1. The petiitoner-Company manufactures tyres and other rubber products inBombay. since the past several yeras, the petitioner submitted its pricelist in the prescribed proforma to the Assistant Collector of CentralExcise under the old section 4(a) of the Central Excise and Salt Act,1944. The new section 4 came into force with effect from 1st October,1975. On or about 25th September, 1975, the petitioner submitted itsrevised price lists in the prescribed proforma to the Assistant Collectorof Central Excvise, with its covering latter wherein it was pointed outthat there had no change in the price lists of the petitioners productsafter 26th June, 1975 when the petitioner had submitted the earlier priceto the Central Excise authority. In the revised price list submitted on25th september, the petitioner had also claimed as it had done earlier,deductio of post-manufacturing expenses including frighrt and profitsattributable to post-manufacturing poeration at 9% supported by acertificate from the petitioners auditors. The petitioner futher pointedout that there ad been no change in this position even after the cominginto the force new section 4 – on 27th september. 1975, the assistantCllector, Cetral excise, addressed a latter to the petitioer approvig theprice list whithout taking into consideration the petitioers dedution of9% on the ground that the deduction claimed by the petitioner were notpermossible nder the new section 4 of the Act as in that section therewas no provision for deductio of post-manufacturing expenses. By itslatter dated 30th september,1975 addressed to the latters AssistantCollector, the petitioner exressed its inability to accept the lattersdecision and stated that the dty would be paid by the petitioner underprotest, which between 1st october, 1975 and 30th November, 1975, thepetitioner paid in the aggregate sum of Rs. 31,94,680.49. On 18thDecember, 1975, th epetiitoner filed the present petition for anappropriate writ to set aside the order dated 27th September, 1975 passedby the Assistant Collector and for a refund of the amount of Rs.31,94,680.49 paid by the petitioner under protest.
2. Mr.Setalved, the learned Counsel appearing on behalf of the petitioner,challenged the impugned order dated 27th September, 1975 on two grounds.firstly, Mr. Setalved urged that on a true construction of the newsection 4, post-manufacturing expenses and pofits attributable topost-manufacturing operations must be excluded from the lue determinedunder section 4. In the alternative, Mr. Setalved urged that section 4 partakes of the character of a sales tax falling under Entry 54 of ListII in the VII Schedule of the Constitution and is therefore ultra virestha legislative competence of Parliament.
3. In reply to the first ground of challenge, Mr. Joshi, the learnedCounsel appearing on behalf of the respondents, urged that under the newsection 4, the concept of post-manufacturing expenses and profitsattributable to post-manufacturing operation did not come into picture atall, inasmuch as under the new section 4, the dominant and only factor tobe taken into consideration was the normal price and nothing else.According to Mr. Joshi, under section 4, the normal price is the factory gate price to a non-related person, without involving therin anyother concept like post-manufacturing cost and profit arising frompost-manufacturing operation, viz. seeling profit and so forth. Mr. Joshialso relied upon the aims and objects of enacting the new section 4,namely to overcome the difficluties created by the decision of theSupreme Court in Voltas case to which I shall be presently referring to .
4. In order to appreciate these rival contentions, it would be partinentto refer noth to th old and new section 4. The old section 4 which was inforce prior to 1st October, 1975 provided fro determination of value forthe pupose of duty and read a under:-
`Where under this Act, any articles is chargeable with duty at a ratedependent on the value of the articles, such value shall be deddmed tobe-
“(a) the wholesale cash price for which an articles of the like kind andquality is sold is capable of being sold at the time of the removal ofthe articles chargeable with duty from the factory…”
“Explantion-IN determining the price of any article under this section,no abatement or deduction shall be allowed except in respect of the tradediscount and the amount of duty payable at th etime of the remoavl of thearticles chargeable with duty from the factory…”
5. the new section 4 which came into force from 1st October, 1975provides for the valuation of excisable goods for the purpose ofchargeing of duty of excise and reads as under:
`(1) Where under this Act, the duty of excisse is chargeable on anyexcisable goods wiht reference to value, such value shall, subject to theother provisiion of this section, be deemed to be-
“(a) the normal price thereof, that is to say, the price at which suchgoods are ordinarily sold by the assessee to buyer in the course ofwholesale trade for deliverly at the time and place of removal, where thebuyer is not a related person and the price is th esole consideration forthe sal”.
“(b) where the normal price of such goods is not ascertainabkle fo rthereason that such goods are not sold or for any other reason, the nearestascertainable equivalent whereof determined in such manner as may beprecribed.”
The question that arises is whether on an interpretaion of the newsection 4,it can be construed that the post-manufacturing expenses andprofits atributable to post-manufacturing operations must be excludedfrom the value determined under section 4. In other words, would the”normal price” be inclusive or exclusinve of the post- manufacturingexpenses and profits attributable to post-manufacturing operations.
6. Before the new section 4 come into force, in two leading cases of theSuprememCourt and in two cases of the Division Bench of this Court, itwas held that under the old section 4 which was them in force the realvalue should be found after deducting the selling cost and selling profitand that the real value can include only the manufacturing cost andmanufacturing profit to the exclusion of post-manufacturing cost andprofit arising from post-manufacturing operations, namely, sellingprofit. So it was held by the Supreme Court in A.K. ROy v. Voltas Ltd., Discussing the meaning of the term”wholesale cash price”, it was observed at pars 20 of the Report asunder:-
“Excise is a tax on the prodction and manufacturing of goods (see Unionof India v. Delhi Cloth and General Mills . Section 4 ofthe Act therefore provides that the real value should be found afterdeducting the seling cost and seeling profits and that the real value caninclude only the manufacturing cost and the manufacturing profit. Thesection makes it clear that excise is levied only on the amountrepresenting the manufacturing cost plus the manufactuing profit andexcludes post-manufacturing cost and the profit arising frompost-manufactuing operation, namely, seling profits. the sectionpostulates that the wholesale proces should be taken on the basis of cashpayment thus eliminating the interest invloved in wholesale price whichgives creidt to the wholesale buyer for a period of time and that theprice has to be fixed for delivery at the factory gate therebyeliminating fright, octroi and other charges involved in the transport ofthe artilces…..”
7. The decision in Voltas case was followed in another decision of theSupreme Court in Atic Industries v. Asstt. Collector, Central Excise, , where it was held thatthe value of the goods for the purpose of excise must take into accountonly the manufacturing cost and the manufactuting profit and it must notbe loaded with post-manufacturing profit arising post- manufacturingoperation and that the price charfged by the manufacturing for ssale ofthe goods inwholesale would therefore repreesentthe real value ofthegoods for the pupose of assessment of the excise duty. If the pricecharged by the wholesale dealer who purchase the goods from themanufacturing and seels them in wholesale to another dealer were taken asthe value of the goods, it would include not only the maunfacturing costand the manufacturing profit of the manufacturing but also the wholesaledealer’s selling cost and selling profit and that would be whollyincopatiable with the nature of excise. It would al,so violate theconcept of the factory-gate sale which is the basis of determination ofvalue of the goods for the purpose of excise.
8. Neare home is the decision of the Division Bench of this Court inIndian tobacco Co. Ltd. v. Union of India and others, 1979 E.L.T. (J476), where is was held that section 3(1) is the charging section whichcreates the liability to pay the excise duty whille the provisions ofsection 4 are in the nature of machinery provision, with the result thatanything said therein must be read so as to carry out the basis conceptof excise duty and not so as to militate against that caoncept. At para12 of the Report, it was observed as under :-
“In other words, section 4 cannot be construced so as to enlarge theambit of duty be including therein the post- manufacturingelemeent.Secondly the expression `deem’ is of flexible by Lord Radcliffein St. Aubyn and Ors. v. Attorney-General, 1952 A.C. 15…
In our view, therefor is nothing either in the deeming provision nor inthe languagd og the section which suggests that while arriving at theassessable value of manufactuing article the expenses of profitsattributable to post-manufactuing activity or non-manufacturing activityshould not be excluded for the purpose of calculating the excise dutypayable on such article.”
9. IN Century Spining ans Manufacturing Co. v. Union of India, 1979E.L.T.(J 199), a Division Bench of this Court alos folllowe, the rationlaid down in voltas case, Atic’s case ans the Indian Tovbaco case, Atpage 207 of the Report, it was observed as under:-
“It, is therefore, clear that the levy of excise must have relation tothe production of the manufacturing cost of the goods produced by amanufacturer. any levy of excise which takes into account the factorswhich arenot connected with the production cost and profit on goods bythe manufacturer would not be leagl. that sub-section (1) of section 4 isthe charging section and the objective must be to levy excise as laiddown in sub-section (1) is also clear from the wording of section 3(2).the power conferred on the Central Governmetn to issue notification mustbe for the purpose of levying the said duty which means the dutiesleviable under sub-section (1) of section 3. It would at once, therefore,be clear that the Central Government cannot transgress the limits oflevying excise duty as laid down in sub- section(1) of section 3 bytfixibng the tariff values whichhave the result of fixing the valueshigher than the manufacturing cost and manufactuing profit of theproduct. Under section 4, it is the wholesale cash price which is theassessable value. It is well-settled that the `wholesale cash price’meansthe manufacturing cost ans the manufacturing profit, and thepopst-manufacturing cost ans the post- manufacturing profit has got to bwignored for finding out the assessable value for levying the excise dutyat the rates laid down in the Schedule.. In other words, the truecharacter of excise dutyis the tax on production and manufacturof goods.It would, therefore, follow that a levy of excise duty to be valid mustbe vased on the production or manufacturing cost in addition to themanufacturing profit as the basis of excise duty. The valuation for thepurose of leving excise duty thus solely depends on the production oandmanufacturing cost and manufacturing profit of the product. thisnecessarily would exclude in inflation of cost ansd profit by theweighted average mathod or otherwise…On a consideration of the schemeof the provisions of sub- sections (2) nad (3) of section 3 and section 4,it would appear that they are machinery provisions which must conform tothe main charging section which is sub-section (1) of section 3 andcannot go beyond that…
On reading the provision of section 3(1) and 3(2) and section 4 together,it appearts to us that is being a tax on production and manufacture ofgoods, the outer limit of or fixation of the assessable value is themanufacturing cost together with manufacturing profit which has beeenexpressed to mean the wholesale cash price in section 4….”
10. Relying on these two dicisions of the Supreme Court and the two decisions of the Division Bench of this Court, Mr. Setalvad urged that even though the new section 4 had been substituted in the place of the old, no change whatsoever had dbeen made in the charging section, namely section 3, which remains the same and that merely a new machinery section, namely the new section 4 was substituted for the old machinery section, namely the old section 4, with the result that the rationable of the judgments of the Supreme Court and the Division Bench of this Court, continue to apply to the new section 4. Mr. Setalvad finds support in no less than six decisions of various High Courts in India as stated presently.
11. The concept of “normal price” appearing in the new section 4 has been the subject matter of decisions of not less than six High Csourts in India. In Indo-National Ltd. v. Union of India, 1979 E.L.T. (J 334), the new section 4 had come up for consideration before the Division Bench of the Andhra Pradesh High Court which held that excise duty is a tax on the production or manufacture of excisable goods and unrelated to the sale of the same. The taxable event is the manufacture of goods and the duty is not directly on the goods but on manufacture thereof. The duty can be levied at any convenient stage so long as the essential character of the impost, namely that it is a duty on the manufacture or production, is not. In that case, after considering the decisions of the Supreme Court in Voltas case and Atic Industries case and other decisions of other High Courts under the old section 4, the Andhra Pradesh High Court proceeded to examine the meaning and scope of the new section 4 of the Act. On a consideration thereof, it held that excise duty payable under the charging section 3 being a tax on manufacture, it could only be on manufacturing cost and manufacturing profit and the assessable value cannot be loaded to any extent by any other cost or profit which is unrelated to the cost of manufacture. It was observed at page 366 of the Report –
“…In other words, to arrive at the real value of the goods for the purpose of levy of duty, the price of the goods must be free from being loaded with post-manufacturing costs and expenses. If the price charged by the manufacturer or producer to his first buyer includes post-manufacturing costs or expenses which are unrelated to the manufacture or production, the price must be relieved of such loading arising out of the inclusion of post-manufacturing expenses and costs for the purposes of determining the assessable value. For the purpose of determining the assessable value under section 4 of the Act, as it stood prior to 1-10-1975, the `wholesale cash price’ was to be ascertained. After the amendment from 1-10-1975, the `normal price’ is to be ascertained. Section 3 of the Act authorising the levy of excise duty on the manufacture and production of goods, it may be noted, is left intact and has not been amended by the Amending Act of 1973. What is more, the concept of `Factory Gate sale’ which was the basis for determination of the assessable value under section 4 of the Act, as it stood prior to the amendments, is re-affirmed in the amended section and in the definition of `normal price’ contained in the amended section 4, the element of sale of goods for delivery at the time and place of the removal has been preserved. The basis of excise duty, therefore continues to be the manufacturing cost and manufacturing profit and the amendment of section 4 does not and cannot, in any way, alter the basis of the levy of excise duty contained in section 3 of the Act, remaining the same untouched and unamended even after the substitution of the new section 4….”
(The undeerlining is mine).
At page 368 of the Report it was observed as under :-
“Section 4 of the Act must, therefore, be construed as authorising the levy of excise duty on the manufacturing cost of the goods and manufacturing profit of the manufacturer. In other words, the normal price for the purpose of levy of duty must be free from being loaded with post-manufacturing costs, expenses and profits which are unrelated to the manufacture of production of the goods.”
(The underlining is mine).
12. In Nasgpal Petro-Chem. Ltd. v. Assistant Collector of Central Excise, Madras, 1979 E.L.T. (J 117), the new section 4 had also come up for interpretation by the Madras High Court. After considering the decision of the Supreme Court in Voltas case and Atic Industries case and the decision of the Division Bench of this Court in Indian Tobacco case, it was observed by the Madras High Court at page 122 of the Report as under :-
“Under Section 3 of the Act, excise is a tax on the production and manufacture of the goods. Therefore, post-manufacturing expenses and profits must be excluded from consideration in determining the wholesale market value of the excisable goods. Even the amended Section 4 sub-section (1)(a) says that the normal price of the goods should be taken to be the price at which such goods were ordinarily sold by the assessee in the course of wholesale trade for delivery at the time and place of removal, subject to the condition the buyer is not a related person and the price is the sole consideration for the sale. Inasmuch as the petitioner effects a few sales at wholesale market rate at the factory gate itself, it is that rate which has to be taken as the normal price of the products, especially when the respondents have not shown that such sales have not taken place or that such sales were to related persons or that the sales were effected on other considerations that of price alone. Secondly, the respondents have also not placed materials to show that the rates at which the goods have been sold at Bombay to Sikri and Grover are lesser in value than the wholesale market rate for sales effected at factory gate. On account of all these factors also, the petitioner’s challenge about the correctness of the impugned dorder has to be sustained.”
13. The construction of the new section 4 also came up for determination before the Division Bench of the Kerala High Court in Madras Rubber Factory Ltd. v. Assistant Collector of Central Excise, Kottayam, 1979 E.L.T. 397, where it was held that the post- manufacturing expenses and profits cannot be included in the assessable value because inclusion of post-manufacturing expenses would indicate that the levy is something other than a duty of excise.
14. On the interpretation of the new section 4, the Delhi High Court held in Madras Rubber Factory Ltd. v. Union of India, 1979 E.L.T. 173 that the value of goods for the purpose of excise should take into consideration only the manufacturing cost and the manufacturing profits without being loaded with post-manufacturing cost or profits arising from post-manufacturing operation. In that case also, reliance was placed on the decision of the Supreme Court in the Atic Industries case.
15. The new section 4 also came up for construction before the Division Bench of the Patna High Csourt in Tata Engineering and Locomotive Co. Ltd. v. S. N. Guha Thakurta, 1977 E.L.T. 14, where, after a comparison of old and new section 4 and after considering the decision of the Supreme Court in Voltas case and dother cases, the Patna High Court observed at page 21 of the Report as under :-
“Judged in the background of the decisions, the provisions of amended S. 4 have to be construed. Section 4(1)(a) lays down that the `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. The first proviso provides for situation where `normal price’ in wholesale trade may be different for different classes of buyers under the circumstances mentioned therein. It is not disputed that the petitioner’s vehicles are sold to buyers in course of wholesale trade and it is the `wholesale cash price’ which will be the `normal price’ thereof under the amended dprovision of S 4(1)(a) of the Act. Undoubtedly, therefore, the value of the vehicles for the purpose of charging excise duty will be the aforesaid `normal price’….”
16. The new section 4 had also come up for construction before the Division Bench of the Gujarat High Court in Cibatul Ltd. v. Union of India, 1979 E.L.T. 407, where after considering the decision of the Supreme Court in Voltas case and Atic Industries Case and other decisions, it was held by the Gujarat High Court that the duty of excise is a tax on manufacture or production of goods and sit can be levied on the assessable value thereof which consists of manufacturing costs and manufacturing profits and cannot be loaded with any post- manufacturing costs and post-manufacturing profits which arise out of subsequent operation. At para 19 of the Report at page 417, it was observed as under :-
“….it must be linked with manufacture or production of an excisable article. It can be levied on the assessable value of excisable goods which consists of manufacturing costs and manufacturing profitsand which cannot be loaded with post, manufacturing costs and post- manufacturing profits such as those which arise out of subsequent sales….”
(The underlining is mine.)
It was further held that it was wrong to say that having imposed exise duty under the charging section, unrelated, strange or unconnected measures can be provided to realise it and such measures need dnot necessarily have any relation whatsoever to the impost levied under the charging section.
17. Mr. Setalvad’s contention, there, is supported by not less than six decisions of various High Courts in India, which, briefly recapitulated, have held that under the new section 4, excise is levied only on the amount representing the manufacturing cost plus the manufacturing profit and excludes post manufacturing costs and profit arising from post-manufacturing operations, namely selling profit. These decisions bring out in bold relief that the normal price for the dpurpose of levy of duty cannot be burdened with post-manufacturing costs, expenses and profits unrelated to the production of the goods. With these decisions I am in respectful agreement. Thus the ration laid down under the old section 4 in Voltas case, Atic Industries case and the Indian Tobacco case, is the same even under the new section 4.
18. The emphasis of Mr. Joshi on the objects and reasons for enacting the new section 4, namely to overcome the difficulties created by the decision in Voltas case, can be of no avail to the respondents in the teeth of the numerous decisions referred to earlier. Furthemore, it is not sufficient merely to emphasise the objects and reasons for enacting the new section 4 where on the construction of that section itself the factors and basis of determining the normal price can be arrived at.
19. Mr. Joshi relied on the decision of the Supreme Csourt in McDowell & Co. v. Commercial Tax Officer, where it was held that excise duty is primarily a duty on the production or manufacture of goods produced or manufactured within the country. It is an indirect duty which the manufacturer or producer passes on to the ultimate consumer, that is, ultimate incidence will always be on the customer. Therefore, subject always to the legislative competence of the taxing authority, the said tax can be levied at a convenient stage so long as the character of the import, namely that it is a duty on the manufacture or production, is not lost. The method of collection does not affect the essence ofthe duty, but only relates to the machinery of collection of adfministrative convenience. Thus laws are to be found which impose a duty of excise at stages subsequent to the manufacture dor production. Mr. Joshi urged that therefore the question ofthe dissection as to how much is the manufacturing cost and manufacturing profit and other such factors do not arise. Mr. Joshi also relied on the decision of the Division Bench of this Court in the Elphinston Mills case reported in 1978 E.L.T. (J 680) where it was held that the method of collection does not affect the essence of duty but only relates to the machinery of collection for administrative convenience. There is nothing either in McDowell’s case or Elphinston Mills case which in any manner detracts from the ration laid down by the Supreme Court and other High Courts in India in the case starting from Voltas case.
20. In the result, the first ground of challenge urged by Mr. Setalvad must be accepted and on that ground the impugned order dated 27th September, 1975 is liable to be set aside.
21. In view thereof, the alternate ground of challenge urged by Mr. Setalvad becomes academic and it is unnecessary to enter into that aspect of the matter.
22. In the result, the impugned order dated 27th September 1975 is set aside and the petition is allowed in terms of prayer (a). Regarding the refund of the amount of Rs.31,94,680.49 paid by the petitioner under protest, the respondents shall consider within six months from today the petitioner’s revised price lists in the light of this judgment and shall within three months thereafter refund to the petitioner such amount as is refundable. There will be no order as to costs. Rule is made absolute accordingly.