Bombay High Court
Century Spining And Manufacturing Co. vs Union Of India on 1 January, 1800
Equivalent citations: 1979(4)ELT199(BOM)
JUDGMENT
1. The Century Spining & Manufacturing Company Limited, the Petitioner herei, has filed two petitioner under Articles 226 of the Constitution of India-challenging the notifications of the Central Government issued under sub-section (2) of section 3 of the Central Excises and Salt Act, 1944 (for brevity's sake, hereinafter referred to as "the Act"), fixing tariff values of sulphuric acisd and chlorine for the purpose of levying excise duty as required under sub-section (1) of section 3 of the Act.
Special Civil Application No. 1066 of 1972 relates to the fixation of tariff value for its products vix. sulphuric acid of the strenght between 93 to 99% while the Special Civil Application No. 1271 of 1972 relates to the fixation of tariff value for its products, viz. chlorine manufactured by it.
2. In exercise of the powers conferred by sub-section (2) of section 3 of the Act, the Government of India issued a notification dated November 28, 1970 wherby it fixed for unpurified sulphuric acid falling under Item No. 14G of the first schedule to the Act the tariff value,(a) if its strength is ninety-three per cent or move but does not exceed ninety-nine per cent at Rs. 260/-per metric tonne; and (b) if its strenght is less than ninety-three per cent at an amount bearing to the amount ot two hundred sisty rupees, the same proportion as the strength ofthe acid bears to the minimum strength of ninety- three per cent. This notification was issued in supersession of the earlier notification dated July 26,1960, fixing the tariff values in respect of the said product of varying strenght. In the case of other product manufactured by the Company, viz., chlorine liquid also a similar notifaication dated July 26, 1971, was issued fixing the tariff value of Rs. 500/- per metric for the purpose of levying of excise. Under sub-section (1) of section 3, it is provided that there shall be levied and collected in such manner as may be prescribed duties of excise on all excisable goods other than salt which are produced or manufactured in India and a duty on salt manufactured in or imported by land into any part of India as, and at the rates, set forth in the First Schedule. Entry No. 14G of the Girst Schedul;e provides for ten per cent ad valorem value on sulphuric acid and some other acids mentioned in the said entry for levying excise duty on products and manufacture as required by sub-section (1) of section 3. The said impugned notification were issued by the Central Government under sub -section (2) of section which empowers the Central Government to fix by notification in official Gazette 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 chargeble with duty ad valorem. The said sub-section also empowers the Central Governemrnt to alter any tariff values for the time being in force. Apart from the Petitioner company, these two items are manufactured by various other manufacturs in India. The manufacturing cost of these articles of the different companies varies, and what the Central Governmenrt has done is to take the weighted average of each of the manufacturee for a particular period and then fix uniform tariff value for these two articles by taking the weighted average of the manufacturing cost or the saleprice of all the manufacturers, and the figure arrived at by this process of weighted average is fixed by the said notification at the tariff value for the purpose of levying of excess duty under sub-section (1) of section 3, According to the petitioner company, the tariff value cannot be fixed by the Government so as to excees the actual manufacturing cost as the excise duty can be leviable only on the production and manufacture of the product. It is the case of the petitioner company that by arbitrarily fixing the tariff values as has been done by the present impugned notifications, they are illegally made to pay higher rate of excise duty than 10 per cent of the value which has been at 10 per cent under Entry No.14G in respect of sulphuric acid, and at 10 percent under Entry No.14H in respect of chlorine as ad valorem excess duty on those items. According to the petitioner, the tariff value fixed in the case of these products far exceeds the amount of manufacturing cost and manufacturing profit which should be the sale basis for leving the excess duty under sub-section (1) of section 3. By the arbitrary manner in which the tariff values is fixed, the petitioner company is in effect made liable to pay excise duty at a rate much higher 10 per cent prescribed in Entries Nos. 14Gand 14H as its manufacturing cost and manufacturing profits is far below the amount mentioned in the two notifications.
3. Since the issuance of the two notifictions fixing the tariff value at Rs.260/- per maetric tonne of sulphuric acid and at Rs.500/-per metric tonne of chlorine, the petitioners were clearing the said two products on the basis of the said tariff values protest. The difference in excess duty according to the petitioners on the basis of the invoice value which is equivalent to the manufacturing cost and manufacturing profit which should be taken as assessable value, the tariff value comes to about Rs. 1,59,369.75 from December 1970 to 1st May, 1972 in respect of sulphuric acid. Similar calcultions have been given by the petitioners in the case of chlorine manufactured by them and the difference in excise duty on the besis of theinvoice value being the assessable value the tariff value according to the petitioners comes to Rs. 42,091.20 for the period from August 1971 to 1st May, 1972, and the petitioners have demonatrated by annexing various chats to the petitions that the invoice value which represented the manufacturing cost and the manufacturing profit which is the assessable value is much less during the period in question. It is not necessary for us to give all these details, but us sufficient to state that according to the petitioners, the purposed tariff values fixed by the Central Government were wholly unrelated to the actual value and/or price the assessable value of the goods manufactured by it and were far in excess of it According to the petitioners, by such arbtray method of issuing the notifications under sub-section (2) of section 3, the petitioners in effect are made liable to pay 12 per cent of excise duty on assessable value on sulphuric acid and about 17 per cent of excise duty in the case of chlorine although the entries in the First Sechdule provide for a rate of 10 per cent ad valorem on the tariff value, It is the case of the petitioners that the Government cannot obliquely by resorting to the provisions of sub- section (1) of section 3 of the Act illegally increse the rate of the excise duty. The notification have been challenged by the petitioner on various grounds in their petition, and , in short, they are-
(a) The tariff value fixed under the notifications is arbitrarily high and is entirely unrelated to the actual value or the price of the assessable value of the two products, and therefore, the tariff values fixed under the said notification are illegal, ultra vires and inconsistent with the provisions of the Act, as it is not open to the Central Government to fix or to continue to fix the tariff value on any articles which does not approximate to or which ceases to approximate to the price and value of such goods. The tariff value must approximately correspond to and must have a rational connection with the actual value or price and assessable value of such goods or, in other words, must correspond to the manufacturing cost and manufacturing profit which alone represents the real assessable value of the goods charged with excise.
(b) The manipulation of the tariff value in the manner done by the Central Government results in the rate of duty being susbstantially enhanced although the Legislature has empowered the Central Govenment only to collect duty at the rate of 10 per cent and not at a higher rate.
(c) The impugned notification are arbitary, prevese, and display a non-application of mind on the part of the authorities as the tariff values are fixed unrelated to the value or price or the manufacturing cost and manufacturing profit of the products.
(d) Aternatively, the petitioners also contend in their petitions that in the event of it being held that the Central Govenment can fix any tariff value of any excisable goods, the provisions of sub-section (2) and (3) of section 3 would be ultra and violative of the provisions of Article 19(1)(f) and (g) of the Constitiution as these provisions so, construed would confer power on te Exccutive Government to fix tariff value without any guide-lines or fetter and at its complete discretion. Such power being unfettered, uncanalised and unlimited would empower the Executive Govenment to multiply the rate Act. Secondly, it is also submitted in the petition that the said provisions, viz. subsections (2) and (3) of section 3 of the Act would be violative of Articles 301 to 305 of the Constitution and also the petitoners' rights under Article 14 of Constitution. According to the petitioners, the class of assessees for whom tariff values may be fixed for ad valorem duty and the class of assessees for whom no such tariff values are fixed is left to the sweet will and absolute and unfettered discreation of the Central Government without laying down any guide-lines or criteria with the result that the Central Govenment can pick and choose and product for fixing its tariff value at its sweet will and omit other products for such fixation. Such discrimination being inherent under the impugned provisions, they would violate the fundamental rights guaranteed to the petitioner under Article 14 of the Constitution.
4. On these premises, the petitioners have filled the two petitions, In Special Civil Application No. 1066 of 1972, the petitioner-company has prayed for a writ of mandamus for quashing and setting aside the notification dated November 28,1970 and for a writ of mandamus directing the respondents not to enforce the said notification agaist the petitioners. The petitioner-company also seeks for a writ mandamus to get excise duty in the sum of Rs. 1,59,369.75p.being the difference in duty calcuated on the basis of the tariff value and the invoice value of the petitioners' sulphuric acid for the period from December 1970 to 1st May, 1972. In the other petition, viz. Special civil Application No. 1276 of 1972, the relefs claimed by the petitioners are for a writ of manufactus for quashing and setting aside the notification dated July 26, 1971, and also for a writ of mandamus directing th erespondents not to enforce or implement the said notification and further for a writ of mandamus directing the respondents to refund to the petitioners the excise duty in the sum of Rs.42,091/- being the difference in duty calcuted on the basis of the tariff value and the invoce value of the chlorine for the period from August 1971 to 1st May, 1972.
5. On rule being issued, affidavits in reply were filed on behalf of the respondents in Special Civil Application No. 1066 of 1972. The affidavit of Shri S. R. Narayan. Under Secrtary to the Government of India, Central Board of Excise and Customs, New Delhi, shows that notifications fixing the tariff values in respect of sulphuric acid were being issued from time to time since the year 1962. Tese tariff values wrer fixed time to time on the basis of weighted average value of sulphuric acid based on statistics collected. This weighted average value was based on the data collected on all-India basis. It is also contended in this affidavit that it would be a practicable mathod to fix tariff values on the basis of weighted average on all-India basis by taking into consideration the assessable values of the different manufacturers and then taking a weighted average thereof which would be auniform rate of tariff for all the manufacturers. It was been also pointed out that in some of the sales in view of the tariff value so fixed the petitioners have benefited as they were required to pay excise duty at a rate less than would have been payable under section 4. It was also pointed out that there is a difference between the method of determining the value under section 4 and under sub- section (2) of section 3, and once the tariff value is fixed, the determination of value under section 4 would be irrelevent. In the affidavit, the fixation of tariff value in respect of these items has been justified on the ground that it is a useful method to fix tariff value where the price fluctuations is violent and it has been pointed out that the tariff values hvae been fixed after a close of price fluctuations, and it cannot, therefore, be said that the Central Government has absolute and unfettered discretion which is being used in an arbitary manner. A similas approach is found in the affidavit of Shri S. R. Narayana is Special Civil Application No. 1276 of 1972 in respect of chlorine and the fixation of the tariff values on weighted average bassis is justified on the ground that it is the only workable method for determining the assessable value which would be fair and acceptable to all the manufacturing units throughout the country. It has been contended that by its very nature, such an average value is boud to be higher or lower or even at per with the selling prices of the various manufacturers,but this cannot be helped if a uniform tariff rate is to be fixed. It is futher stated in the affidavit that since 1962, notifications were issued by the Central Govenment fixing the tariff values of chlorine and other products in gaseous form. Representing were also made by certain manufactures and by the Western U.P.Chambers of Commerce and Industries for fixation of tariff values. The various Collectorates were asked to funish particulars regarding the assessable value of the various gases manufactured is their Collectorates, and after the data was collected from them, tariff values were fixed for various including the chlorine. It was pointed out that even in the case of chlorine, there has been a considerable fluctuations in its price. This contention was sought to be demonstrated by reference to the information regarding the manufacturing cost and manufacturing profits of chlorine gas manufactured by the petitioners for the period from January 1972 to April 1972.In the month of January 1972, there was a fluctuation was between Rs. 250 to Rs.800 : in the month of March 1972, it was between Rs. 250 to Rs.1,000, and in the month of April 1972, the price fluctuation was between Rs. 250 to Rs. 800. It was contended that there is a considerable fluctuation in price and a uniform rate of tariff value might at times also be to the benifit of the petitioner- company when the manufacturing cost and the manufacturing profit would be higher than the tariff value, although it may be put to a loss when such value is actually less than the tariff value. The respondents deny the petitioner's contentionthat the impugned notification issued under sub-section (2) of section 3 of the Act were arbitrary or unresonable or that the provisions of sub-section (2) of section 3 and sub-section (3) of section 3 were ultra vires or violative of any provisions of the Consideration of India. It is not necessary for, us to elaborately mention the order points made out in the affidavits in reply having regard to the arguments advanced by the Counsel on both sides.
6. M/s. Bhat and Cooper, the Counsel appearing for the petitioners. confirmed their challange to the impugned notifications as being contrary to the provisions of section 3(1) which was the charging section.It was urged by the Counsel that the primary charging provision is the sub-section(1) of section 3 whereunder excise duty is to be levied on the activity of production and manufacture, and for the purpose of calculating the excise duty, only that value which represents the manufacturing costs and manufacturing profits is relevent. If in arriving at the assessable value, whether by resorting to the method under section 4 to the method provided in sub-section (2) of section 3, the assessable value is fixed or gats fixed at a value hagher than the manufacturing costs and manufacturing profit, it would contravene the charging section viz. sub-section (1) of section 3, as the excise duty is leviable only on production and m,anufacture of the product. It was submitted that application of the weighted average method which takesinto account the manufacturing cost and manufacturing profit of other manufacturers results in artificially and arbitraily inflating the manufacturing cost and manufacturing profit of a pariticular manufacturing,and such a fixation of value is impermissiable in view of the provisions of the charging section, viz. section 3(1). It was contended that while section 3(1) is the charging section, the other sub-section of section 3 as well as section 4 are mearly machinery sections to arrive at the manufacturing cost and manufacturingprofit and are subject to the concept of excise duty as contemplated in the charging section 3(1), and therefore, while fixing the tariff value under section 3(2), a value in excise of manufacturing cost and manufacturing profit could not be fixed. Under the said provisions, the tariff value can be the only which is equivalent to or less than the actual manufacturing cost and manufacturing profit taken together.It is also contended that asmittedly there is a vast disparty between the cost of the sme product manufactured by the petitioner and other manufacturers and there is also a violent fluctuation in price of these products. The method of weighted average adopted by the Govenment is wholly irrational and arbitrary method of assessing the value and compelling the manufacturer to pay excise duty which he could not be pay in law, and by this dubious method of weighted average adopted by the respondents, the rate of 10 per cent provided in the entries 14G and 14H is indirectly incresed by enhancing the price.
7. In Support of these contentions , the Counsel placed reliance on the decision of the SupremeCourt in the Voltas' case, viz. A.K.Roy Voltas Ltd., and Atic Industries Ltd.v. H.H.Dave, Assistant Collector of Central Excise and Ors., . The Counsel also relied on the decision of a Division Bench of this Court in Miscellaneous Petition No. 293 of 1974 Indian Tabacco Co. Ltd.v. The Union of India and others decided on 15th December, 1975, and a recent decision of Andhra Pradesh High Court in the case of Union of India v. Vazir Sultan Tobacco Co., 1978 E.L.T. (J 461)=1978 Taxing Law Report 1824.
8. On the other hand, Mr.Paranjpe, the learned Counsel appearing for the respondents, white not disputing the position that the manufacturing cost and manufacturing profit should be the basis for the purpose of arriving at the assessable value for the purpose of levying the excise duty under sub-section (1) of section 3,contended that the provisions of sub-section (2) of section 3 and section 4 lay down two different methods for finding out the manufacturing cost and manufacturing profit. While the method provided in section 4 would require the fixation of actual manufacturing cost and manufacturing profits a different menthod canbe devised to fix a uniform rate of fixing a tariff value which would apply to all the manufacturing of the same product. He submitted although in view of the provisions of the chargingsection, viz section (3) (1) which empowers the Government to levy excise duty on products and manufactures, it need not necessarily be based on the actual manufacturing cost and manufacturing profit, and for administrative convenience, the Government may apply a different and suitable method such as weighted average method as is done in the present case which wouold obviate the necessity of going into the question of actual manufacturing costs and manufacturing profits in each case. He submitted that such a method would in certain cases be equitable and retional and merely because a particular menufacture may be required to pay a higher amount of excise duty because of weighted average method being employed, that would not be a ground for holding that the tariff value fixed does not provided adequate to the manufacturing cost and manufacturing profit which provides the basis for levying excise duty under sub-section (1) of section 3. He pointed out that on occasions, the petitioner-company also has been benifited by the fixation of the uniform tariff rate as the assessable value representing the manufacturing cost and manufacturing profit of its product was higher. Mr. Paranjps submitted that section 3(1) does not lay down any mehtod of ascertaining the value of excisable goods and that function is left to be performed by section 3(2) and while section 4 provides for fixing assessable value in respect of individual removal of excisable goods in the basis of the wholesale price of such goods at the time removal from the bonded warehouse, such a method is cumbersome and inconvenient in respect of commodities or goods facing wide fluctuation of wholesale price.It is precisely to meet with such eventuality that section 3(2) provides a machinery conducive to administration convenience and to avoid the cumbersome and inconvenient procedure of section 4. The learned Counsel also contended that if the contention of the petitioner- company that the tariff value fixed under section 3(2) cannot exceed the wholesale price or the manufacturing cost or the manufacturing profit is accepted, the provisions of section 3(2) would be rendered nugatory. He submitted that having regard to the scope of section 3(2) read with section 3(3) and section 4, it is possiblke to put a harmonious construction of these provisions provided the tariff value fixed under section 3(2) has some resonable relation or connection with the manufacturing cost and the manufacturing profit. The weighted average method which has been adopted in the present case provides such a nexus because in effect it is based on the manufacturing cost and manufacturing profit of all the manufactures including the petitioners together. The Counsel sought to distinguish the decision relied on behalf of the petitioner-company by Mr. Bhat by contending that thses decisions decided a narrow aspect whether the post- manufacturing cost and post-manufacturing profit could be added for the purpose of arriving at the assessable value and the question of the interpretation of section 3(2) did not arise in those cases.
Section 3 of the Act runs as under:
"(1) Thereshall be levied and collected in such manner as may be prescribed duties of excise on all excisable goods other than salt which are produced or manufactured in India and a duty on salt manufactured in, or imported by land into, and part of India as, and at the rates, set forthin the First Schedule.
(1A) The provisions of sub-section (1) shall apply in respect of all excisable goods other than salt which are produced or manufactured in India, by or on behalf of, Government as they apply in respect of goods which are not produced or manufactured by Government.
(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 heading in the First Schedule as chargeable with duty ad valorem and may alter any tariff values for the time being in force.
(3) Different tariff values may be fixed for different classes or descriptions of the same article."
Section 4 has undergone a change by the Amending Act 22 of 1973 which came into force on October 1, 1975. We are concerned with the position of law prior to the said amendment.Unamended section 4 runs as under:
"4. Where under this Act, any article is chargeable with duty at a rate department on the value of the article, such value shall be deemedto 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 palce of manufacture or production, or if a wholesale mark+et does not exist for such article at such place, at the near place where such market exists,or
(b) where such price is not ascertainable, the price at which an article of the like kind and quality is sold or is capable of sold by the manufacturing or producer, or his agent, at the time of the removal of the article place of manufacture or production or if such article is not sold ot is notcapable of being sold at such place at any other place nearest therto.
Explanation:-In determining the price of any articl under this section, no abtement 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."
9. It is undoubtedly true that in all the four decisions which have been referred to above and relied on by the petitioners, the interpretaion of section 4 was directly involved, and the provisions of section 3(2) and 3(3) were not required to be interpreted. Therefore, before adverting to the said decisions, we would like to consider the effect of the provisions of section 3 and 4 independently and see whether the Government can fix tariff values on the weighted average basis which would have the result of fixing higher assessable values and would required the manufacture to pay at a higher rate although the production cost of particular manufacture is much les. In view of Entry No. 84 in the Union List int he 7th Schdule the Parliament has power to Legislate on duties of excise on tobacco and other goods manufactured or produced in India except (a) alcholic liquors for human consumption: and (b) opium, Indian hemp and other narcotic drugs and narcotics, but including and toilet preparations containing alcohol or any substance included in sub-paragraph (b) of this entry. This the excise duty can be levied on production and manufacture of goods referred to in Entry no. 84. Section 3(1) of the Central Excises and Salt Act, 1944, provides that there shall be levied and collected duties of excise on all excisable goods which are produced or manufactured in India at the rates set forth in the First Schedule. The charging section, therfore, enables levy of excise duty on production and manufacture fo goods. Itis , therefor ,clear that the levy of excise must have relation to hte production or the manufacturing cost of the goods produced bya manufacturer. Any levy of excise which takes into account the factors which are not connected with the production cost and profit on goods by the manufacture would be legal. That sub-section (1) of section 3 is the charging section and the objectives must be to levy excise as laid down in sub-section (1) is also clear from the wording of section3(2). The power conferrred on the Central Government to issue notifications must be for the purpose of levying the said duty which means the duties leviable under sub-sec.(1)_ of section 3. It would at once, therfore, be clear that the Central Government cannot transgrss the limits of levying excise duty as laid down in sub-section (1) of section 3 by fixing the tariff values which have the result of fixing the values higher than the manufacturing cost and the manufacturing profit of the product. Under section 4, it is the wholesale cash price which is the assessable value. It is well sttled that the "wholesale cash price" means the manufacturing cost and manufacturing profit, and the post- manufacturing cost and the post-manufacturing profit has got to be ignored for finding out the assessable value for levying the excise duty at the rates laid down in the Schedule. As stated before, in view of the Entry No. 84. the Parliament has the competence to legislate on duties of excise on the goods manufactured or produced in India. Section 3(1) of the Act postulates levy of duties of excise on the goods which are produced or manufactured. In other words, the true charcter of excise duty is the tax on production and manufacture of goods. It would, therfore follow that a levy of excise duty to be valid must be based on the production or manufacturing cost in additon to the manufacturing profit as the basis of excise duty. The valuation for the purpose of levying excise duty thus solely depends on the production and the manufacturing cost and manufacturing profit of the product. This necessarily would exclude the inflaction of cost and profit by the weighted average method average or otherwise. One producer or a manufacture has no control whatsoever over the production or manufacture by another manufacture or producer. It appears to us clear that the value for the excise duty on a particular product produced or manufactured by a purchaser or a manufacturer must be arrived at on the basis of manufacturing cost and manufacturing profit of that particular purshaser or manufacturer. The weighted average basis necessarily introduces irrelevent considerations, viz, the production or manufacturing cost or manufacturing profit of another manufacturer or producer altogether. This in our view would be foreign to the concept ot excise as envisaged by the charging section 3(1). On a consideration of the scheme of the provisions of sub- section (2) and (3) of section 3 and section 4, it would appear that they are machinery provisions which must confirm to the main charging section which is sub-section (1) of section 3 and cannot go beyond that. The wording of section 3(2) shows that the Central Government has been vested with the power to fix tariff values"for the purpose of levying the said duty,"that is, "the duties as contemplated by sub- section (1) of section3" Sub-section (2), therfore, is a provision intended to achive the object envisaged by sub-section (1) of section 3, viz, to levy duties of excise on goods which are produced or manufactured in India.If we turn to section 4, we find that it is also a machinery provision for determiningthe assessable value of the article. Under the said provision, it is the wholesale cash price which determines the assessable value.It is now well sttled that the expression "wholesale cash price" is equivalent to the manufacturingcost cost or manufacturing profit and does not permit the addition of any item which constitutes post-manufacturing cost or post-manufacturing profit. The provisions of section 3(2) and section 4 being clearly in the natur of machinery provisions for the implemention of the object of section 3(1), these provision cannot be constructed so as to frustrate the provisions of section 3(1). When the assessable value is to be determined under section 4, according to the said provisions, it is equivalent to the wholesale cash price. It is possible that the administration or for other various resonse, the Government can exercise power under section 3(2) and fix a uniform tariff value of the goods,but having regard to the ambit or the levy of duties of excise in section 3(1), the Central Government would not have power to fix the tariff value which would have the effect on enhancing the valuefor the purpose of levy of excise. The weighted average to arrive at the tariff value adopted in the present case,if it e4xceeds the actual production or the manufacturing cost or manufacturing profit of the petitioner-company would obviously go beyond the scope of the charging section 3(1), and, therfore, it would be necessary to construe section 3(2) so as to be consistant with the charging section and the nature and character of the excise duty as envisaged by the charging section. If the object in issuing the notification is to fix a uniform tariff value of a particular article, this object can be achived by fixing the tariff value equivalent to the lowest manufacturing cost and manufacturing profit of the different manufacturing of fixing it at a lower rate than the lowest of the manufacturing or production cost. In short, while fixing the tariff under section 3(2), the value in excess of manufacturing cost and manufacturing profit could not be fixed and it is only the value which is equivalent to lesser than that can be fixed. We are under to accept the connection of Mr. Paranjpe that the construction which we are inclined to put on the provisions of section 3(2) would render either of the two provisions. viz. sec 3(2) and section 4, redundant or nugatory. Both section 3(2) and section 4 being machinery sections to be operated to achive the object ot levying excise duty under the charging section 3(1), in any case, the assessable value cannnot be fixed in excess of the manufacturing cost and manufactring profit, In our view, section 4 provides for a dirct method for determining the value for the purpose of duty, and it is the wholesale cash price which determinessuch a value. It does appear that section 3(1) read with section 3(2) enables the Central Government to fix a uniform tariff value for a particular article. The Central Govenment would be in a position to exercise such power for reasons administration convenience to avoid continuous watch and scrutiny of the manufacturer's or dealing, but that does not mean that section 3(2) permit a fixation of value which the producer or a manufactrure woul demonstrate to be higher than his manufacturing cost and manufacturing profit.
10. On reading the revision of section 3(1) and 3(2) and section 4 together,it appears to us that it being a tax on production and manufactre 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 contemplated by the Central Government for administrative convenience or for other resons, 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, wil have necessarily to be the lowest of the manufacturing cost and manufacturing profit of the producers or manufacturs in the country. It is, therefore, not possible for us to accept the contention that the provisions of section 3(2) would be rendered nugatory or rendendant by reson of such construction of the provisions. In this connection, it would be useful to refer to the chart submitted on behalf of the Union of India showing the basis of the weighted average to fix a uniform tariff value for sulphuric acid. This chart shows that the average assessable value of sulphuric acid manufactured by the petitioner company during the period between January to March 1970 was Rs. 210/- and is the lowest. On the other hand, the average assessable value of various other manufacturers is much higher, the being Rs. 442/- Weighted average method necessarily involves the affact of addition of excess amount for levying excise duty. The mere fact that there are fluctuations in the prices or the values cannot be a ground for fixing the higher rate and charging higher excise duty. On the contrary, that would be precisely a ground for not fixing a uniform value because if the price and assessables values (manufacturing cost with manufacturing profit) are considerable, it would cause and undue burden on the manufacturers. Inany case, the mere fact that there are fluctuationin assessable value, it cannot be a reson for fixing a uniform tariff value based on the weighted average method which takes into account higher value of the other manufacturers. We are unable to accept the argument of Mr. Paranjpe that the weighted average method on all India basis affords a nexus for the purpose of levying of excise duty under section 3(1). Such a method on the face of it would introduce wholly an irrelevent consideration and would provide no nexus whatsoever for finding out the assessable value of an individual producer or a manufacture. Once it is accepted that for the purpose of section 3(1) which is the charging section manufacturing cost and manufacturing profit alone should be the basis which position has also not been disputed by Mr. Paranjpe it would logically follow that section 3(2)which is a machinery provision must not overstep the limits and prescribe a higher rate whatever may be the reson for fixing a uniform tariff value.
11. We may now refer to the decision to which our attention has beendrawn by the Counsel for the petitioners. The first case of the point isthe case of Voltas Ltd, A. K. Roy v. Voltas Ltd. While construing the ambit ofsection 4 and the true meaning of the expression "wholesale cash price"which question was directly involved in that case, the Supreme Courtobserved in paragraph 21-
"Excise is a tax on the production and manufacture of goods (see Union ofIndia v. Delhi Cloth and General Mills . Section 4 of the Act therefore provides that the real value shouldbe found after deducting the selling cost and selling profits and thatthe real value can include only the manufacturing cost and themanufacturing profit. The section makes it clear that excise is leviedonly on the amout representing the manufacturing cost plus themanufacturing profit and excludes post-manufacturing cost and the profitarising from post-manufacturing operation, namely selling profit. Thesection postulates that tghe wholesale price should be taken on the basisof cash payment thus eliminating the interest involved in wholesale pricewhich gives credit to the wholesale buyer for a period of time and theprice has to be fixed for delivery at the factory gate hereby eliminatingfreight, octroi and other chages involved in the transport of thearticles. As already stated is is not necessary for attracting theoperation of Section 4(a) that there should be a large number ofwholesale sales. The quantum of goods sold by a manufacturer on wholesalebasis is entirely irrelevant. The mere fact that such sales may be few orscanty does not alter the true postion."
12. The interpretation of section 4 again came for consideration in thecase of Atic Industries v. Asstt. Collector, Central Excise, . Following the earlier decisionin Voltas' case, the Court observed that if excise were levied on thebasis of second or subsequent wholesale price it would load the pricewith a post-manfacturing element, namely, selling cost and selling profitof the wholesale dealer. That would be plainly contrary to the truenature of excise and secondly that this would also villate the concept ofthe factory gate sale which is the basis of determination of value of thegoods for rthe purpose of excise. In the Indian Tobacco Company Ltd. v.The Union of India and others, Misc. Petition No. 293 of 1974, decided by O.S. Division Bench of this Court on December 15, 1975, the ambit andscope of sections 3 and 4 of the Act have been explained. The Courtobserved :-
" On a consideration of the aforesaid provision of the Act and the Rulesthe following two or three aspects become very clear; first that theexcise is a tax on production or manufactire of goods and it is levied ongoods produced or manufactured in India; secondly, its incidence falls onthe producer or manufacturer of excisable goods and thirdy whereas sec.3(1) of the Act is the charging section which creates the liability topay the excise duty as and at the rates set forth in the First Schedule,the other provision referred to above are in the nature of machineryprovision in the sense that they deal with the aspects like how, in whatmanner and on what basis the duty is to be charged, paid or collected aswell as the time when and the place where such duty is to be paid orcollected; for instance, sub-sec.(2) of section 3 provides that for thepurpose of levying the excise duty the Central Government may fix tariffvalues of any articles enumerated either specifically or under generalheadings in the First Schedule as chargeable with duty ad-ralorum and mayalter and tariff valueas for the time being in force and sub-section (3)empowers the Central Government to fix different tariff values fordifferent classess ro descriptions of the same article; sec.4 providesfor determination of assessable value of a dutiable articles on the basison which the duty is to be calculated when such an article is chargeablewith duty at a rate dependent on the value thereof; Rule 49 indicatesthat duty is chargeable only on removal of the goods from the factorypremises or from an approved place of storage; Rule 9A provides that therate of duty or tariff valuation shall be the rate of valuation in forceon the date of actual removal of the goods from the factory premises oran approved place of storage. It is well settled that a clear distinctionexists between the concept of chargeability and the concept of assessmentor quanatification of the amount payable by way of duty (vide PrivyCouncil decision in Shaw Brothers' vase in 16 ITR 240). It is section 3(1)of the Act which creates the liability to pay excise duty while the otherprovisions discussed above including section 4 deal with assessment orquntification of the amount payable by way of such duty hence are clearlyin nature of machinery provision."
While construing the provisions of section 4 which is a deeming provisionfor the limited purpose of defining the expression "such value" meaningthere by the assessable value of the article, the Division Bench furtherobserved-
"..... in other words, the fiction which is created for the porpose ofdefining the assessable value of the article for the purpose of providing the basis for calculating in the excise duty payable on article cannot bepemitted to transcend the framework of the basis nature and character ofexcise duty and to interpret the deeming provision so as not to excludethe post-manufacturing expenses or profits arising from thepost-manufacturing operation would amout to extending the fiction beyondits legitmate purpose....."
13. It would, therefore, be clear that any construction of section 3(2)which would miliate against the basis concept of excise duty must berejected. The only way of construing the provision to make it consistentwith section 3(1) would be that it enables the Central Government to fixa uniform tariff value but it cannot exceed the manufacturing cost andthe manufacturing profit of the product. It may be equivalent to the sameor lower. As observed by the Andhra Pradesh High Court in the case ofUnion of India v. Vazir Sultan Tobacco Company, 1978 E.L.T. (J 461) =1978 Taxation Law Reports 1824, in para 21 of the judgment, if themachinery section in the Act seeks to bring within its scope any item ofcost incurred by the manufacturer, which is not referable to productionor manufacture of the goods, then it is not an excise duty, but somethingeise altogether and therefore it is not within the purview of the exciseauthorities functioning under the four cornes of the Act and the rulesmade thereunder while levying excise duty.
14. In the view that we have taken, it must be held that the two impugnednotification issued by the Central Government are beyond the powerconferred under section 3(2) read with section 3(1) of the Act as it isnot disputed that the assessable value of the products manufactured bythe petitioner-company is much less than the uniform tariff value fixedunder the notifications. We are unable to accept the contention of Mr.Paranjpe that on occasions, the petitioner company was sometimesbenefited because the tariff value fixed happended to be lower thanmanufacturing cost and manufacturing profit of the petitioner-company atthe particular point of time. Such an argument cannot impress us becausethe very method adopted by the Government for fixing the tariff valuebased on weighted average is illegal and improper as the assessable valuegets loaded with the manufacturing cost of other manufactures, whichwould voilate the basic concept of excise duty as visualised by section3(1) of the Act.
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15. Having regard to the above discussions, the two impugnedNotifications dated November 28, 1970 in Special Civil Application No.1066 of 1972 and the impugned Notification dated July 26, 1971 in SpecialCivil Application No. 1276 of 1972, must be quashed and set aside and itwill have to be declard that the respondents are not entitled to levyexcise duty on the basis of the tariff value fixed under the saidNotifications.
The petitioners have claimed refund of specific amounts on the basis thatthe notifications were illegal and invalid. However, it is not possiblefor us to grant this relief because in the absence of the tariff valuebeing fixed, the respondents would be entitled to levyh assessment underSection 4 of the Act. It would be, therefore, necessary for thedepartment to assess the value under Section 4 of the Act and determinethe amount payable by the petitioner in both the petitions. Whateverassessments are made in both the petitions are, therefore, declared tohave been made on provisional basis, and, therefore, deemed as pendingfinalisation. The Excise Department shall finalise the assessments byApril 30, 1979. Whatever recoveries are already made under the impugnednotifications will be readjusted towards the liability of the petitionersunder the assessment to be finalized under Section 4 of the Act. So faras Special Civil Application No. 1066 of 1972 is concerned, as per theinterim orders passed by the Court, the petitioners have so far furnisheda bank guarantee of Rs. 5,25,000/-. On hearing both sides, we direct thatthe petitioners shall furnish a further bank gurantee of Rs. 7,00,000/-to cover the petitioners' liability. If any, after the assessments arefinalised. The bank guarantees to be furnished by the petitioners to thesatisfiction of the Registrar, High Court, within a period of three weeksfrom today. In Special Civil Application No. 1276 of 1972, pursuant tothe interim order passed by this court, the petitiones have deposited Rs.7,15,000/- in court which amount is invested in fixed deposit with thenationalised bank, We direct that the petitioner shall furnish a bankgrarantee of Rs. 3,00,000/- in Special Civil Application No. 1276 of1972. On the petitioners furnishing such a bank guarantee, they would beat leberty to withdraw the amount together with the interest on Rs.7,15,000/- as may be due from the bank.
16. Rule made absolute in both the petitions as above. No order as tocosts.