JUDGMENT
Chandurkar, J.
1. The petitioner are the manufacturers of the coated abrasives which are the excisable commodities falling under the Tariff Item 51 of the First Schedule of the Central Excises and Salt Act 1944 , (hereinafter referred to as “the Act”) the are of excise duty is 15 per cent ad valorem .
2. The petitioners who were under Rule 173-C of the Central Excise Rules, 1944 required to file with the proper officer a price -list for his approval filed the said price-list on 15th of October 1975 i. e. after the coming into the operation of the amended section 4 of the Act. The petitioner clarified in the accompanying letter that the price -list were being sent without prejudice to their contention that the excise duty was leviable on the manufacturing cost and not on selling costs and selling profits and which formed a part of the petitioner gross price -list . According to the petitioners these price -list were approved by the Superintendent of Central Excise. Assessment Group Aurangabad Division who allowed a deduction of excise duty and trade discount offered by the petitioners to their consumers In the revised price-lists submitted for the period 1st. April 1976 onwards the petitioners showed profits which the according to the petitioners they had incurred after he manufactures of their product and before the actual sale to their consumer s in the course of the whole-sale trade. These price -lists were , however, returned by the disclose the normal price of the gods manufactured by the petitioners selling costs selling profits and the excise and duty elements from the normal price. The Superintendent, however, returned these price- lists again taking the view that the selling costs and the selling – price were not admissible for the deduction under the amended section 4 of the Act.
3. The petitioner then approached the Assistant Collector of Central Excise the request of the approval of the price -list. The Assistant Collector heard the petitioners but the rejected their claim for deduction of selling costs and selling profit from the sale price of their products. He held that the only admissible deduction from the price of the product was excise duty. The present petition is now filed by the petitioner challenging the view taken by the Department that under the provisions of the amended section 4 of the Act, the post- manufacturing costs could not be deducted for the purposes of determining the value with reference to which the excise duty was to be determined.
4. It may be pointed out that we are in this petition concerned only with question as to whether under the amended provisions of section 4 of the Act the petitioners are entitled to have the elements of post- manufacturing costs and post-manufacturing profits deducted for the purposes of excise duty. We are not concerned with determining whether the petitioners were entitled to have all the elements of costs claimed by them to be deducted for the purposes of excise duty. The costs which, according to the petitioners, they were entitled to deduct from the sale price of their product were as follows :-
1. sales office expenses,
2. claims, discounts and commission,
3. fright, transport and insurance charges,
4. interest on borrowings,
5. salts-tax,
6. advertisement and publicity expenses, and
7. administrative expenses.
None of the authorities has gone into the question as to whether anyone of these costs in the years in question were in the nature of post-manufacturing costs. We are, therefore, concerned in this petition only with the principle on which the price for the purposes of levy of excise duty has to be determined.
5. Now it is well-known that the provisions of section 4 which existed before new section 4 was introduced by Act 22 of 1973 on 1st October 1975 contemplated the concept of the wholesale cash price which was to be taken as the value of the articles for the purpose of chargeability to excise duty. With effect from 1st October, 1975 old section 4 was substituted by a new provision. The relevant part with which we are concerned reads as follows :-
“Valuation of excisable goods for purposes of charging of duty of excise.- (1) Where under this Act, the duty of excise is chargeable on any excisable goods with reference to value, such value shall, subject to the other provisions of this section, be deemed to be-
(a) The normal price thereof, that is to say, the price at which such goods are ordinarily sold by the assessee to a buyer in the course of whole-sale trade for deliver at the time and place of removal, where the buyer is not a related person and the price is the sole consideration for the sale :
Provided that……”
We are not concerned with the other provisions made in the proviso and sub-clause (b) and sub-section (2) which deal with how in certain specific circumstances the normal price has to be determined.
6. Now what is contended on behalf of the assessee by the learned Counsel for the petitioners is that notwithstanding the new provisions made in section 4 of the Act, the Parliament has not thought it fit to bring about any change in the charging provision of section 3 of the Act and, therefore, according to the learned Counsel, the basic concept of excise duty continues to remain the same ass propounded by the Supreme Court in various decisions, namely, that excise duty is primarily a duty on the production of goods produced or manufactured within the country and, therefore, no post-manufacturing costs can be taken into account for the assessment of the value of the goods for the purposes of chargeability to excise duty. The learned Counsel, therefore contends that notwithstanding the introduction of the concept of normal price in section 4, that normal price will not take in any post-manufacturing costs or post-manufacturing profits because, according to the learned Counsel, if this is done, the basic nature of the import would change and the levy would then cease to be excise duty but would partake of the nature of sales-tax which the Parliament is incompetent to levy, as sales-tax can properly be levied only by the state. The learned Counsel has brought to our notice decisions of several High Courts including a decision of the learned Single Judge of this Court in which a view has been taken that notwithstanding the amendment of section 4, excise duty can be levied only on the manufacturing costs and that no post-manufacturing expenses could be included in the value for the purposes of excise duty.
7. Mr. Govilkar appearing on behalf of the respondents including the Union of India has, however, contended that assuming tat excise duty is a levy on manufacture of goods, the definition of `manufacture’ in the Act is an inclusive definition in section 2(f) and since it is an inclusive definition, all expenses which have been incurred for the purposes of making the goods marketable can properly be taken into account for the purposes of determining the value with reference to which the excise duty is to be levied. Our attention has been invited to the different clauses of inclusive part of the definition of `manufacture’, such as in clause (b) (i) where in relation to tobacco, it is provided that manufacture will include preparation of cigarettes, cigars, cheroots, biri, etc. In relation to manufactured tabacco, it is provided in sub-clause (ia) that manufacture incudes labelling or re-labelling of contain packing for bulk packs to retail packs of the adoption of any treatment to render the product mark table to the consumer. Mainly on this definition of `manufacture, the learned Counsel contended that the ordinary value of the goods at the marketable stage must include not only the costs of production but also the costs of such processes of treatment of the goods which were necessary to make them marketable. It is also contended before us that “if profits or what are called manufacturing profits, i.e., the sums added after the goods are manufactured are treated as chargeable, then by the same logic other expenses required to make the goods marketable must also be treated as chargeable.”
8. Now we must make it clear at the outset that the Act is an All India statute and in the interest of certainty of the law, it is, therefore, desirable that there is uniformity of construction of the taxing provision contained in section 3 and the machinery provisions contained in section 4. Therefore, unless we are satisfied that there are compelling reasons to take the view different from the considered view taken by other High Courts, we would be reluctant to embark on an elaborate discussion with regard to the construction of the amended provisions of section 4 of the Act.
9. It is clear that though section 4 has been amended, the charging provision in section 3 of the Act has been left touched by the Parliament when the amendment to section 4 was made by Act 22 of 1973. It is not necessary to refer to the several decisions of the Supreme Court which have exhaustively dealt with the concept of excise duty and it is enough if a reference is made to the decision in A. K. Roy v. Voltas Ltd., , in which the Supreme Court after the review of the legal position as regards the nature of excise duty has observed in paragraph 21 with reference to section 3 and 4 of the Act as follows :-
“Excise is a tax on the production and manufacture of goods ( see Union of India v. Delhi Cloth and General Mills, AIR 1973 SC 791 ). Sec. 4 of the Act therefore provides that the real value should be found after deducting the selling costs 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 profits and excludes post-manufacturing cost and the profit arising from the post-manufacturing operation,. namely, selling profit.”
This decision of the Supreme Court was considered in detail by a Division Bench of this Court in Indian Tabacco Company Ltd. v. Union of India and others, 1979 E.L.T. (J 476). The Division Bench in that case has pointed out that section 3(1) is a charging section which crates the liability to pay the excise duty while the provisions of section 4 are in the nature of machinery provisions and, therefore, anything said in section 4 must be read so a to carry out the basic concept of excise duty and not so as to militate against that concept. It was held that section 4 cannot be so construed as to enlarge the ambit of duty by including the post-manufacturing expenses or non- manufacturing expenses. The Decisions in Voltas Ltd.’ case and the Indian Tobacco Company’s case were again considered by another Division Bench (to which one of us was a party)in Poona Beverage Pvt. Ltd. v. A. K. Bandopadhyay and others 1980, E.L.T. (Bom.).
10. It is no doubt true that the provisions of section 4 did undergo a change by amendment and the concept of normal price has been introduced. The question, however, is whether the basic position of law at section 3 permits levy of excise duty only on the value determined with reference to the manufacturing costs and manufacturing profits and that no part of post-manufacturing expenses can be taken into account or the purpose of levy of excise duty, has undergone a change by the introduction of the concept of normal price. If section 4 is a machinery provision and is intended to carry out the effect of the charging provision and if, as pointed out by the Supreme Court, excise duty levied can be taken into account only on the manufacturing costs and manufacturing profits, anything said in section 4 cannot affect the basic concept of excise levy which has now been clearly propounded by the supreme Court as point out in Voltas Ltd. ‘s case.
11. Section 4 in the amended form introduces the concept of normal price and provides that where excise duty is chargeable with reference to value, such value shall, subject to the provisions made in the same section, be deemed to be the normal price is stated to 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 buyer is not a related person and the price is the sole consideration for the sale. There is a proviso to section 4(1)(a) and the three clauses of the proviso control the provisions of section 4(1)(a).
12. The first clause in the proviso deals with the sale of goods by the assessee at different prices to different buyers and each such price is deemed to be the normal price of the goods in relation to each class of buyers. Under the second clause the price if fixed by any law is to be treated as the normal price. The third clause deals with the normal price in cases where the goods are sold to a related person. Section 4(1)(b) provides for a case where normal price of goods is not ascertainable for the reason that the goods are not sold or for any other reasons and in such a case the value is to be determined in such a manner as will be prescribed. Section 4(2) is a residuary provision and deals with a case where is price of excisable goods for delivery at the place of removal is not known and the value is to be determined with reference to the price of delivery at a place other than the place of removal and the cost of transportation from the place of removal: the place of delivery is to be excluded from such price.
13. In section 4(4) there are several clauses which give the meanings of assessee, place of removal, related person, value and wholesale trade Clause (d) which defines `value’ in relation to any excisable goods provides in sub-clause (i) for inclusion of the cost of packing where the goods are delivered at the time of removal in a packed condition , but the cost of packing which is of a durable nature and is returnable by the buyer to the assessee is allowed to bee deducted. Section 4(d)(ii) provides for deductions from the value of goods, the amounts of excise duty, sales-tax and other taxes, if any, payable on such goods and the trade discount allowed in accordance with the normal practice of the wholesale trade at the time of removal in respect of such goods. Thus under section 4(4)(d) only certain items of deductions are permissible from the price charged by the manufacturers and no other expenses are permitted to be deducted.
14. The Learned Counsel for the Union of India relies on these provisions and contends that no more deduction than are referred to in section 4 will be permissible for determining the chargeability at excise duty. Two alternatives ar, therefore, open while considering its scope of section 4. One is that section 4 has to be construed as a machinery provision to work out the basic constitutional concept of excise duty which cannot be altered by an amendment in the Excise Act and, therefore, its scope will have to be restricted only to the permissibility of the levy of excise duty with reference to the manufacturing costs and the manufacturing profits. The other alternative is to give a literal construction to the provisions of section 4. Section 4 if thus construed literally will have to be read as not working out the concept of levy of excise duty as contemplated by section 3 of the Act, but the levy will amount to tax on sales which will expressly fall within the competence of the State Legislature under Entry 54 of List II of Schedule VII of the Constitution. If the latter be the approach adopted for construction of section 4, it may have to be held bad on the ground of legislative competence because admittedly sales-tax is not a subject in List I of Schedule VII to the Constitution. If two constructions are possible, then it is a well-known canon of construction that one which upholds the validity of the statutory provision must be upheld by the Court. It is this approach which has appealed to and accepted by the several High Courts before whom the amended section 4 fell for consideration.
15. We need not in detail refer to the several decisions which have considered the provisions of section 4, but it is useful to refer to the exhaustive discussion which is to be found in the decision of the Andhra Pradesh High Court in Indo-National Limited v. Union of India and others, 1979 E.L.T. (J 334). A number of decisions which deal with the constructions of the amended provisions of section 4 were referred to by the Division Bench in that case and the Division Bench then went on to consider the provisions of amended section 4 of the Act. On behalf of the assessee, it was argued before the Division Bench that the source of power to levy duties of excise on excisable goods contained in Entry 84 in List I of Seventh Schedule to the Constitution of India remaining the same and the charging section 3 of the Act remaining intact and not having been amended, the interpretation placed on section 4(a) of the Act, as it stood prior to its amendment equally applies to the amended section 4(1)(a) of the Act, and the `the normal price’ assessable to duty should be arrived at after deducting from the price charged by the manufacturer on its goods on the first sale of the same, the selling cost, the selling profit and all other post-manufacturer on its goods on the first sale of the same, the selling cost, the selling profit and all other post- manufacturing cost, expenses and post-manufacturing profits. Division Bench of the Andhra Pradesh High COurt was that the value assessable to duty is the price charged by the manufacturer on the first sale of its goods and that except for the permissible items of deduction from the said value enacted in section 4(4)(d) of the Act, no other expenses under whatever head are liable to be deducted from the price. In other words, according to the learned Counsel for the Union of India, if at or near the factory, there is a wholesale price for the excisable goods subject to the permissible deductions enacted in section 4(4)(d) of the Act, no deduction from the said price of any post-manufacturing expenses of profits under whatever head, can be claimed. After pointing out that 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 leaded with post-manufacturing costs and expenses and that if the price charged by the manufacturer or produce to the first buyer includes post-manufacturing costs or expenses which are unrelated to the manufacture or production, the price must be relieved of such loading arriving out of the inclusion of post-manufacturing expenses and costs for the purpose of determining the assessable value the Division Bench in paragraph 44 of the Judgment observed as follows:
“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 mode, 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 amendment, is re-affirmed in the amended section and in the definition of `normal price’ contained in the amended section 4, the element of 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 doe 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. If the `normal price’ were to be construed as to take within its ambit anything except the manufacturing cost and manufacturing profit the impost ceases to be excise duty and the rational nexus between the duty and the person upon whom it is imposed ceases to exist, as it amounts to tax on sale, which under Entry 54 of List II of Schedule VII to the Constitution, exclusively falls within the domain of the State Legislature and the Parliament has no legislative competence to make of any law with regard to it. It, therefore, follows that under the new section 4 of the Act, it is not permissible to include in the assessable value any element of post-manufacturing costs or profits attributable to post- manufacturing operations.”
The Division Bench thus invoked the doctrine of `reading down ‘ the provision which was a perfectly permissible course as pointed out by the Supreme Court in Johrimal v. The Director of Consolidation Holdings, Punjab and another, , ion the following terms:
“The principle is that if two constructions of a statute are possible, one of which would make it intra vires and the other ultra vires, the Court must lean to that construction which would make the operation of the section that it would exceed its own jurisdiction. It is well established rule that a statute has to be read so as to make it valid; it has to be construed us res magis valeant quarm pare”
16. To the same effect is the view which is taken by the Division Bench of the Carol High Court in Madras Rubber Factory Limited v. Assistant Collector of Central Excise, Kottayam and others, 1979 E.L.T. (J 397). The Division Bench of the Kerala High COurt held while considering the amended provisions of section 4 of the ACt that the post-manufacturing expenses and profits cannot be included in the assessable value because the inclusion of post- manufacturing expenses would indicate a levy of something other than a duty of excise.
17. The Delhi High Court has also taken the same view in Madras Rubber Factory Limited v. Union of India and others, 1979 E.L.T. (J 173), when the learned Judge of that Court held that the value of the goods for the purposes of excise could take into consideration only the manufacturing costs and the manufacturing profits without being loaded with post-manufacturing costs or profits from the post-manufacturing operation.
18. Amended section 4 was also considered by the Madras High COurt in Nagpal Petro-Chem. Limited v. Assistant Collector of Central Excise, Madras, 1979 E.L.T. (J 117), and the learned Judge held that under section 3 of the ACt excise is a tax on the production and manufacture of goods and, therefore, post- manufacturing expenses and profits must be excluded.
19. All these decisions were also considered by the learned Single Judge of this Court in Bombay Tyres Intentional Ltd. v. Union of India and others, 1979 E.L.T. (J 625). The learned Judge has in that case held that the decisions of the various High COurts referred to earlier bring out in hold relief that the normal price for the purpose of levy of duty cannot be burdened with post-manufacturing costs, expenses and profits unrelated to the production of the goods and that the method of collection does not affect the essence of duty but only relates to the machinery of collection for administrative convenience.
20. As already pointed out by us above, being an All India legislation, it is not only proper but also desirable that the statutory provisions of such a legislation must be uniformly construed. Apart from that, we have not found any thing which would persuade us to take a different view with regard to the construction of section 4 and if section 4 is admittedly a machinery provision, it could not be so construed as to travel beyond the scope of a machinery provision so as to change the nature of excise duty as contemplated by section 3 of the Act as determined by the Supreme Court from time to time. We are, therefore, inclined to take the view that in spite of the amendment of section 4 of the Act, the basic constitutional position that post-manufacturing expenses cannot be taken in account for the purpose of determining the value with reference to which the excise duty has to be levied, continues to be the same. Consequently the respondents were duty-bound to decide on merits the claim made by the petitioner as to which of the costs claimed by them to be the post-manufacturing costs were really post-manufacturing costs and if so, to what extent, because such costs were liable to be excluded from the value for the purpose of excise duty. As already observed earlier, we are not in this petition concerned with the details of the claim made by the petitioner which could be properly inquired into by the proper authorities.
21. In the result, the view taken by the authorities in the two letters dated 19th May, 1976 and 23rd June, 1976 must be held to be wrong and the orders contained in the letter dated 22nd of September, 1976 is liable to be quashed. the petitioner will be at liable to approach the appropriate authorities and canvass their claim for reduction in the light of the observations made in this judgment. Rule absolute with costs.
22. Since it appears that the petitioner have already made payments of excise duty and had reserved their right earlier to claim refund, they will be entitled to refund of such amount as they are found entitled to after proper adjustment. The bank guarantee stands discharged.
