed before us……….." And in paragraph 6 their Lordships further observed thus :- "The values so fixed being on the average actual all India prices basis, such tariff values are not fixed in accordance with and as directed by the provisions of Section 4, which have to be followed in fixing the tariff values to be notified under Section 3(2)." This is decision rendered on 15-4-1975, that is before the present Section 4 was substituted for the old Section. The next decision is of the Bombay High Court reported in Century Spinning and Manufacturing Co. v. Union of India (1979 E.L.T. 199). By a notification dated 28th November, 1970 the Government fixed the tariff value for unpurified sulphuric Acid falling under Item 14G to the First Schedule to the Act. Similarly another notification of 26th July, 1971 was issued fixing the tariff value for liquid chlorine. These two notifications were challenged in that case. The Bombay High Court expressed thus in paragraph 10 :- "On reading the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 related only to the scope and meaning of Section 4 of the Act. The excisable goods involved in these cases were rubber-dutiable ad valorem and there was no notification under Section 3(2). 10. Then we have to consider the alternate argument of the petitioners' Counsel based on the assumption that Section 3(2) is not an excessive delegation of legislative power and that the method of valuation stated in Section 4 is not applicable to the fixation of price under Section 3(2). According to him Section 3(2) confers an arbitrary power on the Government to fix any tariff value they like and to pick and choose any excisable goods liable to ad valorem duty and as such it violates Article 14 of the Constitution. He further argues that the method adopted by the Government in fixing the value on a weighted average method is highly arbitrary. The first limb of the attack is not warranted by the scheme and provisions of the Act. As in the case of Sea Customs Act 8 of 1878 or the Customs Act of 1962, both of which contain a provision for fixing a tariff value, it would have been better if the legislature had added a definition Clause of the word `value' and therein stated that the value as fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 3(3) in this form was added only with effect from 1-7-1979, the day Rules 96ZA to 96ZG were withdrawn. Under the new sub-Section (3) it is open to the Government to fix different tariff value for different classes or descriptions of the same excisable goods or for the same excisable goods produced by different manufacturers or sold to different buyers. But regard should be had of sale price charged by the different manufacturers or the normal practice of the wholesale trade in such goods, in fixing the tariff value in cases coming under Section 3(3)(b). That means the sale price charged by the manufacturer or the normal trade practice has to be given due weight in fixing the tariff value. As this has to be given for cases under Section 3(3)(b) it is implied that that is the guideline for fixing the tariff value irrespective of whether a uniform or different tariff value is fixed by the Government. Thus, there is no conferment of an arbitrary power under Section 3(2). 11. The second limb of the attack is that the weighted average method adopted to fix the value is wrong in principle and ignores the manufacturing cost plus profit of the manufacturers like the petitioners, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verage occurs in pricing stores issues where different lots of raw material have been acquired at different prices. In such a case a simple average of price is usually not considered desirable. Examples have been given in the book to show that the simple average while it may be technically correct is practically valueless or positively misleading under certain circumstances. "Where quantities as well as dollar values are to be considered, weighted averages are far more significant than a simple average." The argument that manufacturing cost plus profit is alone to be looked into is not warranted by the provision in Section 3(3). Regard is to be had to the sale price or the normal practice in the wholesale trade in fixing different tariff value. In fixing a uniform tariff value also these are relevant factors though not the sole factors. To arrive at an uniformity some principle of average will have to be taken. A simple average may not be satisfactory when an All India tariff value is thought of. The average of the prices in a region and the quantity sold in that region will have to be matched with price and quantity in another region. This is done by the weighted average method. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be prescribed duties of excise on all excisable goods which are produced or manufactured in India ......... as, and at the rates, set forth in the first Schedule. (1-A) ... ... ... ... (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 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. (3) Different tariff values may be fixed- (a) for different classes or descriptions of the same excisable goods; or (b) for excisable goods of the same class or description— (i) produced or manufactured by different classes of producers or manufacturers; or (ii) sold to different classes of buyers : Provided that in fixing different tariff values in respect of excisable goods falling under sub-Clause (i) or sub-Clause (ii), regard shall be had to the sale prices charged by the different classes of producers or manufactur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e at which the goods are sold in a wholesale trade. Such is the price that is taken into account for fixing the value for the purpose of levying excise duty in terms of Section 4. Various decisions of the Supreme Court and other courts have already considered the principle of determining the wholesale cash price for the purpose of Section 4 as it stood prior to its substitution by the present Section by Act 22 of 1973. The old Section 4 as well as the present Section 4 are applicable only where duty is chargeable with reference to value, which under the old Section was deemed to be the wholesale cash price, while under the new Section is deemed to be the normal price at which the goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade. The decisions of the Supreme Court, particularly those in A.K. Roy v. Voltas Ltd., 1977 E.L.T. (J 177 ) =(A.I.R. 1973 S.C. 225) and Atic Industries Ltd. v. H.H. Dave, Asst. Collector of Central Excise, 1979 E.L.T. (J 444) = (A.I.R. 1975 S.C. 960) dealt primarily with the question, `what is the wholesale cash price for the purpose of Section 4 as it then stood ?' A Division Bench of this Court in Madras Rubber Factory Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial legislature was competent to impose taxes on the sale of goods after their manufacture or production while under Item 45 in List I the Central legislature was competent to impose duties of excise on the manufacturer or producer of the goods. Jayakar J. who was one of the three Judges composing the Court held that while all taxes on the sale of goods "for purposes of consumption", meaning taxes on retail sales, should be regarded as exclusively within the competence of the Provincial legislature, provided they were in no way connected with the production or manufacture of the goods within the Province, all other taxes on the sale of goods were duties of excise and were therefore exclusively within the competence of the Central legislature. Gwyer C.J. and Sulaiman J. did not however go that far, but drew a dividing line between the respective legislative spheres of the Centre and the Province at the point of manufacture or production. They stated that the legislative power of the Centre to impose duties of excise was limited to the power to impose duties on the manufacturer or producer of the goods, while the power to impose tax on the sale of goods after manufacture or productio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsumption, when such taxes are in no way connected with their production, manufacture, etc. within the Province, but are imposed on their sale in the Province merely as existing articles of trade and commerce, should be exclusively within the competence of the Provincial Legislature. (2) That, save as aforesaid, all duties of excise on those goods, whether levied and collected at the stage of manufacture, production or any subsequent stage upto consumption (exclusive of sale in the Province, as stated above), should remain exclusively within the competence of the Centre. A corollary of this Rule will be that the residuary powers, if any, of levying and collecting excise duties on those goods (save on their sales as aforesaid) will remain exclusively within the competence of the Central Legislature." 19. Although the other Members of the Court did not goes far as Jayakar J. did in construing Item 45 but limited its scope to the point of manufacture or production and no further, the rigidity with which the line was drawn by them was somewhat watered down in The Province of Madras v. Messrs. Boddu Paidanna & Sons - 1978 E.L.T. (J 272) = (A.I.R. 1942 F.C. 33) where Gwyer C.J. stated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or purchase of goods", any more than it did under the corresponding entries of the Government of India Act. Entry 84 of List I has therefore to be read consistently with and not derogatory to Entry 54 of List II. The former is as wide as the latter permits it to be. 20. In Atic Industries Ltd. v. H.H. Dave, Asstt. Collector of Central Excise - 1978 E.L.T. (J 444) = (A.I.R. 1975 S.C. 960) the Supreme Court re-affirmed the principle which it had earlier stated in the Voltas case (supra). Speaking for the Court this is what Bhagwati J. said : "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 the manufacturing profit....... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red to in the present Section is the normal price at which the goods are ordinarily sold in a wholesale trade. It was the concept of wholesale price that was examined by the Courts in those cases. To what extent this concept varied, if at all, from the old Section to the present Section is beside the point at issue in the present case. 21. What would however be of interest to consider is whether it was the legislative intent to fetter Section 3(2) in the manner in which Section 4, has come to be construed, particularly because the concept of the real value or the wholesale cash price or the normal price is not germane to Section 3(2). This sub-Section has to be understood in terms thereof, bearing in mind the ambit of the legislative power contained in Entry 84 of List I and the nature of the charging provision embodied in Section 3(1). The tariff value mentioned under Section 3(2) is determined with reference to the prices in various regions of the country as correlated to the percentage of goods produced in each region. This computation is made on the basis of the weighted average and other relevant data applicable to the whole country. The method of determination of the tariff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 3(2) and Section 4 has been lost sight of. While Section 4 says that excise duty is chargeable with reference to the normal price at which the assessee sold the goods manufactured or produced by him in the course of wholesale trade, such price for the purpose of Section 3(2) is not directly relevant, although it may be taken into account along with other relevant data in determining the weighted average with reference to which tariff value is fixed. What is brought to tax under Section 3(2) is not the actual price, but the tariff value which is the uniform price that is generally applicable to the trade. The actual manufacturing cost and profit of the petitioners is not what is chargeable to duty under Section 3(2). They cannot therefore have any complaint that the tariff value which has been determined by the Government with reference to the data mentioned in the counter-affidavit is in excess of their actual cost and profit; unless, of course, they are in a position to show-which they are not-that the determination is vitiated by any error apparant on the face of the record, or is arbitrary. 25. That the machinery of Section 4 is not applicable for the purpose of Section 3(2) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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