Bombay High Court
Ceat Tyres Of India Ltd. vs C.L. Nangia And Others on 1 January, 1800
Equivalent citations: 1980CENCUS187D, 1980(6)ELT139(BOM)
ORDER
1. The petitioner is a limited company carrying on business of manufacturing tyres an tubes having its factory at Bombay. The petitioner's products have a market mostly out of Bombay with very limited sales in Greater Bombay itself. There are numerous other companies manufacturing tyres and tubes in India. Just as the petitioner's products are marketed in different places in India, similarly the products of the other companies manufactured in other places in India are also marketed in Greater Bombay. The petitioner and the other tyre manufacturing companies maintained a uniform selling price of their products throughout India so that the customers of all such companies throughout India would have the benefit of obtaining tyres and tubes at a uniform price and which would also obviate unnecessary and unhealthy competition amongst the tyre manufactures themselves. This uniformity of price at an all-India level was maintained during the period relevant to this petition, viz 22nd April 1968 till 25th January 1969, and a uniform wholesale price list was maintained throughout India. This wholesale price list known as ``net dealer price-list" included all post-manufacturing expenses such as selling and distribution expenses as well as fright on the shipment of foods not only from the place of manufacture to the various depots situate throughout India but also for delivery to the nearest railway station to the destination of the customers. In all the invoice given to the customers the net dealer price list was shown separately and in addition thereto, the customers were required to bear the focal sales-tax and other local levies, if any,, and such items were shown separately in the invoices.
2. In several parts of India, including Greater Bombay, octroi is levied on goods, including tyres, brought within the limits of the local authority for consumption, sale for use. As the petitioner's factory is located within the limits of Greater Bombay the tyres manufactured by the petitioner are, therefore, not liable to octroi, unlike the tyres manufactured elsewhere by other companies and brought to Bombay for marketing. The latter would have to pay about 2% octroi duty on their tyres brought into Greater Bombay with the result that their tyres would be, sold at a higher price in Bombay than the tyres manufactured by the petitioner in Bombay. The result would be that there would be no uniformity of price. In order to obviate this and to maintain a uniform price system throughout India, the petitioner recovered from its customers in Greater Bombay between 22nd April 1968 and 25th January 1969 an extra charge of 2% which was separately shown in the invoices as a local levy charge and which was about the same charge paid by way of octroi by manufactures who bought their tyres within Greater Bombay for marketing. To illustrate assuming the uniform selling price of all the tyre manufacturing companies through India is rs. 100/- per tyre, such a type when brought within Greater Bombay by other manufactures would attract a 2% octroi duty with the result that the price of such a tyre in Greater Bombay would be Rs. 102/-. As against that, the petitioner having its factory within Greater Bombay and hence not liable to pay octroi duty, would be in a position to sell its tyre at the uniform selling price, viz, Rs. 100/- per tyre, in Greater Bombay. The result would be that in Greater Bombay the price of the petitioner's tyres would be different than the price of tyres manufactured by other manufacturers and brought for sale to Greater Bombay. Thus, in order to maintain a uniformity in the selling price,m the petitioner put the 2% local levy separately shown in its invoice, with the result that the price of a tyre in Greater Bombay would be Rs. 102/- whether it was manufactured by the petitioner or any other tyre manufacturing company. thus a uniform price was maintained in Greater Bombay amongst all the tyre manufacturing companies.
3. On 28th May 1969, the Superintendent of Central Excise, Viz., the 2nd respondent, passed an order holding that the assessable value of the petitioner's tyres included the 2% local levy recovered by the petitioner from its customers in respect of the sales effected in the City of bombay. Four demand noticed all dated 29th May 1969 were issued by the Inspector of Central Excise calling upon the petitioner to pay an aggregate amount of Rs. 6,59,205.27 as additional excise duty calculated on an enhanced Assessable value, by including in the assessable value of the totality of the tyres manufactured by the petitioner, the said local levy of 2%. The petitioners appeal was dismissed by the Appellate Collector of Central Excise, viz., the 1st respondent, who by his order dated 24th July 1974 upheld the four demand notices dated 29th May 1969. Thereafter, the 2nd respondent issued a demand notice dated 30th September 1974 calling upon the petitioner to pay the amounts demanded in the demand notices dated 29th May 1969 under threat of coercive action. Hence the present petition for an appropriate writ to set aside the impugned order dated 28th May 1969, the appellate order dated 24th July 1974 passed by the 1st respondent and the demand notice dated 30th September 1974 passed by the 2nd respondent.
4. It was urged by Mr. Joshi, the learned Counsel appearing on behalf of the petitioner, that for the purpose of Section 4 of the Central Excises and Salt Act, 1944, the wholesale price must be computed on the sales made by the petitioner in other places in India which comprised 91% of the total sales and not on the sales made by the petitioner in Greater Bombay which comprised of a meagre 9% of its total sales. Mr. Joshi urged that it was harsh and unjust that for the relevant period, viz , 22nd April 1968 till 25th January Rs. 6,59,206/- whereas the aggregate amount recovered by the petitioner as local charges during this period was only Rs. 2,99,532/-. The latter grievance made by Mr. Joshi is an appeal to sentiment which has no place in the construction of Section 4.
5. Section 4 provides for determination of value for the purpose of duty and read as under:-
``Where under this Act, any article is chargeable with duty at a rate dependent on the value of the article, such value shall be deemed to be-
(a) the wholesale cash price for which an article of the like kind and quality is sold or is capable of being sold at the time of the removal of the article chargeable with duty from the factory or any other premises of manufacture or production for delivery at the place, of manufacture or production, or if a wholesale market does not exist for such article at such place, at the nearest place where such market exists;
* * * *
6. On a plain reading of Section 4(a), there can be no doubt that it postulates that the wholesale cash price must be ascertained at the time of the removal of the petitioner's products from its factory in Greater Bombay (thereby eliminating fright, octroi and other charges involved in the transportation of the articles), and irrespective of the fact that the petitioner's local sales are a meagre 9% of its total sales all over India. If at all any authority is necessary for this proposition the same is to be found in the observations of the Supreme Court in Volta's case (infra) as under:-
``......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 a manufacturer on wholesale basis is entirely irrelevant. The mere fact that such sales may be few or scanty does not alter the true position."
That disposes of Mr. Joshi's first contention.
7. The main question that however remains in what is the meaning of the term ``wholesale cash price" and what is the wholesale cash price of the petitioner's products? It was urged by Mr. Joshi that the 2% local levy recovered by the petitioner-company from its customers on sales made in Greater Bombay did not from part of the petitioner's manufacturing costs and/or manufacturing profits but constituted a non-manufacturing element with the result that the same could not be considered and taken into account for determining the wholesale cash price under Section 4(a) of the Act. On the other hand, it was urged by Mr. Dalal, the learned Counsel appearing on behalf of the respondents, that the 2% local levy recovered by the petitioner was nothing but a profit by whatsoever name it was called. Mr. Dalal elaborated that the items to be deducted from the wholesale cash price are (i) trade discount , (ii) cost of post-manufacturing expenses on post-manufacturing operations, and (iii) profits derived therefrom, namely, selling cost and selling profit. Mr. Dalal urged that the 2% extra levy charged by the petitioner was a profit and not a non- manufacturing element and was merely an increase in price and a manufacturing profit earned by the petitioner on its sales in Greater Bombay.
8. The meaning of the term ``wholesale cash price" is to be found in the decision of the Supreme Court in A. K. Roy and another v. Voltas Ltd., . Construing Section 4, the Supreme Court held that Section 4 makes it clear that excise is levied only on the amount representing the manufacturing cost plus the manufacturing profit and excluded post-manufacturing cost and the profit arising from post-manufacturing operation, namely, selling profit. It was observed at para 21of the report as under :-
``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 profits and that 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 plus the manufacturing profit and excludes post-manufacturing cost and the profit arising from post-manufacturing operation, namely, selling profit. The section postulate that the wholesale price should be taken on the basis of cash payment thus eliminating the interest involved in the wholesale price which gives credit to the wholesale buyer for a period of time and that the price has to be fixed for delivery at the factory gate thereby eliminating fright, octroi and other charges involved in the transport of the articles."
9. Nearer home is the decision of the Division Bench f this Court in Indian Tobacco Company Ltd. v. Union of India and Ors. (1979) Excise Law times (J 476) where it was held that Section 3(1) of the Act is the charging section which creates the liability to pay the excise duty while Section 4 is in the nature of machinery provision, therefore, anything said therein must be read so as to carry-out the basic concept of excise duty and not so as to militate against that concept. It wa further held that Section 4 cannot be construed so as to enlarge the ambit of duty by including therein the post- manufacturing or non-manufacturing expenses and that there is nothing g either in the deeming provision or in the language of Section 4 which suggests that while arriving at the assessable value of manufactured article the expenses or profits attributable to post- manufacturing activity or non-manufacturing activity should not be excluded for the purpose of calculating the excise duty. At para 12 of the report it was observed as under:
``....on the question of construction of Section 4 it cannot be disputed that Section 3(1) is a charging section, which creates the liability to pay the excise duty on the goods produced or manufactured in India and the said sub-section clearly indicates the nature and character of the duty, namely, that it is a tad on production and manufacture of goods, whole the provision of Section 4 is in the nature of machinery provision and, therefore, anything said therein must be read so as to carry out the basis concept. In other words, Section 4 cannot be construed so as to enlarge the ambit of duty by including therein the post- manufacturing elements..."
In para 14 it was observed as under :-
``In our view therefore there is nothing either in the deeming provision nor in the language of the section which suggests that while arriving at the assessable value of manufactured article the expenses of profits attributable to post-manufacturing activity should or non- manufacturing activity should not be excluded for the purpose of calculating the excise duty payable on such article."
10. Mr. Joshi's contentions are supported by the decisions of the Supreme Court in Voltar's case and of the Division Bench in Indian Tabacco Company case, and are a complete answer to the contentions urged by Mr. Dalal. Furthermore, Mr. Dalal's stress that the 2% levy is a profit but does not take into account that excise is not a tax on profit but is a tax on manufacture and the profit must be relatable to a manufacturing activity or a manufacturing element. This is borne out in abundant measure both in Volta's case and Indian Tobacco Company's case. There is no doubt that the 2% local levy separately charged by the petitioner on its Bombay sales cannot be computed for determining the wholesale cash price and would not come within the purview of Section 4(a).
11. Mr. Dalal relied on the definition ``profits" as appearing in Mitra's Legal and Commercial Dictionary, Second Edition, and which has been culled out from Rushden Heel Co. Ltd. v. Inland Revenue Commissioners, (1946) 2 AII E.R. 141 as under :
``Profits consist of a sum arrived at by adding upon the receipts of a business and by deducting all the expenses and losses including depreciation and the like, incurred in carrying on the business."
Mr. Dalal also relied on the observations of the House of Lords in Russell v. Aberdeen Town and Country Bank (1883-1890) Tax Cases 321, at p. 327, as under:-
`The profit of a trade or business is the surplus by which the receipts from the trade or business exceed the expenditure necessary for the purpose of earning those receipts. that seems to me to by the meaning of the word ``profits" in relation to any trade or business. Unless and until you have ascertained that there is such a balance, nothing exists to which the name ``profits" can properly be applied.'
12. With respect to Mr. Dalal, I am frankly at a loss to appreciate how reliance on profit cases can be of the slightest assistance to the respondents in the teeth of the decisions to the paint, of the Supreme Court in Volta's case and of the Division Bench in Indian Tobacco Company case which are sufficient to uphold the contention urged by Mr. Joshi and repel the contentions of Mr. Dalal to the contrary. thus the 2% local levy made by the petitioner in Greater Bombay not forming part of the petitioner's manufacturing costs and/or manufacturing profit but constituting a non-manufacturing element, cannot be taken into account in determining the wholesale cash price under Section 4(a).
The last ground of challenge urged by Mr. Joshi was on the aspect of limitation. However , in view of may finding in his favour on merits, the aspect of limitation now becomes academic.
13. In the result, the impugned order dated 28th May 1969, the four demand notices dated 29the May 1969, the appellate order dated 24th July 1974 and the demand notice dated 30th September 1974 are set aside. There will be no order as to costs. Rule is made absolute accordingly.