Madhya Pradesh High Court
Gwalior Rayon Silk Mfg. (Wvg.) Co. Ltd. vs Union Of India (Uoi) And Ors. on 3 December, 1987
Equivalent citations: 1988(34)ELT562(MP)
JUDGMENT
1. The order of the Court was delivered by C.P. Sen, J. -This is a petition under Article 226 of the Constitution, challenging the Notification No. 170 of 1975-Central Excise, dated 26-7-1975, issued under Sub-section (2) of Section 3 of the Central Excises and Salt Act, 1944 levying excise duty at the rate of Rs. 555/- per metric ton of sulphuric acid of the strength of 93% or more, and claiming refund of the excess amount of Rs. 9,14,050.96 recovered from the petitioner.
2. M/s. Gwalior Rayon Silk Manufacturing (Weaving) Co. Ltd. was incorporated in the year 1947, under the provisions of the Gwalior Companies Act, 1943, having its registered office at Birla Gram, Nagda, in Madhya Pradesh and is an existing company within the meaning of the Companies Act, 1956. The petitioner is, inter alia, carrying on the business of manufacture of viscose staple fibre, rayon grade pulp and sulphuric acid. The sulphuric acid is manufactured by the petitioner at its factory at Nagda and the same has, at all material times, been wholly and exclusively utilised for captive consumption. The petitioner does not sell and has never sold the sulphuric acid manufactured by it in the open market or to any party. The Central Excises and Salt Act, 1944 (hereinafter referred to as the 'Act') is an Act relating to Central duties of excise and to salt. Sulphuric acid at all relevant times was excisable goods falling under Item 14G of the First Schedule to the said Act. At all material times, the duty was at the rate of 10 per cent ad valorem and it was levied from 24-4-1962. Section 3(1) of the Act provides that there shall be levied and collected in such manner as may be prescribed duties of excise on all excisable goods, which are produced or manufactured in India, and at the rates set forth in the First Schedule Under Sub-section (2), the Central Government may, by notification in the Official Gazette, fix, for the purpose of levying the said duties, tariff values of any articles enumerated, either specifically or under general headings, in the First Schedule, as chargeable with duty ad valorem and may alter any tariff values for the time being in force. Under Section 4, where the duty of excise is chargeable on any excisable goods with reference to value, such value shall be deemed to be the normal price thereof, i.e., the price at which such goods are ordinarily sold by the assessee to the buyer in the course of wholesale trade. By notification dated 26-7-1969, under Section 3(2) of the Act, the tariff value on sulphuric acid was fixed at Rs. 245/- per metric ton,, than to Rs. 260/- per M.T. by notification dated 28-11-1970, than to Rs. 385/- by notification dated 14-12-1974, and to Rs. 555/- per M.T. by notification dated 26-7-1975, having the strength of 93% or more, but not exceeding 99%. It is not disputed that this figure was arrived at by the method of weighted average of the price charged by different manufacturers in India. The petitioner is manufacturing sulphuric acid of the strength of 93% to 99%. The petitioner is aggrieved by the levy and collection of excise duty at the rate of Rs. 555/- per M.T. as per notification dated 26-7-197.5 for the period 26-7-1975 to 9-11-1976.
3. The case of the petitioner is that it has been manufacturing sulphuric acid at the cost of Rs. 400/- per M.T. only and the excise duty should have been recovred by fixing the price of sulphuric acid at this rate and not at the rate of Rs. 555/- per M.T. The petitioner cannot be made to pay excise duty at a higher rate fixed on the basis of manufacturing cost of other manufactures. During the period in question, the petitioner has paid the total amount of Rs. 32,72,891.92 for the clearance of the sulphuric acid at the rate of Rs. 555/- per M.T. while actually the duty payable was Rs. 23,58,840.96 and so there is excess payment of Rs. 9,14,050.96. The tariff value fixed under the said notification is in excess of jurisdiction inasmuch as the fixation is violative of the basic concept of excise duty, as contemplated under Section 4 of the Act and is also inconsistant with the said provision. The petitioner by mistake had filed a revised classification list on the basis of the impugned notification on or about 27-11-1978. The High Court of Judicature at Bombay, in Century Spinning and Manufacturing Co. v. Union of India, 1979(4) ELT (3 199), struck down the earlier notification dated 26-11-1970 fixing the tariff value of sulphuric acid at Rs. 260/- per M.T. and the Court further held that the method of weighted average adopted by the respondent to determine the assessable value on all India basis was illegal and improper as the assessable value gets loaded with the manufacturing cost of other manufacturers, which violates the concept of excise duty as visualised by Section 3(2) of the Act, and therefore, the said notification was quashed. The petitioner states that his case is identical to the aforesaid case of the Bombay High Court, the only difference being, he is challenging the subsequent notification dated 26-7-1975, fixing the tariff value on sulphuric acid at Rs. 555/- per M.T. based on all India weighted average. According to the petitioner, the notification is arbitrary, unrelated to the actual value, illegal and ultra vires. Since an objection was taken about undue delay in filing the petition, by way of rejoinder, the petitioner further contended that the excise duty was paid under mistake, which was discovered by the petitioner some time in April 1979, after the decision of the Bombay High Court and imemdiately notice was given to the respondents to refund the excess amount and since the vires of the notification is under challenge, the remedy of appeal or revision under the Act was of no purpose.
4. According to the respondents, the Central Government has been vested with powers to fix the tariff value of the sulphuric acid under Section 3(2) of the Act. It is denied that the fixation of tariff value is violative of the basic concept of excise duty, as contemplated in Section 4 or is contrary to or inconsistent with the said provision. There is a basic difference between the method of determination of tariff value under Section 3(2) and value under Section 4. In view of the amended Section 4, particularly Sub-section (3) the principles laid down under Section 4 have no relevance to the tariff value to be fixed under Section 3(2). It is not possible to assess individually each manufacturer and such a method would be cumbersome and inconvenient and since there are wide fluctuations in prices, in order to get over such a difficulty, the Central Government has been empowered to fix tariff value in such cases. The procedures prescribed under Section 3(2) and 4 are different procedures and are not to be clubbed together. Under Section 3(2) uniform rates of tariff value are to be fixed, which will apply to all manufacturers of that product and need not necessarily be based on the actual manufacturing cost and manufacturing profit of a. manufacturer. The petitioner is not entitled to refund of any amount, much less the amount paid by him, as there is inordinate delay in filing this petition. The provisions of the Central Excises and Salt Act, and the rules made the reunder are a complete Code, where under every order passed is revisable or appealable. By way of reply to the rejoinder it is further contended that the petitioner-company has a legal cell, which is working for the Birla group of the company and they have got legal experts and advisers. The mistake, if any, could have been discovered by them earlier and they need not have waited for the judgment of the Bombay High Court. With reasonable diligence, they could have discovered the mistake. Against the aforesaid decision of the Bombay High Court in Century Spinning and Mfg. Co. (supra) the Government of India have filed a special leave petition, in the Supreme Court, which is pending.
5. It is Section 3(1) of the Act, which is the charging section and creates liability to pay excise duty on excisable goods produced or manufactured in India, and the quantifications are provided under Section 3(2) and Section 4. The Bombay High Court, in Century Spinning and Mfg. Co. v. Union of India (supra), the Madras High Court in Subbarayan v. Union of India, 1979 (4) ELT (J 473), and the Madhya Pradesh High Court in Gwalior Rayon Silk Mfg. Co. Ltd. v. Union of India, 1981 (8) ELT 52 have held that in fixing tariff values pursuant to the power granted under Section 3(2), the Government cannot transgress the limits of excise duty laid down under Section 3(1). Accordingly, if the tariff values fixed by the Government are higher than manufacturing costs and manufacturing profits, they are illegal. Section 3(2) as also Section 4 are machinery sections and no action taken under them could violate the principle laid down by the charging Section 3(1). The fact that there are fluctuations in assessable value, is no reason for fixing a uniform tariff value based on weighted average which introduces irrelevant consideration, viz., the manufacturing costs and manufacturing profits of another producer on an All India basis. This consideration is foreign to the concept of excise an envisaged by Section 3(1) and the concept contemplated by Section 3(1) should be borne in mind while fixing tariff values under Section 3(2). The above view is dissented from by the Kerala High Court in V. Veeran v. Union of India, 1981 (8) ELT 515, holding that the mode of valuation which takes into account only manufacturing costs plus manufacturing profits does not apply to the fixation of tariff value under Section 3(2) as envisaged by new Section 4. So we have to consider whether the three decisions referred to above, including the decision of this court, have to be distinguished, as has been done by the Kerala High Court in view of the changes made in the Act. Section 4 was substituted by the Amending Act No. 2 of 1973, which was brought into force from 1-10-1975. Section 4(3) of the new Act provides that the provisions of this section shall not apply in respect of any excisable goods for which a tariff value has been fixed under Sub-section (2) of Section 3. All the aforesaid three cases are under the unamended Act, i.e., there was no provision corresponding to Sub-section (3) and, therefore, they held that while fixing tariff value under Section 3(2), the principles of Section 4 for determination of value have to be borne in mind.
6. It is necessary to consider the decisions in the aforesaid three cases. In Century Spinning and Manufacturing Co. v. Union of India (supra) the Bombay High Court held :-
"It is clear that the 'value' for purposes of the excise duty on a particular product produced or manufactured by a manufacturer must be arrived at on the basis of the manufacturing cost and manufacturing profits of a particular manufacturer. The mere fact that there are fluctuations in assessable value, it cannot be a reason for fixing a uniform tariff value based on weighted average which introduces irrelevant consideration, viz., the production or manufacturing cost or manufacturing profits of another producer on an All-India basis. This view is foreign to the concept of excise as envisaged by Section 3(1) of the Central Excise Act."
The Madras High Court, in Subbarayan v. Union of India (supra), held :-
" 'Value' for the purpose of duty has to be actual value and not the value arrived at on the basis of all India prices. Since the tariff value has been fixed in the aforesaid notifications on the average of all India prices basis, they cannot, therefore, afford legal basis for levy of duty under Section 3(1) on sugar, the actual price of which even at the control price under the Essential Commodities Act, 1955, varies from state to state and even place to place. Therefore, tariff value for ad valorem charge on free sugar of the petitioner's factory should be fixed in the light of the provisions of Section 4."
This Court, in Gwalior Rayon Silk Manufacturing Co. v. Union of India (supra) held :-
"The guidelines for fixation of tariff value as furnished by Section 3(1) and 4 are that excise is a tax on the manufacturer and production of goods the value of the goods for levy of the duty should take into account only the manufacturing cost and the manufacturing profit and that the price charged by the manufacturer for sale of the goods in wholesale at the factory gate against cash payment represents the real value of the goods for the purposes of assessment to excise duty."
The Kerala High Court, on the other hand, held in V. Veeran v. Union of India (supra) as follows :-
"No doubt, excise duty is on manufacture but it can be levied in any manner the Parliament may consider necessary i.e., whether it may be linked to quantity, value, volume or price of goods produced or it may be measured by the amount involved in the transaction covered. Therefore, it cannot be said that Entry 84, List I of the Seventh Schedule restricts of the competency of the Parliament to impose duty only on the value of the excisable goods produced or manufactured in India."
"It is true that the assessable value under Section 4 will only include the manufacturing cost plus the manufacturing profit and will exclude the post-manufacturing cost and profit arising from post-manufacturing operation. But, this mode of valuation will not apply to the fixation of tariff value under Section 3(2) as envisaged by new Section 4(3) ibid."
"The fundamental distinction between the two provisions is that Section 3(2), unlike Section 4, does not refer to the price at which an individual assessee sells the goods manufactured or produced by him but to the tariff value which is uniform value fixed by the Central Government and is applicable to each assessees failing under that sub-section irrespective of the actual price at which he sells the goods."
"Under the scheme of the Act, Sections 3(2) and 4 are only two methods of fixing the value for levy. Both are value deemed for levy, both air at quantifying the tax, while under Section 3(2) and 3(3), flat value is fixed by the Government with reference to all or certain classes of manufacturers or with reference to all or certain classes of manufacturers or with reference to different classes of the same excisable goods but under Section 4, it is for the assessing officers to arrive at the assessable value in the manner laid down in that section."
7. It may be mentioned that all the notifications considered in the aforesaid three cases were notifications issued before Section 4 was substituted by the present section. The present Section 4(3) clearly excludes the application of other provisions of Section 4 in fixing tariff value under Section 3(2). In the Bombay case Century Spinning and Mfg. Co. v. Union of India (supra), it was held that on reading the provisions of Section 3(1) and 3(2) and Section 4 together, it appears that it being a tax on production and manufacture of goods, the outer limit for fixation of the assessable value is the manufacturing cost together with manufacturing profit, which has been expressed to mean the wholesale cash price in Section 4. If a uniform value is contemplated by the Central Government for administrative convenience or for other reasons, the provisions do not empower them to exceed the manufacturing cost and manufacturing profit of the producer and if the tariff value is to be fixed, it will have necessarily to be the lowest of the manufacturing cost and manufacturing profit of the producers or manufacturers in the country. The Madras High Court, in Subbarayan v. Union of India (supra), held that the value so fixed under Section 3(2) being on the average actual all India prices basis, such tariff values are not fixed in accordance with and as directed by the provisions of Section 4, which have to be followed in fixing the tariff values, to be notified under Section 3(2). This Court, in Gwalior Rayon Silk Mfg. Co. v. Union of India (supra), held that the administrative reasons for fixing tariff value by the Central Government cannot be such, which will go against the guidelines mentioned in Section 3(1) and Section 4. Clearly, therefore, the reasonings given in the aforesaid three decisions are not of any pursuasive value to decide the validity of the notification issued under Section 3(2), subsequent to the amendment of Section 4. The intention of the legislature is clear from the express provision in Section 4(3). Different method of valuation can be resorted to for fixing tariff value under Section 3(2). No doubt, excise duty is levied on production or manufacture, but it can be levied in any manner the Parliament may consider necessary. Section 3(2) empowers the Central Government to fix tariff value and in fixing this tariff value, the provisions of Section 4 have no application. Though the Bombay High Court has clearly said that fixation of uniform tariff value based on weighted average is foreign to the concept of excise as envisaged by Section 3(1) of the Act, but it does not appear to be the correct proposition of law. The Supreme Court, in Anakapalle Co-op. Agriculture & Industrial Society Ltd. v. Union of India - AIR 1973 S.C. 734, has held :-
"The averages and weighted averages have been properly worked out by the Commission for the purpose of 'fixing price in respect of the varying figures of different items of cost. The method of working out the weighted averages is well knwon is the determination of price and has been employed in working out the cost a tructure of the sugar industry and fixing of sugar prices on prior occasions also, e.g. in 1959 by the Tariff Commission."
It has also been rightly pointed out by the Kerala High Court in Veeran's case (supra) that the value of excisable goods produced may vary from manufacturer to manufacture or from region to reion. So many factors may affect the manufacturing cost to a manufacturer. A scrutiny of these by the Department in relation to each manufacturer to impose tariff ad valorem will be a stupendous task. It will further increase if the number of manufacturers is large and they are having only small industrial units. The expenses of the establishment likely to be incurred by the Government for such an arduous task will be enormous and may wipe out the amount likely to be obtained by the levy. It is to meet this problem, a power is given under Section 3(2) to fix tariff value for some items.
8. Since the amendment in Section 4 has come into force from 1-10-1975 there has to be two sets of assessment, one for the period 26-7-1975 to 30-9-1975 and the other from 1-10-1976 to 9-11-1976. For the earlier period, the petitioner will have to be assessed on the basis of the unamended section, i.e. as per the law laid down in the aforesaid three cases of the Bombay, Madras and M.P. High Courts, and, therefore, the petitioner is liable to pay excise duty on the basis of his manufacturing cost, which he claims to be Rs. 400/- per M.T. It will be open to the department to ascertain the manufacturing cost and profit and levy excise duty accordingly, and the excess amount paid should be adjusted towards future excise duties recoverable from the petitioner. The petition has to be allowed to the extent of this period only.
9. Regarding the subsequent period, the petitioner has been rightly assessed and excise duty recovered, on the basis of the tariff value fixed at Rs. 555/- per M.T. as per notification dated 26-7-1975, in view of Section 4(3) as introduced from 1-10-1975. It is undisputed that the tariff value has been fixed on the basis of weighted average and the grievance of the petitioner is that no material has been placed on record to show how this weighted average of Rs. 555/- has been arrived at. The petitioner itself has annexed with its rejoinder, copy of an application for amendment of the return filed by the respondents, in the Gwalior Rayon Silk Mfg. Co. v. Union of India (supra), wherein it was mentioned that the tariff value has been fixed on the basis of weighted averages of price collected from the manufacturers throughout India by the Central Government. It is further stated that the fixation of the tariff values on the weighted average basis is the only workable method for determining the assessable value which is fair and acceptable to all the manufacturing units throughout the country. It is further submitted that these tariff values have been fixed after taking into consideration the representations by the manufacturers. The weighted average price is determined after taking into consideration cost of manufacture, amount of profit, sale price and market fluctuations. Besides, in the return, the respondents have submitted that the tariff value was fixed as per information supplied by the officers regarding the market value of the commodity in question and after taking into consideration all the relevant factors. The notification in question was issued on 26-7-1975. If the petitioner was aggrieved by the fixation of the tariff value, it could have challenged the same immediately and now after 6 years, it cannot be permitted to raise the question about the correctness of the tariff value so fixed. Moreover, there is a presumption that all officials acts have been properly and regularly done and there is no counter-affidavit, denying that the weighted average was not properly determined. Therefore, the petitioner cannot be heard to say that the notification should be struck down because all necessary records have not been produced by the respondents at the time of hearing.
10. Now remains the question about limitation. It is evident that for the period 26-7-1975 to 30-9-1975, the petitioner under a mistake, paid excise duty at the rate of Rs. 5557- per M.T., while excise duty was payable at the petitioner's manufacturing cost of Rs. 400/- per M.T. Mistake could be said to have come to the knowledge of the petitioner after the decision of the Bombay High Court in Century Spinning & Mfg. Co. (supra) delivered on 27-11-1978. The petition has been filed on 4-8-1981, i.e., within three years, when the mistake was discovered. Therefore, the claim is within time, as has been held by the Supreme Court in State of M.P. v. Bhailal Bhai - AIR 1964 S.C. 1006, wherein it has been held that it is reasonable to think however that the petitioners must have discovered their mistake as soon as the High Court's decision, in the case of Mohammed Siddiq v. State of Madhya Bharat, dated. 17-1-1956 -AIR 1956 M.B. 214 became known to them. All the 16 applications were made within less than three years from 17-1-1956. The High Court has taken the view that this was not unreasonable delay and in that view has ordered refund. This appears to be a sound and judicial exercise of discretion with which this Court ought not to interfere. A Division Bench of this Court also, in Caltex (India) Ltd. v. Asstt. Commissioner of Sales Tax, AIR 1971 M.P. 162 held that under the Indian Limitation Act, 1908, a claim for relief on the ground of mistake was governed by Article 96 and time commenced to run from the date when the mistake becomes known to the plaintiff. Article 96 has been omitted in the new Limitation Act of 1963. However, Section 17(1)(c) of this new Act provides that in the case of a suit for relief from the consequences of a mistake, the period of limitation shall not begin to run until the plaintiff has discovered the mistake or could with reasonable diligence have discovered it. In that case, limitation commenced, in view of the decision of the Supreme Court on 14-4-1967, in State of Madras v. Nandlal & Co., AIR 1967 S.C. 1758 and the petition filed within three years was held to be in time. Therefore, the objection of limitation is over-ruled so far as the petitioner's claim for excess payment for the period from 26-7-1975 to 30-9-1975 is concerned.
11. With the result, the petition is partly allowed. The respondents are directed to adjust excess amount paid as excise duty on the sulphuric acid manufactured by the petitioner during the period 26-7-1975 to 30-9-1975, towards the future dues of excise duty payable by the petitioner. There shall be no order as to costs. The outstanding security amount be refunded to the petitioner.