Bombay High Court
Tata Oil Mills Company Ltd. vs Union Of India And Others on 1 January, 1800
Equivalent citations: 1980(6)ELT768(BOM)
JUDGMENT
1. The petitioners are the Tata Oil Mills Co. Ltd. the manufacturers of vegetable Products under Central Excise Licence No. V/1/1952. The 1st Respdt. is the Union of India. The 2nd respondents is the Appellate Collector of Central Excise Bombay , and the 3rd Respdt. is the Assistant Collector of central Excise, Bombay.
2. In the present writ petition under Article 226 of the Constitution of India, the Petitioners are seeking to quash and set aside three orders, Ex. G. E and C to the Petition. The order dated 20 th December of India, where by the order dated 14 December, 1974, Ex.E. to the Petition, passed by the Appellate Collector of Central of Central Excise, Bombay was upheld and the revision application was rejected. The appellate order, Ex. E. to petition, confirmed the order dated 7th September, 1973, Ex.C. to the petition, passed by the Assistant Collector of Central Excise Bombay, holding that there was a short levy of Rs. 1145. 10 as per the notice to show cause dated 18th March 1970, Ex. B. to the Petition. The second prayer is for a writ of mandamus seeking the withdrawal and cancellation of the said three orders and the refund to the petitioners of the said amount of Rs. 1145. 10. The circumstances giving rise to the present petition are these :
3. The petitioners have been manufacturing vegetable products known as "pakav" admixing there in indigenous cotton seed oil. The distribution and sale of vegetable products at all material times was controlled by the Vegetable Oil Products Controller who fixed the prices statuorily under the Vegetable Control Order, 1947. These prices were fixed by the Controller exclusive of any tax in the past, but during the period from 1st the March, 1969 to 24 the December, 1969, the prices so fixed by the said Controller were inclusive of the element of duty payable thereon. The petitioners' case is that on the use of cotton seed oil in the manufacturer of vegetable products, they were entitled to claim rebate of Central Excise duty on the basis of certain percentage of cotton seed oil used by virtue of the provision of Notification No. 6/62 Central Excises dated 10th February, 1962 as amended from time to time (EX. A to the Petition). In paragraph 6 of the Petition, the petitions say that they were declaring the assessable value of the vegetable product manufactured by there after deducting the element of duty i.e., 5% form the price fixed by the Vegetable Oil Products Controller and then from the duty so payable, they were deducting the amounts of rebate on cotton-seed oil calculated as per the percentage of cotton - seed oils in the manner laid down below-
VOP Control Price Rs. " Wholesale price per tin (2 Kg.) (inclusive of central Excise duty) 10.28 Rate of Central Excise Duty 5% on assessable value.
Therefore the assessable value 10.28 100 ------------------ 105 = Rs. 9.79 i.e. the duty included in the price was Rs. 0.49 Qty. of cotton seed oil used in 2 K.g. Pakav at 40 % = 0.80 K.g.
Rebate on cotton seed oil at Rs. 7.50 per quintal on 0.80 K.g. 0.06 Therefore the met excise duty payable 0.49 - 0.06 = 0.43 per Kg."
5. Being aggrieved by the said order, the petitioners filed an appeal before the Appellate Collector of Central Excise, Ex. E. to the petition who confirmed the order of the Asstt. Collector. The reasoning and the method adopted by the Appellate Collector for arriving at the assessable value was on the same lines filed / a revision application. The revision application was rejected by the 1st respondent by order dated 10th December, 1976, Ex. G. to the petition observing as follows :-
"For the purpose of computing assessable value under section 4 of the Central Excise and slat Act, 1944 the abatement is allowed in respect of the duty payable and the trade discount, if any. They question to be decided is what is the duty payable in the case of a vegetable product, in the manufacture of which a known quantity of cotton seed oil is used. The rate of duty leviable on any product is the one in force at the time of clearance of the vegetable product from the manufacturing premises. This duty is the one referred to in the Schedule to the Central Excises and salt Act, 1944 read with any exemption notification that may have been issued under rule 8 CER, in other words, the effective rate of duty leviable on the product. It is not as if some duty is levied and part of it given away as a subsidy for the use of cotton seed oil. The effect of an exemption notification is to reduce the effective rate or quantum of duty leviable in respect of a given product. The Govt. observe that the duty actually payable is alone eligible for abatement under section 4 ibid and the petitioners' contention, that the abatement should be allowed without taking into consideration the abatement from duty in respect of cotton seed oil, is not correct."
6. On behalf of the respondents, an affidavit in opposition has been made, whereby various contentions raised on behalf of the petitioners are denied. They submitted that the impugn I orders were correctly passed.
7. The Petitioners have chosen to make an affidavit in rejoinder, though nothing is alleged in the respondent's affidavit which calls for a rejoinder. It is inter alia contended therein that the assessable value is not related to the exemption on duty granted in the use of cotton seed oil vide Notification No. 6.62 which can vary from manufacturer to manufacturer and batch to batch depending upon the quantitative usage. Various statements are also made in the affidavit in rejoinder for the first time, namely, that the object of the exemption is to confer a certain benefit as an incentive with a view of encourage consumption of cotton seed oil and that acceptance of the respondents' argument would virtually amount to adding a part of the excise duty to the manufacturing cost and profits while arriving at the assessable value for the purpose of duty which is not permissible.
8. The main contention of Shri Joshi, learned counsel appearing for the petitioners, was that the Department is entirely wrong in arriving at the assessable value. The Department is deducting only Rs. 00.43 after taking into consideration the rebate allowable under the exemption notification. Thus the amount of Rs. 00.06 is being loaded in the manufacturing cost and manufacturing profit which is not permissible. Reliance was placed on (1) A. K. Roy v. Voltas Limited, 1977 Excise Law Times J 177, (2) Atic Industries Ltd. v. H. H. Dave, Asstt. Collector, 1978 E.L.T. J. 444, (3) Madras Rubber Factory Ltd. v. Union of India, 1979 E.L.T. 173, (4) Modi Rubber v. Union of India 1979 E.L.T. J 127 and J 132, (5) Indian Tobacco Co. Ltd v. Union of India, 1979 E.L.T. J 476, (6) Bombay Tyres International Ltd. v. Union of India, 1979 E.L.T. 625, and (7) Union Carbide (India) Ltd. v. Union of India, 1979 E.L.T. J 633.
Thursday, 24th July, 1980.
9. Shri Dalal, learned Counsel appearing for the respondents, contended that in the present case, the excise duty is on the basis of ad valorem value under section 4 of the Act. The wholesale cash price is equal to the price fixed under the Vegetable Oil Products Control Order, 1947. The assessable value for the purpose of excise duty is the wholesale cash price less the amount of duty payable at the time of the removal of the goods and the trade discount, if any. The amount of duty payable is to be construed in the light of Rule 8 of the Central Excise Rules, 1944. Section 4 should be construed in the light of the exemption notification issued under Rule 8.
10. The old section 4 which is applicable to out case was in these terms :-
"Determination of value of the purposes of duty. - 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, or
(b)..........
Explanation. - In determining the price of any article under this section no abatement or deduction shall be allowed except in respect of trade discount and the amount of duty payable at the time of the removal of the article chargeable with duty from the factory or other premises aforesaid."
Now, if this section is looked at unaided and unhampered by precedent of the old section and the new section 4, one finds that it spoke (so far as it is relevant for our inquiry) of the concept of "wholesale cash price" for which an article chargeable with duty at a rate dependent upon the value of the article was sold or capable of being sold at the time of removal of that article from the factory or any other premises of manufacture or production. Out of such "wholesale cash price", the amount of two items could be allowed to be deducted. One was the amount of trade discount and the other was the amount of duty payable. Beyond these two items, there was a kind of a ban on taking into consideration any other element. Such a ban is implied from the words used by the Legislature in the Explanation. The expression used is "no abatement or deduction shall be allowed". The word "abatement" and the word "deduction" have more or less the same meaning in the present context, but the fact that the Legislature has also used the word "abatement" is suggestive of the emphasis on not allowing any deduction save and except in respect of trade discount and the amount of duty payable. Beyond these two items, as I said earlier, there was a kind of an interdict because no other element in determining the price of any article chargeable with duty could be taken into account Shri Joshi has referred to several cases of which reference is given before. What Shri Joshi wanted to cull out from these decisions was that excise duty was leviable only on the amount representing manufacturing costs and manufacturing profits and costs relating to and profits arising from post-manufacturing operations should be excluded. Shri Joshi forcefully submitted that you cannot add to or load to the manufacturing cost and the manufacturing profit which are the sole basis for considering the value of an excisable article.
11. In the instant case, according to the petitioners, the method to be adopted in calculating the duty is the wholesale price less 5% excise duty, namely, wholesale cash price of Rs. 10.28 minus Rs. 0.49=Rs. 9.79 Thus the petitioners work out Rs. 9.79 as the assessable value, whereas according to the Department, the assessable value is to be arrived at by deducting the amount of Rs. 0.06 from the amount of 5% excise duty, and the balance so arrived, namely, 49 paise less 6 paise=43 paise, is to be deducted from the wholesale price of Rs. 10.28. The balance of Rs. 9.85 becomes the assessable value. Can it be said on the facts of the present case that the amount of 6 paise is being loaded to Rs. 9.79 worked out by the petitioners as the manufacturing cost and manufacturing profit? Or is it that the petitioners are the committing an error in working out the figure of Rs. 9.79 by deducting 49 paise out of Rs. 10.28 instead of deducting 43 paise? Now, 6 paise was the amount of duty exempted under Rule 8 of the Central Excise Rules, 1944, from the duty leviable on the excisable goods in question. That meant that 6 paise were to be reduced from the amount of the duty payable before the exemption notification under Rule 8. That being so the amount of 6 paise was deductible from 49 paise. There is not question of 6 paise being added to or loaded to the manufacturing cost and manufacturing profit as propounded on behalf of the petitioners. It seems, to me that the petitioners are adopting an erroneous method of calculation, whereby they are ignoring the amount of 6 paise in the first place. Then they are attempting to deduct the full amount of duty of 49 paise from the wholesale cash price. How can these 6 paise disappear in the calculation? The petitioners have thought of an answer and we will consider the same in the next contention. In my opinion, the REvenue is nowhere guilty of adding 6 paise to the manufacturing cost and manufacturing profit so as to violate section 4(a) of the Central Excises and Salt Act, 1944. This contention must fail.
We now go to the next contention. According to the petitioners, 6 paise, is the rebate given to the manufacturer because the manufacturer uses the indigenous cotton seed oil in the manufacture of the vegetable products in question. Therefore, what is given by way of exemption under the Notification cannot be deducted from the excise duty. Now the exemption notification by itself does not show that the exemption is given to a manufacturer of vegetable product for making use of indigenous cotton seed oil. In order to give the meaning suggested by the petitioners, one has to read into the exemption notification that it is meant to be given by way of benefit to a manufacturer. Shri Joshi also suggested that this exemption is by way of an encouragement to a manufacturer to make use of cotton seeds in indigenous cotton seed oil in the manufacture of vegetable product. This approach of offering encouragement to a manufacturer also cannot be spelt out from the exemption notification. The reason as to why a manufacturer should receive this encouragement or benefit is not stated in the petition, nor such a stand was taken before the Assistant Collector who heard and decided the show cause notice nor before the Appellate Collector who decided the appeal of the petitioners. This stand was also not taken before the Government of India when the revision application was made to it. These factors are sought to be introduced in the affidavit in rejoinder as indicated above. In this connection, on an enquiry being made during the course of the judgment, Shri Joshi pointed out that these factors are not in dispute, though they might not have been mentioned before the Excise authorities at the three stages at which the matter was geared by them. I am unable to agree that these factors were not in dispute because the impugned order passed by the Government of India in revision in terms says : "It is not as if some duty is levied and part of it given away as a subsidy for the use of cotton seed oil". This observation shows that the Government did not intend to give 6 paise as a subsidy to a manufacturer merely because he was allowed to make use of indigenous cotton seed oil. Even at the stage of show cause notice, it was indicated that the method adopted by the petitioners would give them unintended benefits. Thus, the theory of giving the manufacturer a benefit of 6 Paise, as suggested by Shri Joshi, is unwarranted and untenable. On the contrary, this theory introduced at the hearing before me by means of the affidavit in rejoinder and the arguments developed on those basis confuses the issue. The rebate in duty was not a general rebate but on the manufacturer satisfying certain conditions. It is one thing to say that the Government wanted to encourage the use of indigenous cotton seed oil in the manufacture of vegetable oil product, but it is entirely a different thing that the Government intends to give encouragement to the manufacturer to make use of indigenous cotton seed oil to earn the rebate in duty. Cotton seed oil is probably cheaper and, therefore, the manufacturer was permitted to substitute cotton seed for the other oil-seed employed in the manufacture of the vegetable oil product before the exemption notification in question. Therefore, the manufacturer did not stand to lose on the use of cotton seed oil. Cotton seed oil possibly cost the manufacturer less than what he incurred for the cost of other variety of oil seeds Assuming that I am not justified in taking into consideration this aspect of the matter, namely, that cotton seed oil was cheaper, though it was not seriously challenged by Shri Joshi when put to him nevertheless I am unable to accept Shri Joshi's submission that the exemption notification was intended to confer a certain benefit as an incentive with a view to encourage consumption of cotton seed oil. This aspect of the case is an after- thought on the part of the petitioners. Even otherwise, there is no material on record to warrant such an approach.
12. To sum up rebate of 6 paise in duty under Rule 8 has to be deducted from 5 per cent ad valorem duty. As indicated above, the exemption was not by way of windfall for the manufacturer but on account of the use of cotton seed oil, and if that be so, then the manufacturer could not retain 6 paise but the same had to be deducted from 49 paise in order to arrive at the actual amount of duty payable, viz. 43 paise.
13. Shri Joshi placed reliance on the judgment of a learned Single Judge of the Andhra Pradesh High court in the case of Andhra Pradesh Paper Mills Ltd., Rajahmundry v. Assistant Collector of Central Excise, 1980 Excise Law Times 210, and in particular on the following passage at page 216 :-
"Duty is levied by section 3 of the Act, read with the Tariff Schedule. The exemption notification issued under rule 8 does not take away the levy . It only grants exemption from the levy in specified circumstances and the specified extent. In other words, because of the exemption the levy of duty is not erased. The object of the notification is to confer certain benefit upon the manufacturer or the buyer/consumer through the manufacturer, as the case may be. In other words, a part of the duty is passed on to the manufacturer of the buyer/consumer, as the case may be, as an incentive, either this view to encourage production or the consumption. Accepting Mr. Subrahamanya Reddy's argument would virtually amount to adding a part of the excise duty to the manufacturing cost and profit while arriving at the value for the purpose of duty which is not permissible."
In that case, the notification which came for consideration seems to have been issued to encourage the production and manufacture of paper, as can be gathered from the opening words of paragraph 2 of the judgment. The judgment does not reproduce the entire notification but only the relevant portion. The Department is that case had relied upon certain written instructions were referred to even in the order of the Assistant Collector which was under challenge. A certain formula had been indicated in those instructions which were applied in that case. It is no doubt that the type of the formula which is indicated in that judgment can also be framed and possibly applied in the present case and being a formula, obviously it would have application. These are some of the distinguishing features of that case which are absent in the present case. This apart, with due respect to the learned Judge who has taken the above view, I am unable to adopt his view. Assuming it has some application to the facts of the present case, the learned Judge was given no reason as to why the arguments made on behalf of the Excise Department would virtually amount to adding a part of the excise duty to the manufacturing cost and profit while arriving at the value for the purpose of duty, on which considerable reliance was placed on behalf of the petitioners.
14. In my view, in the present case, 6 paise are neither being added nor loaded to the manufacturing profit.
15. In the result, the petition fails and is dismissed. The rule is discharged with costs.