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TMI Blog1986 (8) TMI 63X X X X Extracts X X X X X X X X Extracts X X X X ..... ducts are sold. In paragraph 8 of the petition it has been specifically stated that under the rules made under the Standard of Weights and Measures Act, 1976, the rules being called the Standard of Weights and Measures (Packed Commodities) Rules, 1977, manufacturers who pack goods in package intended for retail sale are required to mention on each package the maximum sale price of the retail packet. In accordance with the requirement of the said Rules, the packets of cigarettes sold by the petitioners also are stamped with the maximum sale price. 2. Cigarettes are subjected to excise duty. The excise duty is leviable on the cigarettes under the Central Excises and Salt Act, 1944, hereinafter referred to as the "Excise Act". In addition, under the Additional Duties of Excise (Goods of Special Importance) Act, 1957, additional duties of excise are leviable on such cigarettes. In theory, the excise duty may be either on ad valorem basis, that is, the duty being related to the value of the product, or the duty may be specific in the sense a given excise duty is levied upon the quantity of the product. Section 3 (1) of the Excise Act provides for the levy and collection of duties of e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rem basis, which meant that the rates had to be determined on the percentage of the value as worked out under Section 4 of the Excise Act. In practice, however, all the excisable goods need not be subjected to the duty mentioned in the Schedule. Section 37 (xvii) of the Excise Act empowers the Government to exempt any goods from the whole or any part of the duty imposed by the Act, which means that a rule may be made in exercise of the powers vested in the Central Government under Section 37 (xvii) to exempt any excisable goods from the whole or any part of the duty imposed under the Act. Apart from Section 37, there are other provisions like Section 6 and Section 12 in the Excise Act under which the Central Government is required to make rules. 6. In exercise of the powers vested in the Central Government by Sections 6,12 and 37, the Central Government has made rules which are called the Central Excise Rules, 1944, hereinafter referred to as "the Rules". Rule 8 of these Rules has obviously been made in exercise of the powers vested in the Central Government under Section 37 (xvii) of the Excise Act because it is entitled "Power to authorise exemption from duty in special cases". ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usand for every increase of Rs.5 or fraction thereof. A similar increased rate was provided in the third slab, namely, where the adjusted sale price per one thousand cigarettes exceeded Rs.60. "Adjusted sale price" was explained to mean, for the purpose of this notification, the unit price arrived at by dividing the sale price of such package by the number of cigarettes in such package. In other words, if a packet of cigarettes contained twenty cigarettes and the sale price of such packet was Rs.2 then the adjusted sale price for the unit would be arrived at by dividing 200 paise by 20 paise. "Sale price" was also explained to mean, in relation to a package of cigarettes, the maximum price (exclusive of local taxes only) 'at which such package may be sold in accordance with the declaration made on such package'. Reading the notification as a whole including the explanations of the words "adjusted sale price" and "sale price", it could be seen that under the said notification of 1st of March 1983 excise duty was always less than the price which was carried on the packets of the cigarettes. 8. The petition traces to some extent the history of the action taken by the Excise Departme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mended. 10. By a communication dated 28th of January 1986, a copy of which is annexed to the petition as Exhibit 'C', the petitioners were informed that though the adjusted sale price of the cigarettes known by the brand name of "Golden Style Filter Kings" was Rs.170 per one thousand cigarettes, it was reported that the petitioners were recovering more than Rs.170 and, therefore, pending the enquiry being made the petitioners should pay duty on the same on the basis that the adjusted sale price exceeded Rs.170. The petitioners filed a petition, being Writ Petition No. 206 of 1986, against the said decision of the respondents. Bharucha J. was not satisfied that there was a case for issuing rule. He was also of the opinion that interference at the stage of provisional assessment was not called for. However, following the order of the Gujarat High Court the respondents were directed to finalise the investigation and issue the show cause notice within eight weeks. This order was passed by Bharucha J. on 7th of February 1986. 11. Against the aforesaid order the petitioners preferred an appeal, being Appeal No.83 of 1986. The appeal was admitted by the Division Bench of S.K. Desai an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lier writ petition. The petition itself in its prayer clause does not challenge the validity of this show cause notice, nor does the petition ask for setting aside the said show cause notice. This is presumably because liberty has been given to the petitioners to challenge the final order that may be passed in those proceedings. 13. However, in this show cause notice dated 4th April 1986 reference has been made by the authorities to the provisions of Notification No. 201 of 1985 dated 2nd of September 1985 as amended by subsequent notifications on 20th of September 1985 and 10th of February 1986. Though a copy of the said notification was not annexed to the petition, it has been made available at the time of the final hearing of this petition in a compilation which includes several other notifications. The format of the exemption to be granted under the provisions of the notification issued under Rule 8 to be found in the earlier notification has been retained but with certain drastic changes which, according to the petitioners, are totally alien to the scheme of the Excise Act and which are also irrational and impracticable. Instead of the three slabs which were to be found in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he petitioners have challenged the respondents' move to equate the actual retail price to the adjusted sale price. Considerable arguments have been advanced during the course of the hearing of this petition that this cannot be done. Several submissions have also been made in the petition contending that the adjusted sale price has been defined in the notification. It is the price which is printed on the cigarette packets. It has been contended that there is no provision in the Excise Act or the Rules or even in the notification to go behind this price for fixing what the department may regard as the correct valuation for the levy and collection of excise duty. It has been urged that manufacturers of cigarettes such as the petitioners have no control over the retail price. It may be noted that the prices are marked on the packets of cigarettes as on the packets of several other commodities under the provisions of the Standard of Weights and Measures Act, 1976. It has been argued that if the retailers are selling the cigarettes at a price higher than the one which is printed on the packets of cigarettes, the retailers may, if the Government so desires, be prosecuted for contravention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not annexed to the petition. It has also been prayed in the alternative that the phrase "adjusted sale price" means and must be read to mean the value as defined by Section 4 of the Excise Act. Similarly it has also been prayed that it be declared that the respondents are not entitled to levy excise duty on the cigarettes manufactured by the petitioners on the basis of the actual retail price thereof and that the excise duty can only be levied on the basis of the price printed on the cigarettes packets. For reasons which I have already mentioned above I will not consider the challenge to the action of the respondents in taking into consideration the actual price for the purpose of valuation of the product for the purpose of levy and collection of excise duty because that is the subject matter of different proceedings. After going through the prayer clauses it is seen that after deleting the challenge made to the action of the respondents of considering the retail prices for the valuation of the product for the purpose of levy and collection of excise duty, the challenge that remains is only to the validity of the notification dated 2nd of September 1985 as amended from time to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legal, the manufacturers cannot make a grievance that they are compelled to fix the prices of their products as a result of the imposition of excise duty. 21. The third challenge of the petitioners is somewhat legitimate. As already mentioned above, under some of the slabs which have been prescribed by the notification dated 2nd of September 1985 as amended from time to time, the excise duty that is payable is higher than the price of the product itself. The petitioners naturally make a legitimate grievance that if their products are of a particular price range then they will have to pay excise duty out of their own pocket without being able to recover any money for their manufacturing cost, let alone for their profits. In the petition it has been stated, and it has been urged with justifiable persistence, that such a formula is unworkable, absurd and in fact discloses non-application of mind on the part of the authority issuing the notification. Those notifications issued in exercise of the powers conferred by Rule 8, which rule itself has been framed under Section 37 (xvii) of the Act, can be struck down as being absurd and as a result of non-application of mind. It is not nec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e judging the validity of a legislation. 23. The validity of a legislation can be questioned on the ground that it is in contravention of the parent statute which provides for such legislation. For example, the validity of an Act passed by the Parliament can be questioned on the ground that it is outside the legislative competence of the Parliament or it violates the fundamental rights guaranteed by the Constitution. Similarly a rule made under a statute can be challenged on the ground that it is ultra vires the powers conferred upon the rule making authority. Proceeding further, a notification which is issued under a rule can be challenged on the ground that it is not authorised by the rule which is valid. It could conceivably be challenged also on the ground that it violates the fundamental rights given by the Constitution. In my opinion, a notification which is legislative in character cannot be struck down on the basis that it is unworkable or it results in certain absurd situations in which situations persons such as the petitioners are not necessarily compelled to go in. I therefore, reject the contention of the petitioners that the notification must be struck down on the g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Setalwad cannot be accepted. 26. Sub-section (2) of Section 3 of the Excise Act no doubt provides for the fixation of tariff values of any articles mentioned in the Schedule. Similarly Section 4 provides for valuation of excisable goods for the purposes of charging excise duty. These two methods are undoubtedly provided under the Act. But Mr. Setalwad overlooks the phraseology contained in sub-rule (3) of Rule 8. The said provision specifically permits the grant of an exemption by providing for the levy of a duty on such goods at a rate expressed "in a form or method different from the form or method in which the statutory duty is leviable". The provisions of sub-rule (3) of Rule 8, in my opinion, permit the provision of a basis other than the one which is to be found for the levy of statutory duty. The method of relating the valuation to the price marked on the cigarettes packets is wholly permissible under sub-rule (3) of Rule 8. The valuation is easily ascertainable, it has got certainty and it is known in advance to the manufacturers. Even otherwise I do not see why the marked price on the cigarettes packets could not be covered by "other measure" with reference to which th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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