ORDER
M. Rama Jois, J.
1. In these three petitions, presented by M/s Bangalore Soft Drinks (Pvt.) Ltd., a manufacturer of aerated waters, the following questions of law arise for consideration:
Whether in ascertaining the assessable value of the goods manufactured by the petitioner, for purposes of levy of excise duty under the provisions of Central Excises and Salt Act, 1944 (hereinafter referred to as ‘the Act’):
(i) the post-manufacturing expenses incurred by the petitioner towards ‘service charges’ which inter alia includes freight charges, incurred by the petitioner, for transporting and effecting delivery of the filled in and corked bottles at the place of the wholesale dealers in various parts of the State and for retransporting the empty bottles to the factory, are not deductible from the wholesale price ? and
(ii) the freight charges are not deductible, if collected at an uniform rate, by the petitioner from all the dealers and not on the basis of the actual expenses incurred for transportation in each case ?
2. The relevant facts of the case in brief are as follows:
(i) W.P. No. 10367 of 1976 : The question of fixing the assessable value for the products manufactured by the petitioner during the year 1973 was taken up for consideration by the Assistant Collector of Central Excise, Bangalore. Before the said authority, the petitioner submitted that the wholesale price of the products including manufacturing cost and profit during the relevant period was as follows :
Per Crate of 24 Bottles
——————————————————-
SI. Description Ex. Factory Whole- Whole
No. sale cash price sale
exclusive of duty price.
and inclusive of
packing charges.
Rs. P. Rs. P.
-------------------------------------------------------
1. Coca-Cola 5-80 5-80
2. Fanta Orange 6-10 6-10
3. Fanta Soda 2-90 2-90
-------------------------------------------------------
In support of these figures, the petitioner also furnished the detailed break up of figures pertaining manufacturing cost and manufacturing profit duly certified by its chartered Accountants. Relying on the judgment of the Supreme Court in A.K. Roy v. VOLTAS Ltd. Feb. 1973/60. the petitioner contended before the assessing authority that assessable value of the goods had to be fixed only on the basis of manufacturing cost plus manufacturing profit excluding all other post-manufacturing expenses and submitted that the wholesale cash price at which the petitioner was selling its products included service charges, octroi, sales-tax, insurance etc., and the service charges included the freight charges for transportation and delivery of the goods to the wholesale dealers at their place of business and also the freight charges for bringing back the empty bottles and all other incidental expenses.
The Assistant Collector rejected the contention of the petitioner and made an order dated 4-10-73 (Exhibit-C). In that order he fixed the assessable value, only by deducting the service charges at the rate of Rs. 1-80 per crate, and excise duty, out of the wholesale selling price and fixed the assessable value at Rs. 7-23 per crate for Coca-cola and Fanta Orange and Rs. 3-27 for Fanta Soda for the period upto 1-4-73 and for the period which commenced from 1-4-73 he deducted service charges at Rs. 2/- per crate and by giving deduction to excise duty, he fixed the assessable value of Coca-cola and Fanta Orange at Rs. 7-14 per crate and Fanta Soda at Rs. 3/-per crate. Aggrieved by the said order, the petitioner preferred an appeal before the Appellate Collector of Central Excise, Madras, who by his order dated 1-6-74 (Exhibit-B) rejected the appeal. Thereafter the petitioner presented a revision petition before the Central Government. The revision petition was also rejected as per order dated 5-8-76 (Exhibit-A). Aggrieved by the said order, the petitioner has presented this writ petition.
(ii) W.P. No. 4619 of 1976: This writ petition was presented against the original and appellate orders impugned in W.P. No. 10367 of 1976 ; before the Central Government disposed of the revision petition. According to the petitioner, the said writ petition was presented as the impugned orders were being enforced without disposing of the revision petition. This petition, therefore, does not survive in view of the subsequent order passed by the Central Government in revision against which W.P. No. 10367 of 1976 has been presented by the petitioner.
(iii) W.P. No. 371 of 1976 : This writ petition also relates to the question of fixation of assessable value of the products manufactured by the petitioner for an earlier period. By an order made on 9-2-71 (Ex. C) the Superintendent of Central Excise, Bangalore, approved the assessable value of the products with retrospective effect from 1-3-79. While doing so, the contention of the petitioner that freight charges should be deduced from the wholesale cash price was rejected and it was held that the petitioner was not entitled to the deduction from the wholesale cash price any amount other than the excise duty and sales-tax. Aggrieved by the said order, the petitioner presented an appeal before the Appellate Collector of Central Excise, Madras. By order dated 26-10-72 (Exhibit-B) the appeal was partly allowed. The operative portion of the order reads as follows:
The assessable value of the relevant goods shall be the cash price paid for them when sold in wholesale lots from the depot including charges incurred on the delivery of the goods from the factory gate to the sales depot in Bangalore, but excluding all charges referable to operations subsequent and posterior to the actual sale. The expenses incurred after actual sale on the transport of the products from the appellants depot to the premises of the various dealers who have purchased the goods in wholesale lots shall not form part of the assessable value.
By the said order, though the contention of the petitioner for deducti on of transport charges from the factory gate to the sales depot in Bangalore was rejected, the plea of the petitioner for deduction of expenses incurred after actual sale, on the transport of the products from the petitioner’s depot to the premises of the various dealers, who purchased the goods in wholesale lots should be deducted from the sale price was accepted. However, the petitioner did not prefer any revision petition against the said order, though the appellate order was partly decided against them. But the Central Government in exercise of their suo moto powers of review under Section 36 (2) of the Act initiated proceedings and called upon the petitioner to show-cause as to why the order of the Appellate Collector should not be set aside. The petitioner furnished reply to the show-cause notice. In the reply the petitioner submitted that the service which the petitioner rendered to the buyers comprised of the following activities ;
(a) Taking the bottle to the door of the dealer ;
(b) Collecting the bottles back after the bottles are emptied ; and
(c) Loading and unloading of the bottles.
The petitioner contended that the above expenses incurred by the petitioner formed part of the wholesale cash price and, therefore, these expenses should have been deducted as the excise duty was leviable only on the amount representing manufacturing cost and manufacturing profit, and excluding all post-manufacturing expenses and profit. The petitioner also relied on the judgment of this Court in W.P. 1196 of 1971 decided on 5.12.73. The Central Government, however, rejected the claim of the petitioner solely on the ground that the so called ‘freight charges’ claimed by the petitioner could not be considered as freight charges as the petitioner charged an uniform rate without reference to the distance involved in transportation and delivery of the products. It is stated in paragraph-3 of the order that before issuing show-cause notice, the Central Government had formed the opinion that the service charges which, according to the petitioner, included the freight charges, did not vary depending upon the destination where the goods were to be delivered and, therefore, it had nothing to do with the distance involved and, therefore, the amount representing charges claimed as ‘freight charges by petitioner could not be deducted, as they formed part of the sale price even if the wholesale dealers were prepared to take delivery of the goods at the factory gate or the Bangalore Sale Depot where the wholesale market existed. After considering the reply furnished by the petitioner to the show-cause notice, the Central Government concluded as follows:
The Government of India has considered the submission of the party and observes that the judgment of the Karnataka High Court is not relevant as in that case freight charges clearly for delivery at the customers’ door. In this case for outstation parties the service charges are unspecified though it is stated to be included in the rates. For sale in Bangalore the service charges are specified as Rs. 1-80 of Rs. 1-50. The rate for Coca-cola in Bangalore is Rs. 8.68 with Central Excise Duty but without the service charges and that for mofussil on the basis of the service charges is Rs. 8-34. This difference in price for increasing marketability in the mofussil is understandable. But the point for consideration is whether the service charges are based on the actual expenses of loading and unloading for return of empty battles or otherwise. If it were so, for supplies to different parties in Bangalore at different parts of Bangalore City these should not have been the same and for mofussil supplies in view of longer distance these should have been actually higher. The service charges are charged in a manner that they have nothing to do with distance and when such service charges are levied they form part of the assessable value of the goods.
Aggrieved by the said order, the petitioner has presented this writ petition.
3. Re. W.P. No. 1036 of 1976 : Sri A.G. Holla, learned Counsel for the petitioner, submitted as follows : Forty per cent of the goods manufactured by the petitioner are sold in the City of Bangalore through their depots. The rest of the goods . are sold at their depots at Mysore and Mangalore and also to the wholesale dealers in the various parts of the State. Having regard to the nature of the goods, they have got to be transported in specially designed vehicles and the delivery should be given at the doors of the dealers and after the bottles are emptied, the empty bottles have got to be brought back. Lot of care has to be taken in transporting, the goods as also in loading and unloading. All these invoice expenses and these expenses have nothing to do with the manufacturing cost or manufacturing profit. In the nature of things, no wholesale dealer takes delivery at factory gate or Bangalore depot and undertakes to transport the goods himself as they have got to be transported in the vehicles specially designed for the purpose. It is only with the object of making available the goods at an uniform price to the customers throughout the State, the petitioner was collecting an uniform rate per crate without reference to the distance involved in the transportation of the goods, so as to cover the total expenditure incurred by the petitioner towards the transportation charges. The petitioner has furnished the figures pertaining to actual manufacturing cost and profit, duly certified by their Chartered Accountants. The correctness of these facts and figures have not questioned by the authorities.
4. On the basis of the above facts, the counsel for the petitioner contended that in view of the judgment of the Supreme Court in VOLTAS case Feb interpreting Section 4 of the Act, as the service charges which includes freight charges as also the sales-tax, octroi etc., payble on the goods which are included by the petitioner in the wholesale price has got to be deducted and the assessable value has to be fixed only on the basis of the manufacturing cost and manufacturing profit. He therefore submitted that the orders impugned in W.P. No. 10367 of 1976 have been made in flagrant violation of the law laid down in VOLTAS’ case Feb
5. Re; W.P. No. 371 of 1976. The learned Counsel for the petitioner contended that whether the freight charges are collected by the petitioner at uniform rate per crate or on the basis of distance involved in the transportation of the goods, it makes no difference in so far it relates to the question of deduction of transport charges in the wholesale cash price for arriving at assessable cash price of the goods. He submitted that irrespective of the fact that freight charges were uniform or not, they constituted post-manufacturing expenses over and above the manufacturing cost and profit and, therefore, the deduction could not be refused. He urged that the order of the Central Government reversing the order of the appellate authority was plainly contrary to the law laid down by the Supreme Court in
Voltas’ case CEN-C US Feb. 1973/60 He also relied on the decision of the Bombay High Court in Poona Beverages Pvt. Ltd. v. A.K. Bandopadhyay and Ors. 1980 Excise Law Times p. 173
6. Sri U.L. Narayana Rao, learned Senior Standing Counsel for Central Government, appearing for respondents, was unable to justify the correctness of the orders impugned W.P. No 10367 of 1976. His only submission was that the figures furnished by the petitioner as representing manufacturing cost and manufacturing profit was not correct and there was no truth in the claim of the petitioner about the expenses incurred by them towards the freight charges. His submission was similar in W.P. No. 371 of 1976 also.
7. Excise duty leviable under the Act is a tax on the production or manufacture of goods. Therefore the value of the goods, at the hands of the manufacturer at factory gate consisting of manufacturing cost plus manufacturing profit should form the basis for levy of excise duty. Though every other expenses incurred after manufacture by the manufacturer such as charges for any type of service rendered to the dealers, including freight charges, octroi, sales-tax etc., are added to ex-factory price to fix the wholesale price and passed on to the wholesale dealers such sale price cannot constitute the basis for levy of excise duty. This position in law is concluded by the decision in
Voltas’ case Feb. 1973/60 The relevant part of the reads:
Excise is a tax on the production and manufacture of goods (see : Union of India v. Delhi Cloth and General Mills Section 4 of the Act therefore provides that the real value should be found after deducting the selling cost and selling profits and that the real value can include only the manufacturing cost and the 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 section postulates that the wholesale price should be taken on the basis of cash payment thus eliminating the interest involved in wholesale price which gives credit to the wholesale buyer for a priod of time and that the price has to he fixed for delivery at the factory gate thereby eliminating freight, octroi and other charges, involved in the transport of the articles. As already stated it is not necessary for attracting the operation of Section 4(a) that there should be a large number of wholesale sales. The quantum of goods sold by manufacturer on wholesale basis is entirely irrelevant. The mere fact that such sales may be few or scanty does not alter the true position.
Even though the petitioner relied on the aforesaid decision, the assessing authority lightly brushed aside the said decision as is evident from the following portion of his order:
I do not accept the contention of the assessee that as per Voltas judgment, the assessable value should be confined to the manufacturing cost and profit. As per the judgment, the distributors selling expenses should not form part of assessable value and that the assessable value should be based on the selling price of the factory to the distributor. 1 do not accept the contention of the assessee that the assessable value should be limited to manufacturing cost plus profit when there is a regular price ascertainable under Section 4 of the Central Excises & Salt Act, 1944. This is only an attempt to draw conclusions out of context. In the case of Voltas, the judgment only stipulated that the selling expenses of the distributor should not form part of the assessable value. The judgment docs not in any way amend Section 4 of the Act and when there is a price ascertainable under Section 4 at which the factory sells excisable goods, the same has to be accepted for determination of assessable value.
The appellate and revisional authorities also confirmed the above order.
8. In VOLTAS Case Feb. 1973/60 the Supreme Court interpreted the scope of Section 4 of the Act and held in clearest terms that assessable ‘value for purpose of Section 4 of the Act would only be the manufacturing cost and manufacturing profit and that every post manufacturing expenses including freight charges and selling profit would have to be deducted if they were included in. fixing the wholesale price. Though the petitioner relied on the said decision, the authorities passed the impugned orders flouting the law laid down by the Supreme Court. This is not the first case in which decision of the Supreme Court has been disregarded by the respondents. In the case of Indian Tobacco Co., Ltd. v. Union of India 1975(1) Kar. L.J. p. 442. the assessing authority having fixed the assessable value in contravention of the law laid down by the Supreme Court in VOLTAS’ case Feb. 1973/60 raised a preliminary objection to the maintainability of the writ petition, on the ground that the petitioner therein had not exhuasted the alternative remedy by way of appeal and revision. The objection was overruled by Venkataramiah, J. (as he than was), who observed:
When a subordinate authority proceeds to dispense of a case in direct contravention of the enunciation made by the Supreme Court, interference by this Court would he necessary notwithstanding that there is an appeal provided against the action of the authority. The preliminary objection raised on bahalf of the Revenue is over-ruled.
The writ petition was allowed. The decision was confirmed in appeal by a Division Bench of this Court. AIR 1962 SC 1895 at 1905. The present case is another instance in which assessable value has been determined in contravention of the law laid down by the Supreme Court in VOLTAS’ case Feb. 1973/60. Implicit obedience to the law laid down by the Supreme Court by all the courts and tribunals is the rule of discipline meant to ensure rule of law incorporated in Article Hi of the Constitution. This rule has been overtly violated by the respondents in making the impugned orders. Stressing the importance of acting in obedience to the law declared by a superior tribunal, in East India Commercial Co. v. Collector of Customs 1976 (1)Kar.L.J. 320. the Supreme Court observed:
It is implicit in the power of supervision conferred on a superior tribunal that all the tribunals subject to its supervision should conform to the law laid down by it Such obedience would also be conducive to their smooth working: otherwise, there would be confusion in the administration of law and respect for law would irretrivably suffer.
In the circumstances, I am constrained to deprecate the disregard of the law laid down by the highest court, by the respondents in making the impugned orders. The department, which very rightly expects every person to be law abiding, should itself an example by not swerving from the path of rule of law.
9. Re.W.P.371 of 976 : This relates to the disallowance of freight charges on the ground that uniform rate charged by the petitioner was sufficient to hold that they do not represent the freight charges. According to the assessee, having regard to the nature of the goods they are required to be transported from one place to another in the transport vehicles modelled for the purpose and the empty bottles are required to be retransported, and with the object of maintaining uniform selling price of Coca-cola, Fanta Orange and Fanta Soda throghout the State, the petitioner has been chara-mg an uniform rate of service charges inclusive of freight charges irrespective of the distance to which the goods are required to be transported in the case of individual dealers. The petitioner also relied on a decision of this Court in CEN-CUS 1975/75C Bangalore Bottling Co. v. Union of India (W.P. No. 1196 of 1971 dt. 5.12.1973) in which this Court following the decision of the Supreme Court in VOLTAS, case Feb. 1973/60 held that freight charges should be excluded and that only manufacturing cost and manufacturing profit should form the assessable value for purpose of levy of excise duty under Section 4 of the Act. In the impugned order, as can be seen from the relevant portion extracted earlier, the only ground on which the revising authority rejected the claim of the petition was that the charges could not be regarded as rperesenting freight charges as the charges were collected at uniform rate, without reference to the distance, to which the goods were required to be transported, and if really the charges so collected were freight charges, they would have varied in the case of each dealer depending upon the place where his busines was located.
10. In ray view, the revising authority was not justified in revising the order of the appellate authority on the above ground. From the decision of the Supreme Court in VOLTAS’s case Feb. 1973/60 it is clear that all post-manufacturing expenses including freight charges and selling profit over and above the manufacturing cost and manufacturing profit, comprised in the wholesale selling price have to be excluded therefrom for the purpose of ascertaining the assesrable value for levying excise duty. In W.P. 1196 of 1971, which was a similar case, this Court specifically held that freight charges should be excluded. I fail to see the difference between the freight charges collected as ‘service charges’ on the basis of distance and the freight charges collected as service charges at a uniform rate per crate. It is a matter of business policy to be decided by the manufacturer. So long as the amount collected is towards the expenses of transportation of goods to be incurred by the manufacturer, it constitutes post-manufacturing expenses. The collection of freight charges at uniform rate therefore, is no basis for not treating it as post-manufacturing expenses. Therefore in my view the disallowing of deduction of ‘service charges’ consisting of freight charges on the sole ground that there has been collection at uniform rate cannot be sustained. This is also the view taken by a Division Bench of the Bombay High Court in the case of POONA BEVERAGES with which I respectfully agree.
11. As stated earlier, the only justification put forward by the learned Counsel for the respondents, as common to both the petilions, was that according to the respondents the so called ‘service charges’ did not really constitute freight charges or any other post-manufacturing expenses, over and above the manufacturing profit, but was only a device adopted by the petitioner to reduce the assessable value and consequently the excise duty liability. This is a question of fact. There is no finding to that effect. As submitted for the petitioner, correctness of the figures furnished by the petitioner were not questioned. It is certainly open to the authorities functioning under the Act to make investigation into any such question and to prevent such circumvention. They are not bound to accept the figures furnished by the assessee. In the present cases, the authorities have not made any such inquiry and have not come to any conclusion as suggested in their behalf. However, in view of the submission made for the respondents, I reserve liberty to the authorities to make necessary inquiry in this behalf.
12. In the result, my answer to the two questions arising for consideration in these petitions are as follows:
In ascertaining the assessable value of the goods manufactured by the petitioner for the purpose of levy of excise duty a der the provisions of the Central Exciser and Salt Act, 1944.
(i) the post-manufacturing expenses incurred by the petitioner towards ‘service charges’ which inter alia includes freight charges, incurred by the petitioner, for transporting and effecting delivery of the filled in and corked bottles at the place of the wholesale dealers in various parts of the State and for retransporting the empty bottles to the factory are deductible from the wholesale price ; add
(ii) the freight charges collected at an uniform rate, by the petitioner from all the dealers are deductible from the wholesale price.
13. For the reasons aforesaid, I make the following order:
(i) In W.P. No. 10367 of 1976:
(a) Rule made absolute.
(b) The impugned orders of the Assistant Collector of Central Excise dated 4.10.1973 (Ex.-C), of the Appellate Collector of Central Excise dated 1-6-1974 (Ex.-B), and of the Central Government dated 5.8.1976 (Ex.-A) confirming the said order are quashed.
(c) The respondents are at liberty to hold an enquiry as to the correctness of the claim of the petitioner regarding manufacturing cost and manufacturing profit.
(d) The respondents shall pay the cost of the petition Advocate’s fee Rs. 250/-.
(ii) In W.P. No. 4619 of 1976:
The writ petition is dismissed as unnecessary.
(iii) In W.P. No. 271 of 1976:
(a) Rule made absolute.
(b) The impugned order of the 1st respondent dated 12.11.1975 (Exhibit-A) is quashed.
(c) The respondents are at liberty to ascertain the correctness of the claim of the petitioner as regards the manufacturing cost and manufacturing profit as also its claim that the uniform rate of service charges collected include the freight charges and do not form part of manufacturing cost or profit.
(d) No costs.