Gujarat High Court
Cibatul Limited., P.O. Atul vs Union Of India And Ors. on 1 January, 1800
Equivalent citations: 1978(2)ELT68(GUJ)
JUDGMENT
1. Cibatul Limited, a company registered under the Companies Act, 1956, is the petitioner (hereinafter referred to as "the manufacturer"). They are manufacturing U.P. Resins, M.F. Resins and Expoxy Resins. They are "excisable goods" within the meaning of that expression given in section 2(d) of the Central Excise and Salt Act, 1944 (I of 1944) (hereinafter referred to as "the Excise Act"). Coba Geigy of India Limited are their wholesale buyers. they are a company incorporated in India and are hereinafter referred toas "the buyers". Ciba Geigy limited is a third company incorporated is Switzerland and is referred to hereinafter as "the Swiss company". 65% of the share capital of the manufacture is held by Atul Products Limited, 30% of its share capital is held by the Swiss company and the remaining 5% of its share capital is held by the buyer. So far as the buyer is concerned, 65% of its capital is held by the Swiss Company. the Swiss Company has registered trade marks in respect of which licence has been granted by it to buyer to use them. Two agreements dated 24th March, 1971 and 7th December, 1971 were entered into between the manufacture and the buyer. agreement dated 24th march, 1971 provided for the sale of certain manufactured goods to the buyer. Agreement dated 7th march 1971 is a tripartite agreement between the manufacturer, the buyer and the Swiss Company. Under this agreement, the manufacturer is permitted to affix a certain trade mark of the Swiss Company on goods manufactured by the manufacturer and sold to the buyer under the agreement dated 24th march, 1971. Two more agreements, similar in character, dated 1st June, 1973 and 1sr December, 1973, in respect of certain other godds manufactured by the manufacturer were entered into.
2. The manufacturer is required by the Central excise authorities to pay excise duty on the price which the manufacturer charges the buyer but which the buyer charges his buyer on the ground that the manufacturer and the buyer are 'related persons". Therefore the manufacturer has filed this petition in which, broadly speaking, it has raised the two-fold challenge:
I. The concept of 'related person"introduced by Parliament in amended section 4 of the Excise Act is ultra vires the legislative competence of Parliament under Art. 246 read with entry 84 in List i in Seventh Schedule to the Constitution of India (hereinafter referred to as the 'Union List").
II. The manufacturer and the buyer are not 'related person" within the meaning of that expression given in the Excise Act.
3. The examination of the first contention necessarily involves the examination of the legislative competence of the Parliament in this behalf under Art 246 read with entry84 in the Union List. Entry 84 reads thus:-
"84. Duties of excise on tobacco and other goods manufactured or produced in India except-
(a) Alcoholic liquors for human consumption;
(b) opium, Indian hemp and other narcotic drugs and narcotics, but including medicinal and toilet preparations containg alcohol or any substance included in sub-paragraph (b) of this entry."
4. What is the width and applitude of the expression "Duties of excise? We may state that the Government of india Act, 1935 also contained a similar entry. It was entry 45 in List I in VII Schedule to that Act. for the sake of convinience, it may be reproduced here :-
"45. duties of excise on tobacco and other goods manufactured or produced in india except-
(a) alcoholic liquors for human consumption;
(b) opium, Indian hemp and other narcotic drugs and narcotics; non- narcotics drugs;
(c) medicinal and toilet preparations containing alcohol, or any substance included in sub-paragraph (b) of this entry".
5. Comparison of these two entries makes it abundantly clear that they are parimateric except that entry 45 in the Federal Legislative List excluded non-narcotic drugs. they are not excluded by entry 84 in the Union List. Secondly, while the Federal Legislative List exlided medicinal and toilet preparations specified in sub-paragraph (b) of that entry, they are included in Entry 84 in Union List. these variations donot make any difference for the purpose of this case. We are concerned in the instant case with discovering the width and qmlitude of the expression "Duties of excise". The question, in our opinion is not open to debate because it has been the subject matter of sevaral decision of the highest Court of this country. They are blinding on us.
6. In the matter of the Central Privinces and Berar Sales of Motor Spirit and Lubricants Taxation Act, 1938-A.I.R. 1939 F.C. 1=1978 E.L.T. (J269), the Federal Court has laid down certain principles which may be noted. So far as the interpretation of legislative powers of the Federal Legislature and Provincial Legislatures was concerned, the Federal Court observed that no naroow and technical construction should be placed uopn them. Taking into account the magnitude of subjects dealt with by the Government of India Act 1935, in a few words, a large and liberal interpretation should be given to them so that the Central Government, within certain fixed limits, may be mistress in her own house and the Provinces, in teir houses. so far as the width and amplitude of the duties of excise was concerned, Sir Maurice Gwyer C.J. stated that the power to make laws with respect to duties of excise wgiven to the Federal Legislature was power to impose duties of excise upon the manufacturer or producer of the excisable articles or at least at the stage of or in connection with the excisable articles or at least at the stage of or in connection with manufacture or porduction and that it extends no further. Pointing out the distinction between excise duties and sales tax, the learned Chief Justice observed that they are two mutually exclusive spheres and that there is no overlapping btween them. The Central Legislature ma impose excise duties on excisable articles at the stage of manufacture or production before they become part of the general stock of the province while the Provincial Legislature will have an exclusive power to impose a tax on sales thereafter. Mr Sulaiman, in concurring judgment, observed that excise duties may be imposed by the Centre on manufacture or production of excisable articles at the place or in the Province of their origin while sales tax can be imposed on all retail sales of such goods within the Provinces. Mr Justice Jaykar, in his concurring judgment, observed that as regards centrally excisable goods "taxes on their sale within the Province for the purposes of consumtion, when such taxes are in on may connected with their production, manufacture etc., within the Province, but are imposed on thwir sale in the Province merely as existin articles of trade and commerce." are a sales tax and that , all other duties on those goods whether levied or collected at the sstage of manufacture, production or any subsequent stage up to consumption will be duties of excise.
7. Mr Vakil in his turn has relied uopn this decision andinvited our attention to the observation taht the expression "sales tax" means a goods deal more than what is understood by "tax on the sale of goods" in the ordinary and natural meaning of those words and that the expression "turnover tax" seems to be in one sense wider and in another sense narrower. Next, he has also relied upon the following observation : `The words "taxes on the sale of goods" are very general, and there is no good reason for confining their meaning to a turnover taxon the gross sale proceeds only'. He has also placed reliance upon the following observation of Mr. Justice Sulaiman; "The validity of the impugned Act therefore depends on the meaning to be given to these two competeting entries, and on tne question whether they are mutually exclusively or overlap." Mr. Vakil has also pointed out us that the taxes on the sale of goods include even first sales that, shole approching a question of this kind, the Court must try to find out the pith and substance of the levyand not itsform. mr. Vakil has made this attempt to show that under the shceme of section 4 (as mended), there is no overlapping of excise duty and sales tax and that if there is any, on a liberal construction of the relevant entries, it is constitutionally permissible.
8. In the Province of madras v. Messrs Boddu Paidanna 7 Sons. AIR 1942 F.C. 33=1978 E.L.T. (J272), the Federal court observed in the context entry 45 of the Federal Legislative List that the duties of excise which the government of India Act, 1935, assigned exclusively to the Central legislature were duties lveiable upon the manufacturer of producer. Where power to levy duties of excise and sales tax has been given to two independent authorities the expression 'duty of excise" must be given a more restricted meaning than it might otherwise bear even though that expression is wide enough to include a tax on slaes. The principles laid down in the earlier decisioin in Central Provinces cas (supra) were affirmed by the Federal court in this decision. Mr. Vakil has in his turn reied upon this decision and invited our attention to the following passage in furthernace of his attempt:
"The tax on the sale of goods, which the Act assigns exclusively to the provinanceial legislatures, is tax on the occassion of the sale of the goods. a tax levied on the forst sale must in the nature of things be a tax on the sale by the manufacturer or procedure; it is levied upon him qua seller and not qua manufacturer or procedure. It may be that a manufacturere or procedure is sometimes doubly hit. if the tax payer who pays a salestax is also a manufacturer ot commodities subject to a central duty of excise there may no doubt be an overlappoing in law. The two taxes which he is called on to pay are economically two separate and distinct imposts. There is in theory nothing to prevent the Central Legislature from imposing a duty of excise on a commodity as soon as it comes into existence, no matten what happens to it afterwards,....."
9. In Government in Council v. Province of Madras, AIR 1945 P.C. 98=1978 E.L.T. (J280), the PrivyCouncil observed that a duty of excise is primerily a duty levied upon a manufacturer or producer in respect of the commodity manufactured or produced and that it is a tax upon goods, not upon sales or the proceeds of sale of goods. Relying upon this decision in his Mr. Vakil has drawn our attention to the principle that when an entry in the Federal List and an entry in the Privincial List can be fairly reconciled they should be reonciled and that if the legislative powers of the Federal and Provincial Legislatures whcih are enumerated in List I and List II of Schedule 7 cannot fairly be reconciled, the latter must given way to the former.
10. These three decisions laid down the width and amplitude of entry 45 in the Federal Legislative List. The Privy Council has in the last mentioned decision, approved the decision of the Fedral Court in Boddu Paidanna's case(supra)
11. Turning to the decision of the Supreme Court on the subject, we must first refer to the decision in M/s. Chhotabhai Jethabhai Patel & Co., v. Union of India and another= AIR 1962 S.C. 1006. It was a case in which Entry84 in the Union List came up directly for construction. In that case, Australian, American and Canadian decision were cited before the Supreme Court. The Supreme court felt that not much assisstance could be derived from those decisions for discoveruing the scope and counter of the expression "duty of excise" used in Entry 84 in the Union List. On behalf of the Central Government, it was contended in that case that an excise duty is a duty which may be imposed upon home-produced goods at any stage from production to consumption and that, therefore, the central legislative power extend to imposing excise dutyat any stage. it was observed by the Supreme Court that there was no reason in theory why an excise duty should not be imposed even on a retail sale of an article in the taxing Act so provided subject always to the legislative competence of the taxing autjority. It hasalso been laid down by the Supreme Court in that the taxiable event in case of an excise duty is manufacture of production of goods and that it is immaterial what happens to the goods afterwords, whether they are sold, destroyed or given away. The Supreme court has referred with approval to the following paragraph in the decision of the Privy Council in the Province of Madras case (supra):
"Consistently with this decision their Lordships are of the opinion that a duty of excise is primerily a duty levied on a manufacturer or prodecer in respect of the commodity manufactured or produced. it is a tax on goods not on sales or the proceeds of sale of goods."
12. In paragraph 14of the report, the Supreme Court has observed in the context of Canadian decisions on the subject:
`In view of this clear exposition of the content of the term "duty of excise in the indian setting, we think, no assistance can be derived for the meaning ascribed and the characteristics attributed to it in the decisions construing the relative taxing powers of the Dominion and the Provinces under the British North America Act, 1867'.
13. Replying to this decision, Mr. vakil has argued that the stage at which excise duty can beimposed has no reference to the question of measure of tax or a copmonent thereof and that this decision does not militate against the proposition that excise duty may be imposed at any stage of manufacture and production and that ut can as well be related to the retail price. It is indeed true that an excise duty can be levied at any stage. However, while trying to point out this distinction Mr. Vakil has overlooked the basic proposition laid down by the Supreme Court that, irrespective of the stage at which the excise duty is levied, it must have relation to the manufacture or production of an excisable commodity and to nothing else. This decision makes it clear beyond any doubt that excise duty is a tax of manufacturing activity. In other words, it is a tax which is levied upon the manufacture or production of goods. Entry 84 in the Union List itself uses the expression "manufactured or produced" in the context of levy of "Duties of excise ".
14. In R. C. Ja;; Parxi v. Union of India and another AIR 1962 S.C. 1281, a similar question arose in the context of Coal production Rules. In that case, it was contended that the excise duty could not be legally levied upon the consign who had nothing to do with the manufacture or production of coal. The Supreme Court has observed in that context that the argument confused the impost with the machinery provided for the collection thereof. The Supreme Court has opproved in that case the decision of the Federal court that the priliminary and fundamental meaning of the expression on "duties of excise" is that it isa tax on articles produced or manufactured in the taxing country and intended for home consumption. Relying to this decision, Mr. Vakil has argued that the observations nmade by the Supreme Court have no relation to that measure of tax to anycomponent thereof or to any considerations relevant to the measure of tax. He has also tried to argue that this persons on whom it is imposed. It is true that this decision does not deal with the measure of tax. But can it, thereof, be said that this decision authorizes the collection in the name of excise duty of something else which clearly falls within the State List or can it be said that it is totally irrelevent and inapplicable to the question which we are called upon to answer? We think not.
15. In Union od India and another v. Delhi Cloth and General Mills Co. Ltd., AIR 1963 S.C. 791=1977 E.L.T (J199), the Supreme Court has laid down that the excise duty is a tax on the manufacture goods and not on their sale. mr. Vakil has tried to distinguish this decision by arguing that it deals with the taxable event in case of a duty of excise and does not deal with the measure of tax. This is no reply at all because if manufacture or production is the taxable event for levying an excise duty , the latter must have casual relation with manufacturing cost and manufacturing profit. Mr. Vakil's arguments itself boomerangs on the case advanced by him.
16. In re: Sea Customs Act (1878), AIR 1963 S.C. 1760, the Supreme Court has referred with approval to the decision of the Federal Court referred to above. The following extract from the decision of the Supreme Court is very apposite in this behalf.
"Excise duty is primarily a duty on the production or manufacture of goods produced or manufactured within the country. it is an indirect duty which the manufacturer or producer passes on to the ultimate consumer, that is, ultimate incident will always be on the consumer. Therefore, subject always to the legislative competence of the taxing authority, the said tax can be levied at a convinient stage so long as the character of the impost, that is, it is a duty on the manufacture or production, is not lost. The method of coolection does not affect the essence of the duty, but only relates to the machinery of collection for administrative convenience."
It has been next observed:
"...the taxable event in the case of duties of excise is the manufacture of goods and the duty is not directly on the goods but on the manufacture thereof."
17. The Supreme Court in that decision has contrasted sales tax with excise duty and observed that in case of sales tax, the taxable event is an act of sale. Therefore, though both excise duty and sales-tax are levied with referrence to goods, the two are very different imposts; in one case the imposition is on the act of manufacture or production while in the other it is on the act of sale.
18. In M/s. Shinde Brothers etc. v. Deputy Commissioner, Raichur and others, etc., AIR 1967 S.C. 1512, after having referred to the earlier decisions of the Federal Court and the Supreme Court and the Supreme Court to which we have already referred, the Supreme Court has observed that in order to be an excise duty the levy must be upon "goods" and the taxable event must be the manufacture or production of goods. Further the levy need not be imposed at the stage of production or manufacture but amy be imposed later. Whether a particular levy is on the manufacture of production of goods has to be decided on the facts of each case. While deciding the question, the following principles are required to be borne in mind. Firstly, it must be uniform in its incidence. Secondly, it must be closely related to production or manufacture of goods. Thirdly, if a levy is made not at the moment of manufacture or production but at later stage, it does not matter. Fourthly, if a duty has been levied on an excisable article but is collected from a dealer, it does not necessarily cease to be an excise duty. Fifthly, if the levy is made for the privillege of selling an excisable article and if the excisable article has already borne the duty and the duty has been paid, there must be clear terms in the charging section to indicate that what is being levied for the purpose of privilege of sale is, in fact, a duty of excise. This question arose in the context of the Mysore Health Case Act (28 if 1962). In reply, Mr> Vakil has only stated that this decision deals with the levyand not the measure. He did not amplify his reply and left us to guess what he was driving at. If he could not show his desideratum, we would not, on our own, venture to discover one for him.
19. In South Biha Sugar Mills Ltd. and another etc. v. Union of India and another etc.- AIR 1968 S.C. 922=1978 E.L.T. (J336), in the context of kiln gas produced by ime kilns and used in manufacture of sugar by carbonisation process and of soda ash, the Supreme Court has held that for the purpose of attracting excise duty, it does not matter whether the gas which is produced is sold or used onlyin the manufacturing processes (vide paragraph 15 og the report).
20. In A. K. Roy and another v. Voltas ltd., AIR 1973 S.C. 225=1977 E.L.T. (J177), in the context of section 4 of the Excise Act before it was amended, the SupremeCourt has observed that the excise is a tax on the production and manufacture of goods and the excise duty is levied only on the amount representing the manufacturing cost plus the manufacturing profit and excludes post-manufacturing cost and the profit arisng from post-manufacturing operation, namely, selling profit (vide paragraph 21 of the report). Mr. Vakil has in reply asked us to ignore this decision because it has interpreted Section 4 before it was amended. We cannot do so. We must apply to this case whether applicable has been laid down in it. The arguments raised by Mr. Vakil were either over simplifications or borne of some confusion of thought.
21. In Amar Dye-Chem. Ltd and another v. Union of India and others, AIR 1974 S.C. 636-1978 E.L.T. (J427(, the Supreme Court affirmed the principles laid down in its earlier decisions but remanded the case to the High Court because there was no evidence to dfetermine the marketable identity of the commodity which was subject to the levy of excise duty.
22. In Atic Industries ltd. v. H. H. Dave. Asstt. Collector of Central xcise and others, AIR 1975 S.C. 960=1978 E.L.T. (J444), the Supreme Court has referred with approval to its own decision in Voltas' case (supra) and reproduced the following extracts from it: "Excise is a tax on the production and manufacture of goods." Expanding this proposition further, the Supreme Court has observed in the context of section 4 (prior to its amendment) of the Excise Act that the real value of the excisable commodity for the purpose of assessing the excise duty payable should be found after deducting the selling cost and selling profit and that the real value should include onlythe manufactureing cost and manufacturing profits. In the opinion of the Supreme Court, the excise duty should be levied on the amount of manufacturing costs and manufacturing profits and post-manufacturing costs and post-manufacturing profits arising from post-manufacturing operations, viz. the sale ought to be excluded. Newxt, while determining the assessable value of goods for the purpose of excise duty, manufacturing costs and manufacturing profits alone should be taken into account and they must not be loaded with post-manufacturing profits arising from post-manufacturing operations. In this context, it has been observed that the price charged by the manufacture on the wholesale goods would represent the real value of the goods for the purpose of assessment of excise duty. Advertising to the attempt to assess excise duty on the price charged by the wholesale and not by the manufacturer from whom the wholesaler has purchased the excisable goods, this is what the Supreme Court has observed:
"If goods price charged by the wholesale dealer who purchases the goods from the manufacturer and sell them in wholesale to another dealer were taken as the value of the goods, it would include not only the manufacturing cost and manfacturing profit of the manufacturer but also the wholesale dealer's selling cost and selling profit and that would be wholly incompatible with the nature of excise. It may be noted that wholesale market in a particular type of goods may be in several tiers and the goods may reach the consumer after a series of wholesale transactions. In fact the more common and less expensive the goods, there would be greated possibility of more than one tier of wholesale transactions. For instance, in a textile trade, a manufacturer may sell his entire production to a single wholesale dealer and the latter may in his turn sell the goods purchased by him from the manufacturer to different wholesale dealers at State level and they may in their turn sell the goods to wholesale dealers at the district level and from the wholesale dealers at the district level the goods may pass by sale to wholesale dealers at the city level and then, ultimately from the wholesale dealers at the city level, the goods may reach the consumers. The only relevant price for assessment of value of the goods for the purpose of excise in such a case would be the wholesale cash price which the manufacturer receives from sale to the first wholesale dealer, that is, when the goods first enter the stream of trade. Once the goods have entered the stream of trade and are on their onward journey to the consumer, whether along a short or a long course depending on the nature of the goods and the conditions of the trade, excise is not concerned with what happens subsequently to the goods. It is the first impedence contact between the manufacturr and the trade that is made decisive for determining yhe wholesale cash price which is to be the heasure of the value of the goods for the purpose of excise. the second or subsequent price, even though on wholesale basis, is not material. If excise were levied on the basis of second or subsequent wholesale price, it would load the price with a post-manufactring element, namely, selling cost and selling profit of the wholesale dealer. That would be plainly contrary to the true nature of excise as explained in the Voltas' case (supra). Secondly, this would also violate the concept of the factory gate sale which is the basis of determination of value of the godds for the purpose of excise."
23. In reply, Mr.Vakil has argued that in that decision, the Supreme Court has interpreted retealed section 4 and not entry 84 in the Union List. The interpretation which aCourt places upon a particular section must necessarily be consistent with its legislative competence if it holds it valid. Therefore, it is erroneous to say that the interpretation placed by the Supreme Court upon repealed section 4 has no connection whatsoever with entry 84 in the Union List. For the purpose determining the legislative competence of Parliament and for the purpose of finding out the mischief which the Parliament has tride to cure, we are bound to take into account the bindfing done by amending section 4 is not what was done by the Central Excise authorities earlier. The executive action of the Central Excuse authorities was called in question in the earlier decisions. In order to get over the decisions of the Supreme Court in this behalf, the Parliament has amendedsection 4. But, amended section 4 cannot enjoy greater sanctity if the Parilament does not have the legislative competence to enact it. In this behalf, it will be appropriate to note the STATEMENT OF OBJECTS AND REASONS published when section 4 was amended. this is what is stated in that Statement:
"With the increase in the as valorem levies in the Central Excise Tariff, the operation of that section has presented certain partical difficulties some of which got highlighted in the recent judgment of the Supreme Court (A>K> Roy and another v. Voltas Limited) in a case where a manufacturer was selling a small percentage of his production through a distributor and the rest directly to the consumers from his branch office at a much higher price. The Court held that the sale to the distributor constituted transaction in the wholesale market, and therefore, the entire prodiction should be assessed under clause 9a) of that section and not clause (b) thereof, i.e., on the basis of the price charged to the distributor."
24. It further states:
"...the valuation for purposes of excise levy would include only manufatcturing cost plus the manufacturer's profits. In order to overcome the various difficulties experienced in the working of the section it is proposed tosuitably revised the valuation provision contained in section 4 of the Act, provisding, as far as practicable, for assessment of excisable goods at the transaction value except in areas where there may be scpoe for manipulation 9such as sales to or through related persons) and making specific stipulation with respect to situations frequntly emcountered in the sphere of valuation."
25. This statement makes it quite clear that whilst section 4, what the Legislature tried to do was to overcome the decision of the Supreme court in Voltas Case (supra). If it is copmonent for the Legislature to do so, it maydo so. The question, therefore, which we are called upon to examine is, whether within the meaning of entry 84 in the Union List read with entry 54 inthe State List, as expounded by the Supreme Court, Parliament has provided for a measure, which, quantum apart, nets in only the excise duty and no other tax in respect of which it is forbidden to legislate.
26. In A. B. Abdul Kadir and others v. State Kerala AIR 1976 S.C. 182, in the context of the luxury tax levied on tobacco under the kerala Luxury tax on Tobacco (Vaidation) Act, 1964, the Supreme Court has observed:
"Excise duty, it is now well settled is a tax on articles produced or manufactured in the taxing country. Generally speaking, the tax is on the manufacturer or the producer, yet laws are to be found which impose a duty of excise at stages subsequent to the manufacture or production (vide paragraph 9).
27. It has been further observed tht the levy of excise duty should be essentially linked with production or manufactureof an excisable article, though it may be recovered in the form of a licence fee (paragraph 10 of the report). Where, however, the levy or tax has no nexus with the manufacturer or production of an article, the impost or tax cannot be regarded to be one in the nature of excise duty.
28. It is clear from all these decisions rendered during a period 37 years from 1939 to 1976 that a duty of excise within the meaning of entry 84 in the Union List is a tax on manufacture or production. In other words, it must be linked with manufacture or prodiction of an article. It can be levied on the assessable value of excisable goods which consists of manufacturing costs and manufacturing profits and which cannot be loaded with post-manufacturing costs and post- manufacturing profits such as those which arise out of subsequent sales. Once the link of the levy with the manufacture or production of an excisable commodity has been established, it does not matter at what state it is recovered.
29. The learned counsel appearing on both the sided have invited our attention to certain unreported decisions of other High Courts as well A series of decisions of the Supreme Court to which we have referred leave no doubt in our minds about the content of entry 84 in the Union List. Therefore, we do not propose to expand the size of this judgment further by refering to them. Its size has already reached an unwieldy stage. The learned counsel appearing on behalf of the Central Government has tried to argue that these decisions are not binding on us . We may only smile at this boyish attepmt and proceed ahead.
30. Learned counsel appearing on behalf of the Union of India in reply has argued that though the expression "Duties of excise" used in entry 84 in the Union List means the tax on production or manufacture of an excisable goods, manufacturing costs and manufacturing profits alone need not necessarily make up the assessable value of such an excisable goods. This arguments cannot be upheld because it runs counter to several decisions of the Supreme Court to which we have already referred. The width and amplitude of entry 84 in the Union List must necessarily govern the width and amplitude of section 3 and 4 ( as amended) is to violate the Counstitution. It was exactly for the purpose of escaping the rigour of these decisions that mr. Vakil told us that they are not blinding on us. Sand storm in a desert cannot be weatherd by an ostrich by burying its head in the sands.
31. We may, out of abudent caution, note that the question whether costs incurred under a particular head will be a part of manufacturing costs or not, has not arisen in this petition for our decision. We may note, indeedat the cost of repetition, that the Federal Court in Central Provinances' case (supra) traced the history of the word "excise" in Indian legislation and showed that the only kind of excise duty which is known in India by that name is usually payable on the issue of an excisable goods from the place of manufacture or production. Therefore, according to the Federal Court, the Legislature used the expression "Duties of excise" in that sense. That view has found repeated approval of the Supreme Court in seceral decisions rendered in context of entry 84 in the Union List. We may also note that in the Central Provinance' case (supra) the Federal Court applied the doctrine of "pith and substance."
32. Our attention has alsobeen invited to certain decisions which have a bearing upon the principles of construction. In Chaturbhai M. Patel v. Union of India and others , AIR 1960 S.C. 424, the principle which has been laid down is:
"In every case where the legislative competence of a legislature in regard to a particular enactment is challanged with reference to the entries in the various Lists it is necessary to exmine the pith and substance of the Act and it the matter comes subsequentially with an item in the Central List it is not deemd to come within an entry in the Provincial List even though the classes of subjects looked at singly overlap in many respects.It is within may otherwise fall within the competence of the Provincial Legislature if they are necessarily encidental to effective within its power.Morever, it is a fundamental principle of constitutional law that everything necessary to the excercise of apower is included in the grant of the power."
33. In Patel Gordhan Das Hargovinddas and others v. Muncipal Commissioner, Ahmedabad and another, AIR 1963 S.C. 1742, it has been observed that of a certain expression which had come to acquire a special meaning before an Act which used it was passed or if a term well-recognized legally has been used is an enactment, it must be interpreted to have the same special meaning and to have the same legal import.
34. In Attorney-General Ontario v. Reciprocal Insurea and others 192 4, A.C. 328, the Judicial Committee of the privi council has in the context of Section 91 of the British North America Act. 1867, observed "...where the law making authority is of a limited or qualified character, obviously it may be necessary to examine with some strictness the substance of the legislature is really doing." This principle of interpretation to which our attention has been invited cannot be placed in the foreign in this case because so far as the width and amplitude of entry 84 in the Union List is concerned, the question has been concluded by several bindings of the Supreme Court.
35. When Secs. 3 and 4 of the Excise Act are read with Schedule I, we find several bases of assessing excise duty levied under Section 3. They are,as for example, value, weight, length, volume, area, etc. In the instant case, we are concernec with examining the basis of "assessable value" provided under Sec. 4.
36. Bearing in mind the width and amplitude of entry 84 in the Union List as laid down by the Supreme Court in its several decisions, let us try to discover whether Section 4 as amended is afficted by any constitutional vice.
37. Our attention has also been invited to certain decision which have a bearing upon the principles of contruction. In Chaturbhai M. Patel v. Union of India and others, AIR 1960 S.C. 424, the principle which has been laid down is:
"IN every case where the legislative competence of a legislature in regard to a particular enactment is challenged with reference \to the entries in the various Lists it is necessary to examine the pith and substance of the Act and id the matter comes substantially within an item in the Central List it is not deemed to come within an entry in the Provincial List even though the classes of subjects looked at singly overlap in many repects. It is within the competence of the Central Legislature to provide for matters which may otherwise fall within the competecne of the Provincial Legislature if they are necessarily incidental to effective legislature by the Central Legislature on a subject of legislation expressly within its power Moreover, it is a fundamental principle of constitutional law that every thing necessary to the exervise of a power is included in the grant of the power"
38. In Patel Gordhan Das Hargovinddas and others v. the Municipal commissioner, ahmedabad and another, AIR 1963 S.C. 1742, it has been observed that if a certain expression which had come to acquire a special meaning before an Act which sed it was passed or if a term well-recognized leagally has been used in an enactment, it must be interprested to have the same special meaning and to have the same legal import.
39. In attrney General For Ontario v. reciproval Insurers and others, 1924, A.C. 328, the Judicial Committee of the Pivy Council has in the context of Section 91 of the British North America Act. 1867, observed. "... where the law making authority is of a limited or qualified character, obviously it may be necessary to examine with some strictness the substance of the legisalation for the purpose of determining what it is that the Legislature is really doing". This principle of intepretation to which our attention has invited cannot be placed in the forfront in this case because so far as the width and amplitude of entry 84 in the Union List is concerned, the question has been concluded by several binding decisions of the Supreme Court.
40. When Secs. 3 and 4 of the Excise Act are read with Schedule I, we find several bases of assessing excise duty levied under Section 3. They are, as for example, value, weight, length, volume, area, etc. In the instant case, we are converned with examining the basis of `assessable value' provided under Section 4.
41. Bearing in mind the width and amplitude of entry 84 in the Union List as laid dwn by the Supreme court in its several decisions, let us try to deicover whether Section 4 as amended is afficeted by any constitutional vice.
42. In order to appreciate the challenge which has been raised to Section 4 of the Excise Act as amended by Act 22 of 1973 which came into force on 1st October, 1975, it is necessary to reproduce the old and the new sections in so far as they are relevant. Section 4 prior to its amendment, inter alia, read as follows:
"4 Determination of value for 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 be deemed to be :-
(a) the wholesale case price for which an article of the like kind 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 profuction 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, 0r..."
We are not converned with claused (b) of Section 4 in the instant case. Sec 4 after its amendment, inter alia, provides as follows :
"4(1) Where under this Act, the duty of excise is chargeable on any excisable goods with reference to value, such value shall, subject to the other provisions of this section, be deemed to be -
(i) the normal price thereof, that is to say, the price at which such goods are ordinarily sold by the assessee to a buyer in the course of whole sale trade for delivery at the time and place of removal where the buyer is not a related preson and the price is the sole consideration for the sale :
Provided that-
(i) ... ... ... (ii)... ... ... (iii) Where the assessee so arranges that the goods are generally not sold by him in the course of wholesale trade except to sold by the assessee to or through such related person shall be deemed to be the price at whcih they are ordinarily sold by the related person in the course of wholesale trade at the time of removal, to delaers (not being related persons ) who sell such goods in retal;".
The expression "related person" has been defined as follows:
" related person" means a person who is so associated with the assessee that they have interest, directly or indiretly, in the business of each other and includes a holding company, a subsidiary company, a relativ and a distibutor of the assessee and any sub- distributor of such distributor."
What has been called in question is, the width and amplitude of the expression " where the buyer is not a related person" used in amended section 4. Supreme Court decision to which we have referred lay down that the price which is the sale condideration for the sale can alone be the that the price which is the sale consideration for the sale can alone be the assessable value for the assessmebnt of excise duty. Therfore the price which relects extra commercial consideration cannot be taken into accont. A concessional price which the manufacturer charges his buyer will leadto undue loss of erveneu. It be charged, where it is so, on account of several reasons. One of them may be that the manufacturer and the buyer are had in glove to deprice the revenue of its just dues. It may be charged because the buyer is "related" to the manufacturer. owever, wherher the manufacturer cahrges his buyer a wholly commercial price or a concessional price which refects extra commercial condistration is a matte to be decided by the Central Excise Authorities in each individual case depending upon the facts of that case. Now in a given case, if the central excise authorities find that the price which the manufacturer charges his buyer is not a commercial price but refects extra commercial consideration, they may ignore,it and take as assessable value any other price which, accoring to them, is the commercial price fully represennting manufacturing costs and manufacturing profits.
43. But, the question which Mr, Bhatt has raised in the context of amended section 4 of the Excise Act for our consideration is : should the price which a " related peson" is cahrged by the manufacturer be necessarily ignored as Section 4 provides ? The defination of the expression "related person" casts its sweep wida and large. But, that is a matter of legislative policy for Parlimant to determine. The basic question which has been raised is this. Assuming that the manufacturer charges "a related person" a fully commercial price representing the manufacturing costs and manufacturing profits,can it be ignored ? Section 4 wants it to be done. Parliament,under entry 84 in the Union List, cannot levy excise duty upon znything other than manufactuing costs and manufacturing profits. However, section 4 wants the fully commercial price a manufacturer charges his "related person" to be ignored. If it is ignored, which is the price whichshould be taken into account ?
44. Proviso (iii) to clause (a) of sub-section (1) of section 4 if read in light of the principal part of sub-section (1) of section 4, makes it very clear to us that in case of a sale to a "related person", the price which that related person charges his buyers is the assessable value for the purpose of assesing excise duty even though the buyer, in his turn, must have paid the manufacturer the commercial price fully reflacting the manufacturing costs ans the manufacturiong profits. Therefore, even though the "related person" pays the manufacturing a fully commercial price, the manufacturer is required to pay the excise duty on the price which the "related person" charges his buyer. If the buyer from the "related person" is also a "related Person", then the price which the first related person charges the second related person is also required to be ignored ans the price which the second related person charges his buyer is required to be taklen into account for the purpose of assesing the excise duty . In other words, all sales one after another to "related person" have got to be excluted until the cenmtral excise authorities come across a sale in favour of a person other than a ":related person". There may be an intervaention of one "related person" or there may be an intervention of many "related person". However, mearly because the first sale has been effected by the manufacturer in favour of a "related person"or mearly because a number of "related persons" beginning with a `related person' have intervelned in the series of transactions which take place, right from the remova of the excisable goods at the factory gate, the manufacturer will be required to pay excise duty on the ultimate price which the last "related person" has charged his buyer (unrelated person) even though the manufactur's buyer has himself paid the manufacturer a fully commercial price representing the manufacturing costs and the manufacturing profits or even though the transaction between them was at an arm's length. The Supreme Court in a number of decisions has held that under entry 84 in the Union List an excise duty cannot be levied on anything other than the manufacturing costs or manufacturing profit which alone should entert in the determination of the assessable value. We seed no constitutional justification, in light of this width and amplityde of entry 84 in the Union List, for assessing excise duty on the second or sebsequent price ahich a manufacturer's buyer charges his buyer even though the first price which the manufacturer has charged his buyer a "related person" fully reflected manufactuturing costs or manufacturing profit.
45. An analysis of the concept of "related person" ion the context of proviso (iii) to clause (a) of sub-section (1) of section 4 of the Excise Act brings out the following result. We assene that the manufacturer's buyer is a "related person". We also assume that the manufacturer has charged such buyer of his the commercial price which fully reflects manufacturing costs and manufacturing profits ans that the teansaction between the two has been at arm's legth. Now, this fully commercial price, in terms of sub0section (10 of section 4, must be ignored ans the secion or subsequent price which the manufacturer's buyer charges his buyers must be taken into account as the assessable value of the exciseable goods. The second price will consist of four elements : (i) manufacturing cost and (ii) manufacturing profits which the manufacturer's buyer (related Person) has paid the manufacturer :(iii) selling cost and (iv) selling profits of the manufacturer's buyer(the related person). It cannot be gainsaid that selling costs ans selling profits of the "related person" has nothing to do with the manufacturing activity. It is a pure transaction of sale totally unrelated to manufacturing activity of the manufacturer. In fact, it is a post-manufacturing activity. In our opinion, any tax on sellin costs ans selling profits will be a sales tax ans will entrench upon 54 in the State List.
46. We have no doubts in our minds that the central excise authorities are entitled to ignore all the first or subsequent prices which do not reflect the manufacturing costs ans manufacturing profits but are reflected by extracommercial considerations. Thay cannot however ignore those first prices which are not deflected by extra-commercial considerations but which fully reflect the manufacturing costs ans the manufacturing profits. Even in absense of the concept of "related person" used in section 4, the central excise authorities would be justified in ignoring the first price where it does not fully reflect the manufacturing costs ans the manufacturing profits and is deflected by extra-commercial cosiderations even if the manufacturer has charged his buyer such price norwithstsanding the fact that he is not a "related person".
47. Therefore, when, inthe name of a sale to a "related person", the Parliament be amendinf section 4, directs the authorites to ignore the fully commercial first price consisting of manufacturing costs ans manufacturing profits ans to take into account the second or subsequent price, it, in fact, encroaches upon entry 54 in the Strat List upon which it cannot legislate by virtue of the provisions of Article 246(3) of the Constitution. It is, therefore, clear that the concept of "related person" brings by itself something in respect of which Parliment lacks power to legislate, "Related person" or no "related person" Parlimaent can levy excsie duty only on assessable value of"excisable goods"made up of manufacturing cosgs ans manufacturing profits. It cannot levy excise duty upon anything else. Therefore, merely because the manufactrer's sale of his excisable goods is to a "related paerson", it cannot be assened that what the "related person"has paid to the manufacturer is not a fully commercial price, In our opinon, therefore, the expresseion "the buyer is not a related person" appearing in clause (a) of sub-section (1) of section 4 of the Excise Act, is ultra vires the legislative competence of Parliament under Art. 246 with entry 84 in the Union List and in light of entry 54 un the State List.
48. Proviso (iii) to clause (a) of sub-section (1) of Section 4 also suffers from the same vice. It does not matter whether the assessee arranges to sell his excisable goods in the course of wholesale trade at the time of theirt removal to or though a "related person" if such "related person" pays the price which wholly reflects manufacturing costs ans manufacturing profits. Merely because a manufacturer has sold the goods to a "related person", it does not mean that the price which he pays even though it is a fully commercial price should be ignored ans that the second price should be taken into account. Therefore, "related paersn" or no `related person' as long as the manufacturer chjarges his buyer a fully commercial price, reflecting manufacturing costs ans manufacturing profits. it ought to eb taken into account for the purpose of determining the assessable value for excise duty.
49. Again, "realted person" or no "related person"if a manufacturer charges his buyer a cocessional price which deflected by extra- commercial considerations ans which does not fully reflect the manufacturing costs and manufacturing profits, the central excise authorities are entitled to ignore it. In lther words, the test of "transectaion at an arm's length"which the Supreme Court has evolved in several decisions to which we have referred is the only test by which an assessable value for the purpose of excise duty can be determined. If a transaction is at an arm's length, the price paid by the manufacturer's buyer determines the assessable value. If the transection is not at an arm's length, then, whoever is the buyer, the price paid by him cannot form the basis for determining the assessable value for collection of excise duty.
50. Proviso (iii) to clause (a) of sub-section (i) of Section 4 is ultra vires the Parliament's legislative competence under Art. 246 read with entry 84 in the Union List and entry 54 in the State List, because, even though the manufacturer has charged his buyer-a "related person"-a fully commercial price consisting of manufacturing costs ans manufacturing profits, he is liable to pay excis duty on the second price which his buyer-"related person"- charges his buyer-an unrelated person. The second price,a s observed above, is loaded with the selling costs ans seeling profits of the manufacturer's buyer-a "related person". Assessment of excise duty on selling costs ans selling profits wiith which the assessable value is loaded partakes of Sales-tax which falls under entry 54 in the State List.
51. We now turn to examine other arguments advanced by Mr. Vakil, He has argued that the amending legislation was enacted during Emergency and that, therefore, it could not be called in question under Art. 250 on the ground of legislative incompetence. The undisputed facts in that behalf are as follows. The first Emergency was proclaimed on 3rd December, 1971. The second Emergency was proclaimed on 21st November. 1975. The contention that the amending legislation was an Emergency legislation and was, therefore, not open to constitutional challenge by virtue of the provisions of Art. 250 was not raised on behalf of the respondents in their affidavits-in-reply. This contention was for the first time raised by Mr. Vakil in the written submissions which he tendered to the Court in course of his arguments after the petitioner's learned counsel had closed his case. Obviously, therefore, the petitioners did not have an opportunity to meet this contention. We, therefore, disallowed this contention in limine only on the ground that the respondents, having failed to raise it in their written pleadings, have denied the petitionets a resonable opportunity being heard in the matter. However, Mr. J. G. Bhatt out of abundant caution submitted extempore that this was not an Emergencu legislation. The amending legislation was enacted on 19th May, 1973. It recevied the Presidential assent on 21st May, 1973. Except section 2, which amended section 4 of the Excise Act, all provisions came into force at once on 21st May, 1975. Section 2 which amended section 4 was brought into force on 1st October, 1975 by a notification issued on 8th August, 1975. According to Mr.Bhatt, these facts show that the material section of the amending Act-Section 2,- which amended section 4 was enacted before the second Emergency was proclaimed. We are not expressing any opinion on this aspect because the petitioners did not have a resonable opportunity to meet it on account of the fact that the respondents did not raise it in their affidavits-in-reply.
52. Mr. S. B. Vakil has next argued that constitutional validity of section 4 of a part therof which is a machinery section cannot be challenged unless the constitutional validity of section 3 which is the charging section is challenged. We do not find any substance in this argument of his. It is true that when Parliament levies a tax, it also provides machinery for collecting it. Ordinarily, if the levy of a tax is constitutionally valid, the machinery provided to make ot effective does not suffer from a constitutional vice. However, when, under the Constitution, the Parliament has legislative competance to levy a particular tax ans when it does so, it cannot competently enact the machinery section which in the name of collecting that particular tax collects something else whioch is not within the legislative competence of Parliament to levy or collect. Therefore, the gernersl principle that if the charging section is intra vires, the machinery section cannot be ultra vires is subject to the exception that machinery section does not stretch its long arms to pick up the forbidden fruit along with others. Parliament having levied a tax is entitled to provide the mode of its assessment and the method of its collection. However, the mode of its assessment and the method of its collection cannot entrench upon the legislative filed earmarked exclusively for the States. In the instant case, though section 3 is valid (its constitutionality has not been challenged), section 4 suffers from a vice because it entrenches upon entry 54 in the State List.
53. It has next been argued by Mr. Vakil that section 4 is merely a "definition"section ans that therefore ot, cannot be challenged. In other words, what is excise duty eithin the meaning of section 3 has been, according to Mr. Vakil, "defined" by section 4. As long as section 4 defines "excise duty" levied by section 3, no vice can be discovered therein. But, when it goes beyond its parentage and issues a legilative direction to collect not only the excise duty but in its name sales-tax which is specified in the State List, it can certainly be challenged.
54. He has also argued that excise duty levied by section 3 is the excise duty assessable under section 4 ans that what is assessable under section 4 need not necessarily have any relation to entry 84 in the Union List because that entry only denotes the legislative filed. We are unable to accede to the argument raised by Mr. Vakil because whichever section, whether the charging section or the machinery section, goes beyond the legislative filed denoted by entry 84 in the Union List and entrenches upon entry 54 in the State List suffers from the constitutional vice and must be struck down.
55. The next argument which Mr. Vakil has raised is that if there is any encroachment which section 4 makes on the legislative filed earmarked for a State Legislature under entry 54 in the State List, it is incidental and that such an impost, in pith ans substance, falls under entry 84 in the Union List. In the first instance, what the Parliament has done by amending section 4 is not an incidental encroachment upon the Stat List, because the Parliament has classified manufacturers ans producers into two categories: (i) those who sell their products to or through "related persons" and (ii) the rest. In case of the first mentioned class of manufacturers or producers, Parliament wants the second price to be taken into account and not the first price even thousgh the first price fully reflects manufacturing costs and manufacturing profits. Under these circumstances, it is difficult to bring into play the doctring of incidental encroachment or the doctrine of pith ans substance to cure the constitutional vice. Next, since the machinery section enacted by Parliament directly encroaches upon the State List, the doctrine of incidental encroachment or the doctrine of pith and substance cannot be brough into play.
56. He has also tried to show that the excise duty levied on a manufacturer who sells his goods to a "related person" need not necessarily be related to the fully commercial price ans if it is levied on somthing more than the fully commercial price it is not a tax on the sale and purchase of goods. In his written submission, Mr. Vkil has in terms stated : "Even if it is a tax on sale or purchase of goods, it does not necessarily fall under entry 54 of the State List but may fall under entry 92A of the Union List." His argument relating to entry 92A will be separtely dealt with by us. We are unable to hold that even if it is a tax on sale or purchase, it will not fall under entry 54 in the State List-entry 92A apart. He has next tried to justify it under entry 97 of the Union List-the Residurary entry. We shall deal with this aspect later.
57. The next argument which he has raised is that the real nature ans character of a tax depends upon the subject matter of the tax and not upon the measure or standard by which the amount of tax is determined. This proposition which Mr. Vakil has advanced before us cannot, as a sheer principle, be caled in question. The only qiestion which arised for our consideratrion is whether the measure or standerd, provided by Section 4 changes the character of the tax altogether ans enters the forbidden field or whether it is mearly a measure simpliciter provided to recover the levy imposed by Section 3. He has invited our attention in that behalf to a few decisions to which we, out of sheer respect for him, make passing references.
58. The first decision to which he has invited our attneion is in Sir Byrmjee Jeejeebhoy v. The Province of Bombay, 42 Bom. L.r. 10. In that case,tax on lands ans buldings was imposed by Bombay Provincial legislature under the BOmaby Finance Act,1932. The question which arose was whether it was income-tax. the second question in thatg context which arose was whether it was intra vires Bombay Provincial Legislature. It was held by the Full Bench of the Bomaby High court that prima facie it was not a tax on income. It is in this context that Mr. Justice Broomfiled in his seperate but cincurring judgment observed that the mode of assessment does not determine the character of a tax. The learned Judge has further observed that the Court in each case has to discover what is the "essential character" of the tax and whzt it is "in pith ans substance" apart from the mere machinery by which it is assessed.He has also relied upon the next ovbservation that the measure of tax is not the test. This observation was borrowed from a reference to the Government of Ireland Act, 1920 (1936 A.C. 352).
59. The next decision upon which he has releed is Ralla Ram v. The Province of East Punjab, AIR 1949 F.C. 81. In that case, tax on buildings payable by the owner was levied under Punjab Urban Immovable Property Tax Act., 1940 The question which arose was whether it was a tax within the legislative compentence of the Provincial Legilature under Entry 42, List II, Seventh Schedule, Government of India Act, 1935 or whether it was an incom-tax falling under the federal lefislative list in the Government of India Act, 1935. Therein, the Federak Court has referred with approval to the observation of Lord Atkin in Gallagher v. Lynn, 1937 A.C. 863 to the effect that the Court has to took at the "turn nature ans character of the legislation" and "the pith and substance of the legislation". If, on the view of te statue as a whole, the Court finds that the substance of th elegislation is wiithin its express powers, then it is not invalidated if incidentally it affects matters which are outside the authorized filed. The challenge to the constitution validity of the levy of tax on buildings under Punjab Urban Immovable Property Tax Act,1940 was turned down by the Federal Court on the ground that the tax on th eannual value of the property didi not necessarily become a tac on incom but that there are other factors by which income may be measured.
60. The third decison to which our attention hasz been invited is in Municipal Commissioner. The Muncipala Corporation of the City of Ahmedabad v. Grdhandas Hargovandas Patel, 55 Bom L.R. 1028. In the decision reference was made to the decision os the Federal Court in Ralla Ram v. The Province of East Punjab (supra) ans to the decision of the Bombay High Court in Sir Byramjee Jeejeebhoy v. The Province of Bomabay (supra). In that case also, the question which arose was whether the tax levied upon buildings amounted to a tax on income because the method of assessment which was provided related to the annual income of the immovable property. It is in this context that the High Court of Bomaby observed that similarity between the two methods, nemely, methods for assessing the impugned tax ans the method for assessing tax on income, could not be disputed but held that merely because of this similarity of th emeans or the machinery or the identity of the two taxes, it could not be extablished that it was on income. In this case, the doctrine of `pith ans substance' was applied.
61. In The Hingir Rampur Coal Co Ltd, and others v. The State of Orissa and others AIR 1961 S.C. 459, the question which arose related to distinction between `tax' and `fee' in the context of cess levied under Orissa Mining Areas Development Fund Act, 1952. It was intended to be used redering service to the community in the shape of developing the notified areas. On cosideration of serval factors, the Supreme Court held that it was neither a tax nor an excise duty but was a fee. In this context, the Supreme Court has oberved that where an impuged statute passed by a State Legislature is relatable to an Entry in List II it is not premissible to challenge its vires on the ground that the method adopted by it for the recovery of the impost in generally adopted in leving a duty of excise.
62. In Sudhir Chandra Nawn v. wealthtax Officer, Calcutta and others, AIR 1969 S.C. 59, a similar question arose in the context of Wealth tax Act under which assest were adopted as the basis of valuatin. that basis was challenged on the ground that it fell under Entry 49 in the State List and not under Entry 86 in the Union List. That argument was negatived by the Supreme Court with an observation that, assuming that there was someoverlapping between the two Entries, tax on the capital value of assest bears no definable relation to lands and buildings which may form a component of the total assets of the assessee.
63. In The Secon Gift Tax Officer, Managalore, etc., v. D H Haxareth etc. AIR 1970 S.C. 999, the question of overlapping entries arose in the context of Gift Tax Act. 1959. It was held that it fell under Entry 97 in the Union List, the res\iduty entra nd not under Entry 49 in the State List. The doctrine of "pith and substance" was applied in this case.
64. These dicisions which Mr. Vakil has cited bring out two doctrines to which we have already referred :(i) the doctrine of incidental encroachment on the forbidden field and (ii) the doctrine of pith and substance. It also brings out the principle that the measure or the method of recovery provided for realising a tax does not vitiate tax. We are not holding in the instant case that the tax levied by Section 3 in unconstitutional. The decisions to which Mr. Vakil has referred do not held him in making goods his contention because Section 4 as amended by Parliamnet dest4oys the basic character of the tax imposed by Section 3 and collects along with the excise duty the sales-tax which the Parliament is forbidden to legislate upon because it falls unfer Entry 54 in the State List.
65. Mr. Vakil has then pointed out to us that assessment of excise duty on the second price does not amount ot collection of sales tax within the meaning of Entry 54 in the State List. Entry 54 in the State List provides aas under:
"54 Taxes on the sale or purchase of goods other than newpapers, subject to the provisions of entry 92A of List I".
Entry 48 in the List II in Seventh Schedule to the Government of India Act. 1935- the corresponding entry-provides as follows:
"48 Taxes on the sale of goods and on advertisements."
66. Mr. Vakil has argued that assessment of excise duty on the second prive does not bring in sales-tax because, according to him, sales-tax is leved separatel for each sale. The argument is ex facie untenable bacause it never be postulated that a tax to be sales-tax must necessarily be imposed on all sales-one after another-of the same commodity and not on any one sale.
67. Mr. Vakil, in this context, has referred to several decisions in this behlaf some of which have been relied upon by both the sides. We have dealt, in the earlier part of this judgment, with those decisions to which both the sides have referred and noted their respective contentions. We now proveed to refer to some other decisions upon which Mr. Vakil alone has relied.
68. In Tata Iron & Steel Co. Ltd v. State of Bihar, AIR 1958 S.C. 452, the Supreme Court has liad down tht the essential characterists of the sales tax levied uner Bihar Sales Tax Act, 1947 is that sales- tax is payable in the event of a sale, where as a duty of excfise is primarily levied on the comodity or the manufacturer and is a tax on goods and not on the sales of the produce or the goods. the sales-tax is ordinarily a tax on the sales or proceeds of the sales of goods.
69. Next decision upon which reliance has been placed by Mr. Vakil is in A.B.Abdulkadir and others v. The State of Kerala and another, AIR 1962 S.C.922. It has been laid doen in that decision that while a duty of excise is a tax on goods produced or manufactureed in the taxing country, the leve of sale-tax presupposes levy therof on each sale and that it is the essence of sales-tax.
70. In Deput Commercial Tax Officer, Saidapet(in all the appelas) Madras and another v. Enmgield India Ltd. Cooperative Canteen Ltd (in all appelas), AIR 1958 S.C. 838, the question as to what was the meaing of the expression `sale of goods' within the meaining of the relevant legislative entries in the Constituion and in the Government of India Act, 1935 in the context of the said expression used in the Sale of Goods Act, 1930, arose before the Supreme Court. In that context it has been observed that the expression `sale of goods' used in entry 54 in the State List bears the same meaning which has been given to it in the Sale of Goods Act, 1930, and that, therefore, the State Legislature may legislate in respect of series of act beginning with an argeement of sale between parties competent to contract and resulting in transfer of property from one of the parties to the agreement to the other for a price and matters incidental therto. It has been further obseved that if the element of transfer of property from one person to another is lacking in any transaction, there is no sale and that the Legislature cannot by treating it as a sale by a deeming clause bring it within the ambit of the taxing statue. This question arose under the Madras General Sales Tax Act 1959.
71. In Jont Commercial Tax Officer, Harbour Division II, Madras v. The Young Men's Association (Regd), Madras and others, AIR 1970 S.C. 1212, it has beenlaid down that the experssion "sale of goods " used in Entry 54 in the State List bears the same meaning which has been give to it in the Sale ofGodds Act, 1930
72. The last decison is in State of Maharashtra and others v. Champalal Kishanlal Mohota, AIR 1971 S.C. 908. In this case, the expression `sale of goods'used in Entry 54 in the State List.
73. All these decisions do not carry the proposition advanced by Mr. Vakil further because if the first price is a fully commercial price even though the buyer is a `related person', then second price must necessarily include the selling costs ans seeling profits. Therefore, any tax on them would satisfy the basic characteristics of a sales- tax.
74. It has next been argued by Mr. Vakil that the transaction of sale is the taxable event in the case of sale-tax and that sale of his goods by a manufacturer or a producer to his buyer a `related person' is also a sale. Therefore, according to him, whatever is levied on the first sale is excise duty. This argument reflects slight confusion of thoughts. Excise duty is levied on manufacture or production irrespective of whether excisable goods, after they are manufactured or produced are sold,consumed, destroyed or given away as laid down in Proddu Paidanna's case (supra) by the Federal Court. Therefore, for the purpose of levying excise duty, the first sale is only incidental. It is not the first sale which attracts the levy of excise duty but it is the manufacture or production which attracts it irrespective of whehter the excisable goods, after manufacture or production, are sold or not.
75. He has next argued that it is open to the Parliament to levy excise duty at any rate, may be at 100% of the assessable value or even at 200% of the assessable value. this argument has been pressed into service in order to show that so far as the rates of taxes are concerned, the parliment does not suffer from any fetters. It may be so. Assuming that Parliament has unlimited power to levy excise duty at any rate, it may do so but whatever rate it prescribes must be in relation to the manufacturing costs and manufacturing profits of an exciable commodity. However, it cannot prescribe a lower rate and provide machinery under which tax is relized in a large quantity and under some other head which is not within its legislative competence.
76. In this context, we were suprised to hear the argument raised by Mr. Vakil that if what the petitioner's learned counsel has contended is true, excise duty can be levied only on the exact assessable value representing the manufacturing costs and manufacturing profits ans not on less than that assessable value. This argument proceeded on a thorough misconception ans total confusion. If a Legislature has the constitutional competence to do a particular thing, it may do the whole of it or a part of it but it cannot do more. Therefore, if the Legislature does something less than what it is competent to do, by no stretch of imagination or by no process of reasoning,it can be said that the Legislature has done something which is not within its competence. However, if a Legislature does more than what it is authorized under the Constitution to do, it can certainly be called in question on the ground of its constitutional incompetence to do it.
77. Mr. Vakil has then tried to distinguish between the impost an its measure. If, in the form of providing a measure, Legislature tries to net in something on which it cannot lay its hands the Constitution and under the charging section, it can certainly be called in question. A wrong, erroneous, defective or excessive measure may not ordinarily be open to a constitutional challenge, but if it exceeds the constitutional conpetence of the Legislature which enacts it, it can certainly be called in question even though the charging section has not been called in questio.To illustrate, having levied excise duty under Section 3, can the Legislature provide that excise duty on cloth which it has levied shall be assessed not in the terms of the quantity of cloth produced, nor in terms of its value, nor in terms of its length but in terms of the width of th eprincipal road of the city in which it is prociced ? Secondly, can the Legislature provide that the excise duty on the cloth produced by a manufacturer shall be assessed on the length of the petticoat which the manufacturer's wife wears ? It is, therefore, wrong to say that having imposed excise duty under the charging section, unrelaed, strange or unconnected measure can be provided to realise it ans that such a measure need not necessarily have relation whatever to the impast levied under the charging section. We are, therefore, not impressed by the arguments advanced by Mr. vakil that what is assessable under Section 4 in case of a "related person" does not partake of sale-tax, that, it is partake of sale-tax, it is only an incidental encroachment and is curred by the doctrine of pith ans substance and that the measure of a tax need not necessarily have any link with the impost itself.
78. Mr.Vakil has then argued that the reason which prompts the Legislature to make a particular provision does not necessarily shoe the reason of its legislative competence. it may be so. Yet whiie examinig thr legislative competence of a Legislative in the context of a particular enactment, it is open to the Court to take all reasons into account ans to find out the source of power under which it has enacted a particular legislation. If the Court finds that the Legislature which has enacted a particular laegislation has entanched upon the forbidden filed, the Court is bound to strike it down Date 21-2-1979
79. In a possible attempt to escape the rigour of the principles laid down by the Supreme Court in its several decisions, Mr. Vakil would not call Section 4 the machinery section ort the assessment section but he would call it a valuation section. We do not propose to quarrel with mere nomenclature even where it departs from settled expressions. We are required to test it on the anvil of Parliament's legislative competence. We are of the view that, in a given case, it can be tested on the anvil of constitutional competence if it entreches upon the constitutionally forbidden filed. A federal Constitution which provides for distribution of powers between the Central and the States eschews unlimited power for the Centre and sets limits to the powers of the Centre as well as States. In no form what ever, one can entrech or trespass upon the filed exclusively reserved for another. Therefore, the valuation section can be challenged on the ground of legislature competence independently of the charging section if it tries to overreach a constitutional provision.
80. Mr. Vakil has next tried to argue that the measure of tax needd not be identical with the impost nor should it have any relation to the stage of its levy. According to him, the stage of levy unrelated to manufacture or production of the excisable goods, cannot identify the nature and character of the duty or impost. All these are very good general prpositions which can be conveniently called to one's aid. But, under thir guise, somthing which is not within the legislative competence of Parliament cannot be rendered valid. According to him, whatever measure, rational in the opinion of Parliament, has been laid down by law must be accepted by the Court because it is a matter of Parliamentary discretion. As long as it does not entrench upon the forbidden field, the Court does not interfere with it. However, when the machinery section entrenches upon the forbidden field, the Court has got to step in and strike it down.
81. Mr. Vakil has next argued that, assuming that the compulsory impost levied by Sectiion 3 read with the First Schedule to the Excise Act and Section 4 is not an excise duty within the meaning of Entry 84 in the Union List, it is also not a tax on sale or purchase of goods within the meaning of Entry 54 in the State List. This argument is not available to Mr. Vakil because in the decisions after decisions to which we have referred, it has been held that the Excise Act has ben enacted under Entry 84 in the Union List or under th ecorresponding Entry in the federal legislative List in the Government of India Act, 1935. Mr. Vakil has raised this argument in oder to enable him tio argue that what has been done be Parliament by amending Section 4 is constitutionally vaild under Entry 97 in the Union List- the residuary entry. We are seperately dealing with this aspect.
82. These are all the arguments which Mr. Vekil has raised to defend the constitutionality of amended Section 4 which has been called in question For the reasons which we have stated, we are not impressed by any of the arguments which he has raised.
83. Mr. Vakil has tried to justify the constitutionality of Section 4 by relying upon Entry 92A in the Union List. this argument has been advanced because Mr. J. C. Bhatt, learned counsel for the petitioner, has argued that, under amended Section 4, the Parliament has been directing the Central Excise authorities to collect, in the name of excise duty, a sales-tax. Indeed, a part of the excise duty assessed under Section under Section 4 is in our opinion a sales-tax Mr. Vakil has tried to argue that if it is a sale-tax, it is saved under Entry 92A of the Union of List reads thus :
"Taxes on the sale or purchase of goods other than newspapars, where such sale or purchase takes place in the course of inter-State trade of commerce."
Mr. Vakil has tried to inject force in his argument bystating that the sales to "related person" may take place at the factory gate and that the Parliament may provide a measure whichnot only brings in the excise duty levied under Section 3 but also a sales-tax leviable under Entry 92A. We are not impressed by this argument becauise the Central Sales-tax Act, 1956 is on the statute book. If we accept the argument raised by Mr. Vakil, we will be imputing to parliamenrt an intention to impose inter-State sales taxs under two different statutes. Firstly, we do not think that the Parliament has done so by amending Secxtion 4, Secondly, the preamble to the Excise Act states that is has been enacted to consolidated ans amend the law relating tol Central duties of excise on goods manufacturing or produced in India. It does not say that it has been enacted foe the purpose of levying inter-State sales-tax. The scheme of Section 3, 4, 5 and 6 in the Central Sales-tax Act, 1956 shows that the Central Sales-tax on inter- State trasactions or inter-State trade or commerce is levied under it, Section 3 provides that a sale or purchase of goods shall be deemed to take place in the course of inter0State trade or commerce if the sale or purchase-(a) occasions the movement of goods from one State to another: or (b) is effected by a transfer of documents of title to the goods during their movement from one State to another, In this connection, we may usefully refer to Bill No. 37of 1973 which was introduced in the LOK SABHA on 2nd May, 1973 in pursuance of which, inter alia, Section 4 of the Excise ACt was amended. That Bill was called "a Bill further to amend the Central Excises ans Salt Act, 1944". The Bill shows that the Parliament was not enacting a new levy apart from the excise duty but was strengthering machinery for assessment and collection of the levy imposed under Section 3 of the Excise Act. Financil Memorandum to the Bill, inter alia, stated as follows :
"Though the staff required for the enforecement ans administration of the Act is already in position, the proposed porvision whwn brought into operation may require some marginal augmentation of staff with a view tgo strengthening the valuation machinery in the Central Excise Collectorates and intensified training programme wil have to be arranged for the staff with a view to making the valuation processes more effective."
It does not show that either the whole of it or a part of it was intended to be distributed amongst the States unlike Central Sales-tax Act, 1956. The preamble to the Central Sales-tax Act, 1956 reads thus :
"An Act to formulate principles for determining when a sale of purchase of goods takes place in the course of inter-State trade or commerce or outside a State or in the course of import into or export from India, to provide for the levy, collection ans distribution of taxes on sales of goods in the course of inter-State trade or commerce ans to declare certain goods to be of special importance in inter- State trade or commerce and specify the-restrictions ans conditions to which State laws imposing taxes on the sale or purchase of such goods of special importance shall be subject."
84. It is, therefore, clear that whereas one of the objects of the Central Sales-tax Act is to distribute at lest a part of the collection amongst the States, there is no intention to distribution amongst the States the tax assessed and collected under Section 4 of the Excise Act. It is clear, therefore, that,by amending Section 4, the Parliament was niot expending the scope of levy under Section 3. Parliament was not thinking in terms of levying sale-tax under this Act. Parliament was thinking of strengthening the assessment machinery in order to make it effective. therefore, though the Parliament could have provided any machinery for realizing the impost levied under Section 3, while doing so, it sould not have entrenched upon the State List which is the forbidden filed for it. The character of central sales-tax is very mauch different from the character of the excise duty.
85. Mr. Vakil has next tried to argue that Entry 54 in theState List is subject to Entry 92A in the Union List. The argument which he has advanced is absolutely correct. But, in the context in which he has advanced it, he cannot receive support frin Entry 92A in the Union List because, as observed above, the Parliament has not provided, under amened Section 4, for the collection of inter-State sales-tax. the scheme of Sections 4, 5,and 6 lend support to what has been provided in Section 3. We are, therefore, unable to hold that the amended Section 4 of the Excise Act can be constitutionally justified un der Entry 92A. In fact, the expression`....in the course of wholesale trade delevery at the time ans place of removal ....." used in clause (a) of sub-section. (1)of Section 4 clearlcy militates against the concept of inter-State sales-tax. The argument advanced by Mr. Vakil on the strenght of Entry 92A is also negatived by the fact that Section 3 which is the charging section does not provide for two levies and that, therefore, the question of placing reliance upon Entry 92A in the Union List does not arise. We are unable to hold, therefore, that the constitutional vice from which amdnded Section 4 suffers is cured by Entry 92A in the Union List.
86. Mr.Vakil has further tried to argue that Section 4 in its entirety is constitutionally valid under Entry 84 read with Enttry 97 in the UNion List Entry 97 reads thus :
"Any other matter not enumerated in List II or List III including any tax not mentioned in either of those Lists."
87. The question which has therefore, arisen for our consideration is whethert amended Section 4 can be held valid under Entry 84 read with Entry 97 in the Union List.
88. The first decision rto which refernce has been made be Mr. Vakil is in M/s. Jullundur Rubber Gooods Manufacturer's Association v. The Union of India and another, AIR 1970 S.C. 1589. It was a case under the Rubber Act, 1947. SEction 12(1) of the Rubber Act imposed a new rubber cess to be collected from the owners of the rubber estates. Sub-section(1) of Section 12 imposed the levy in the following terms :
"With effect from such date as the Central Government may, by notification in the Official Gazette, appoint, there shall be levied as a cess for the purpose of this Act, a/duty of excise on all rubber produced in Inida at such rate, not exceeding fifty naya paise per kilogram of rubber so produced, as the Central Government may fix."
89. The contentions which were raised were as follows : The duty sought to be imposed under Section 12 of the rubber Act as amended was outside the ambit of Entry 84 in the Union List ans , therefore, beyond the legislative competence of the Parliament. Section 12(2) suffered from the vice of excessive delegation. We are concerned in this case with the answer which gthe Supreme Court gave to the first contention raised in that case, The Supreme Court referred with approval to the observations of Gwyer, C.J. in the Central Provinces case (supra) and held that the said inpst did not fall within Entry 84 in the Union List. That position was not challenged by counsel who appeared for the appellant in that case. therefore, the Supreme Court upheld the levy under Entry 97 because it was a kind of non-descript tax which was given the nomenclature of the duty of excise. firstly, it was nota case of levy partkly of excise duty and partly of something else. Secondly, it was conceded in that case that it was not an excise duty. Thirdly,the question whether the impost levied by Section 12(1) of the Rubber Act entrenched upon the State List did not arise in that case. Under these circumstances, the Supreme Court held that it was a non- dexcript tax which the Parliment could levy in exercise of its residuary power.
90. Reliance was placed by Mr. Vakil on the decision of the Supreme Court in The Second Gift Tax Officer, Mangalore, etc. v. D. H. Hazareth etc.,AIR 1970 S.C. 999. In that case, the constitutionality of the Gift Tax ACt, 1958 was challenged. The Supreme Court held that it did not fall under Entry 49 in the State List not did it fall under other Entry in the Union List. They, therefore, held that it fell under Entry 97 in the Union List.This decison does not help Mr.Vakil in advacing his argument further because the impost levied under Section 3 indisputably falls under Entry 84 of the Union List and a companent of the excise duty assessed and collected under Section 4 entranches upon Entry 54 in the State List. However, in the course of arguments, Mr. Vkil in express terms stated that if the impost in question fell under Entry 84, it could not be justified under Entry 97.
91. The next argument which he has raised is that the Parliament has the legislative competence to impose a levy if the subject-matter of the levy does not fall under State List because the Parliament can legislate upon subjects specified in Union List as well as in the Concurrent List ans also because the residuary power has been assigned by the Constitution to the Parliament.
92A. Mr J. C. Bhatt, in his turn, has tried to advance the proposition that where the source of power is definitely traceable to a particular Entry in the Union List, no resort can be had to residuary power of Parliament under Entry 97. Our atention has been invited in this behalf to the decision of the Supreme Court in Union of India v. Harbhajan Singh Dhillon, AIR 1972 S.C. 1061. It was a case in which the constitutional validity of Section 24 of the Finance Act, 1969 was challenged. By that section, ceratin provisions oft he Wealth Tax Act were amended with the object of including capital value of agricultural land for computing net wealth. On consideration of several factors, the view which has been expressed in that case is that the Act impugned therin fell entitely eithin Entry 97 in the Union List. It has been furtherobserved in that case that the Supreme Court has never held earlier that the original Wealth Tax Act fell under Entry 86 in the Union List and that it only assumed that the original Wealth Tax Act fell within Entry 86 in the Union List. It has been futher observed that on that assumption Entry 86 was analysed and contrasted with Entry 48 in the State List. therefore, the final conclusion which the Supreme Court recorded in that behalf was that no part of the impugned legislation fell within Entry 86 in the Union List (vide paragraph 77 of the report). Therefore,that decision is not an authority for the proposition that he consitutionality of an impugned legislation can be defended both under a specific Entry ans under tha residuary Entry. It appears that the controversy has ben set at rest by the Supreme Court in His Holiness Kesavananda Bharti Sripadagalvaru and other v. State of ketala and another, AIR 1973 S.C. 1461. It appears that seven learned Judges out of thirteen who constituted the Bench have taken view that if the subject of legislation was prominently present to the minds of the framers of eh Constitution, they would not have left it to be found by recourse to the residuary power,. Therefore, where an impugned legislation falls under a specific Entry, it cannot be justified under Entry 97-the residuary Entry. This is how we read the observation made by seven learned Judges in that decision (vide paragrph 685-Per Hedge ans Mukherjiea, JJ;paragraph 1239-Per Palekar J., paragraph 1364-Per Khanna J., paragraph 1597-Per Mathew J., paragraph 1886-Per Dwivedi J., and paragraph 2056-Per Chandrachud J.) 92B. Reference has also been made to the decision of the Supreme Court in H. H. Prince Azam Jha Bahadur v. Expenditure Tax Officer, Hyderabad, AIR 1972 S.C. 2319. In that case, the constitutional challenge to the Expenditure Tax Act, 1957was that it fell within Entry 62 in the State List and that, therefore, it was beyond the legislative competence of Parliament. The Supreme Court held that it did not fall under Entry 62 or any other entry in the State List. therefore, its validity was upheld under Entry 97 in the Unio List. the question of supporting the legislative enactment by simultaneously invoking a specific entry and the residuary entry did not arise in that case.
93. Mr. Vakil has also invited our attention to certain observations made by this Court in The Anant Mills Co. Ltd & Ors. v. State of Gujarat & Ors., 14 GLR 826. the observations upon which Mr. Vakil has placed reliance show that nothing turns upon the nomenclature ans that the Court has to fibd out what is the subject-matter in respect of which Parliament or the Legislature, as the case may be, has passed the impugned enactment. We may stat that this decision has been overruled in The Anant Mills Co. Ltd. Etc. v. State of Gujarat, AIR 1975 S.C. 1234. In any case, we are not deciding this case by following the mere nomenclature. If we do, we would uphold the constitutional validity of the amended Section 4 because the nomenclature suggests that it is all Excise duty. We have gone into its substance ans discovered, on a meticulous and penetrating analysis, that in the name of Excise duty, sale-tas is also collected. We have therefore followed the guideline which Mr.Vkil was at pains to point out to us.
94. Having been confronted with a series of decisions bearing on the subject Mr. Vakil has unsuccessfully tried to persuade this court to hold that all these decisions contain loose observations made by the Supreme Court ans that they do not lay down ratio decidendi or even obiter dicta. Mr. Vakil who appears for the Union of India ought not to have advanced this shocking argument and ought not to have taken a lot of one time by citing decisions after decidions before us to show what is ratio decidendi, what is obiter dictum ans what is a loose observation. At the High Court bar, such ans attempt ought not to be made by the Central Government counsel before senior Judge of the Court. He could have safely assumed that we know the distinction between ratio decidendi, obiter ans a loose observation. It is nort necessary for us to dal with each of those decisions again in order to find out whether they lay down ratio decidendi, obiter dictum or are merely loose observation. All of them lay down, in our opinion, ratio decidendi, much less obiter dicta or loose observations.The decisions showing the distinction between decidendi, Obiter dictum and a lose observation to which he has referred are as follows and are merely noted in this judgmenrt out or sheer respect for him and for no other reason.
(1) Mohandas Issardas v. A. N. Sattanathan, 56 Bom. L.R. 1156, (2) M/s. Ranchhoddas Atmaram and another c. The Union of India and others, AIR 1961 S.C. 935, (3) Zoolfigar Ali Currimbhoy Ebrahim v. The Official Trustee of Maharashtra, 69 Bom. L.R. 326, (4) State of Maharashtra v. Vali Mohammad Jan Mohammad, 71 Bom. L.R.1, (5) State of Orissa v. Sudhansu Sekhar Mishra and others, AIR 11968 S.C. 647, (6) Nag Raj Potodia v. R.K Birla and others, AIR 1969 Rajasthan 245, (7) Flying Officer S. Sundarajan v. Union of India and others, AIR 1970 Delhi 29, (8) Indian Rayon Corporation Ltd., Veraval v. Veraval-v. Verval-Patan Joint Municipality and another, (1978) 19 GLR 467, and (9) (1978) Excise Law Times (J 597).
95. The next contention which Mr. Bhatt has raised is that amended Section 4 goes beyond the scope of Section 3 and that, therefore, it is ultra viresSection 3 It must, therefore, be confined to Section 3 It is strictly notnecessary for us to deal with this contention because, out conclusion onthe first contention is capable of bringing to an end the controversy toamended Section 4. We have alreadu reproduced amended Section 4 Let us seewhat Section 3 provides. It has not been amended even though Section 4 hasbeen amended. It, inter alia, provides as follows :
"3 Duties specified in the First to be levied- (1) There shall be leviedand collected in such manner as may be prescribed duties of excise on allexcisable goods other than salt which are produced or manufatured inIndia and a duty on salt manufactured in, or imported by land into, anypart of India as, and at the rates, set forth in the First Schedule.
(1A) The provisions of sub-section (1) shall apply in respect of allexcisable goods other than salt which are produced or manufactured inIndia by, or on behalf of, Governement as they apply in respect of goodswhich are not produced or manufactured by Governement.
It is clear, therefore, that Section 3 which is the charging section leviesexcise duty and nothing else. 4 provides for the machinery to a determineand collect excise duty levied under Section 3 In Wallace brothers and Co.Ltd. v. Commissioner of Income-tax, Bombay Subraban District, (1948) 16ITR 240, the Privy council has laid down the principle that the liabilityto pay tax arises by virtue of the charging section alone. Thisprinciple has been affirmed by the Supreme Court in Kalwa Devadattan andothers v. Union of India and others, (1963) 49 ITR and by the GujaratHigh Court in Commissioner of Wealth- tax, Gujarat v. Raipur Manufacturingcompany Limited, (1964), 52 ITR 482. It appears that there are threemachinery sections in the Excise Act, Secs. 3(2), 4(1) and 4(2).
96. Mr. Vakil has argued in the context of amended Section 4 that the pleathat a particular section is ultra vires another section of the samelegislation cannot be raised. In other words, according to him, if themancinery section goes beyond the ambit of the charging section, it mustbe held that the machinery section modifies the charging section protanto but it cannot be held that the machinery section is ultra vires thechargig section. He has in that context invited our attention to thedecision of the Supreme court in The Commissioner of Income-tax City v.Godavari Sugar Mills Ltd., AIR 1967 S.C. 556, where the doctrine ofpartial implied repeal was brought into play. The question of partialimplied repeal or modification of Section 3 does not arise in the instantcase. Our attention has been invited to two decisions of the Bombay HighCourt in State v. Ardeshir Hormusji Phiwandiwala, AIR 1956, Bom. 219 andin Special Civil Application No. 1066 of 1972 decided by Mr. Justice Shahand Mr. Justice Pendse on 15th November, 1976 and 27th November, 1976. Wedo not propose to make any reference to those decisions because, in ouropinion , the question which we are called uupon to decide can be decidedeffectively on the basis of several decisions of the Supreme Court towhich we have referred and which are binding upon us.
97. However, we may refer to one unreported decision of a learned singlejudge of the Kerala High Court. In that the decision, amended Section 4 waschallenged on the ground that it was ultra vires Section 3 because it castsits sweep wider than what Section 3 provides. That decision is in MadrasRubber Factory, Madras v. Assistant Collector of Central Excise andothers, 1978 E.L.T (J 595). The first contention which was framed forthe consideration of the learned Judge in that case was whether Section 4 was ultra vires Sec. 3 of the Excise Act. The learned Judge after havingreviewed a large number of decisions on the subject has observed asfollows :
"The amendment to section 4 of the Act was perhaps necessitated becauseof the Voltas' case. The section had to be changed to overcome thehurdle created by the Supreme Court decisions. Therefore, the newsection has to be properly analysed before applyig the judgmentmentioned above. To say that the matter is concluded is to forget thatthe section has been amended. I am emboldened to make this statement forthe reason that Mathew J. has observed in the Voltas' case that "thesection makes it clear that excise is levied only on the amountrepresenting the manufacturing cost plus the manufacturing profit andexcludes post-manufacturing cost and the profit arising frompost-manufacturing operation, namely, selling profit, "referring to theold section. Therefore, even if the law is settled that duty of excisefor the purpose of section 4 as it then stood can take is only themanufacturing cost and manufacturing profit, it cannot be said to be thelaw for the purpose of interpreting the new section 4 also. It isagainst this background that I propose to consider the new section andits impact on the determination of the value for excise duty".
98. In that case an argument based on Entry 97 of the Union List wasadvanced. The learned Judge did not examine that argument because,according to him, the Supreme Court had viewed wity disfavour theindiscriminate resort to Entry 97 in cas es where a party is kept at baywith reference to a particular Entry and secondly because, in his view,Section 3 did not define `duty of excise' to take in olny themanufacturing costs and manufacturing profits. While making hisobservation, the learned Judge appears to have overlooked that the widththe amplitude of the expression `duty of excise' was laid down by theSupreme Court in the context of Entry 84 in the Union List. Therefore,it is applicable both to Section 3 and 4. Next, the observation which wehave underlined in the extract reproduced above show that the learnedJudge has summarily brushed aside the principles laid down by the SupremeCourt in its several decisions-albet in the context of Entry 84 in theUnion List and section 4 as it w as prior to its amendment. We are ofthe opinion that it could not have been done. Basic principles bearingupon constitutional interpretation laid down by the highest court of thecountry cannot, we say with respect, be so summarily brushed aside andshelved. They do not become irrelevant and inapplicable with theamendements which may be made to the statues. On the contrary, theyfurnish the touchstone for testing the constitutional validity of amendedstatues. They may become irrelevant for inapplicable if theConstitution itself is amended.
99. Next, we are also unable to agree with the following observation madeby the learned Judge.
"There are indications in the judgments of the Federal Court and thePrivy Council referred above that their Lordships laboured under ahandicap for want of a definitio of the expression `duty of excise'."
100. We do not think Their Lordships laboured under any such handicap.Assuming that they did, Section 4 does not now remove that handicapbecause section 4 cannot define the expression "duty of excise" used inEntry 84 in the Union List. No parliamentary legislation excepting aconstitutional amendment can amend a constitutional provision. If we didnot have a written Constitution with distributton of powers between theCentre and the States, then it could have been said with somejustification that Section 4 defined the expression `Duty of excise' used inSection 4. Therefore, the observation made by the learned Judge of KeralaHigh Court is, with respect, too wide and too loose to merit any seriousconsideration or examination. The connotation and amplitude of Entry 84,enunciated by the supreme Court, is final and binding on all the HighCourts as long as Entry 84 iteself is not amended. Next, we are unableto agree with the learned Judge that the charging section does notcontrol the machinery section. Charging section, in our opinion, alwaysconstols the machinery section. The learned Judge has made an erroneousassumption that Parliament can do anything in the machinery section eventhough the charging section and the appropriate legislative Entry in theUnion List have remained unamended. We reproduce with interest a fewmore observations from his judgment :
"The excise duty forms part of the cost structure which the manufactureror the dealer passes on to the consumer and it is he who bears theburden. The real object appears to be to inflate the post- manufacturingexpenses detailed above and thereby swell the pockets of themanufacturer. Not without justification, is it suggested by thedepartment that the post-manufacturing expenses like selling andadministrative expenses, salaries, wages paid to the selling staff,advertising expenses, godown charges, freight and distribution expensesare so grossly exaggerated only to benefit the manufacturers so that theycan make undue profits"
101. With respect, this is an erroneous approach. What the mischief- mongerswere doing and what difficulties the department was facing under the oldlaw and what remedies have been provided by Parliment by amending thelegislation to overcome such situtation are not so much relevantconsiderations as the constitutional competence of the Parliment to do sowhen vires of the amended legislation are challenged. We, therefore, donot subscribe to the approach made by the learned judge.
102. The last contention which has been raised before us is that themanufacturer and the buyer are not "related persons". We have alreadyquoted in the foregoing parts of this judgment the definitio of "relatedperson" given in Section 4. Therefore are two ingredients in thedefinition. If any one of them is satisfied the buyer can be said to bea "related person". Firstly, the manufacturer and the buyer must "haveinterest, directly or indirectly, in the business of each other. "Mr.Bhatt has argued that the words in quotation unfailingly show that therebe mutuality of interest or mutuality of business interest between thetwo. In the instant case, the manufacturer manufactures the goods andthe buyer buys them. Therefore, there is only one-way business betweenthem. In other words, the element of mutuality of business interestbetween them is significantly absent. There is no dispute about thischaracter of business transactions between the two. We think theargument advanced by Mr. Bhatt is well- founded. the particular words "inthe business of each other" used in the definition are capable of noother meaning than that there must exist mutuality of business interestbetween the two. If the nature of business transacted between the twoshows that the one only manufactures and the other only buys from himthere is no mutuality of business interest between them. Merely beacausethere is an agreement between the two on this subject, it cannot be saidthat there is mutuality of business interest between them. In order toestablish mutuality of business interest between the two, themanufacturer must, in his own interest, promote the business of the buyerand the buyer, in his own interest, promote the business of themanufacturer. The agreements between the two do not enable us to takesuch a view of business betweem the two. In the context of Section 4 asit was prior to its amendment such a question arose before this Court inSpecial Civil Application No. 1324 of 1976 decided by Obul Reddy and D.P.Desai J, On June 29, 1977 [1978 E.L.T. (J 68)]. In order to find cutwhether there was mutuality of business interest between the manufacturerand the buyer, this Court examined the agreements betweem the two andalso the agreements under which the Swiss company allowed themanufacturer to affix its trade mark. After having examined them, thecontention that the price paid by the buyer to the manufacturer could notbe taken as the assessable value for the purpose of excise duty wasturned down. In other words, they were business agreements pure andsimple. They did not show any mutuality of business interest between thetwo. Mutuality of business interest between two persons cannot beestablished by merely showing that they have business dealings betweenthem. It must be further shown that one has special interest in thepromotion or development of the business of another. such interest maybe direct or indirect. Betweem the manufacturer and the buyer, thiselement is lacking. The agreements which were examined by this Court inthe case above referred to are still in force. In the affidavitsx filedon behalf of the department, nothing has been against the agreementsbetween the buyer and the manufacturer or between the buyer, themanufacturer and the Swiss company.
103. Let us now examine the second part of the definition of "relatedperson". The question which arises in this context is this : Is thebuyer a holiding company, a subsidiary company or a relative of themanufacturer? Now Explanation appended to the definition of "relatedPerson" expressly states that the expressions "holding company","subsidiary company" and "relative" bear the same meanings as areassigned to them under the Companies Act, 1956. "Holding company" hasbeen defined by Section 2(19) of the Companies Act, 1956 as follows.
"Holding Company" means a holding company within the meaning of Section 4 "Subsidiary company" has been defined by section 2(47) as follows :
"Subsidiary company" or "subsidiary" means a subsidiary company withinthe meaning of section 4.
Both these definitions take us to Section 4 which provides as follows :-
"4. (1) For the purposes of this act, a company shall, subject to theprovisions of sub-section (3), be deemd to be a subsidiary of another if,but only if,--
(a) that other controls the composition of its Board of directors; or
(b) that other-
(i) Where the first-mentioned company is an existing company in respectof which the holders of preference shares issued before the commencementof this Act have the same voting rights in all respect as the holders ofequity shares, exercise or control more than hald of the total votingpower of such company;
(ii) where the first-mentioned company is any other company, holds morethan hald in norminal value of its equity share capital; or
(c) the first-mentioned company is a subsidiary of any company which isthat other's subsidiary.
Illustration Company B is subsidiary of Company A and Company C is a subsidiary ofcompany B. Comapany C is a subsidiary of Company A, by virtue clause (c)above. If company D is a subsidiary of Company C, Company D will be asubsidiary of Company B and consequently also of Company A by virtue ofclause (c) above; and so on.
(2) For the purposes os sub-section (1), the composition of a company'sBoard of directors shall be deemed to be controlled by another companyif, but only if, that other company by the exercise of some powerexercisable by it at its discretion without the consent or concurrence ofany other person, can appoint or remove the holders of all or a majorityof the directorships, but for the purposes of this provision that othercompany shall be deemed to have power to appoint to a directorship withrespect to which any of the following conditions is satisfied, that is tosay-
(a) that a person cannot be appointed thereto without the exercise in hisfavour by that other company of such a power as aforesaid;
(b) that a person's appointment thereto follows necessarily from hisappointment as director, managing agent, secretaries and tresurers, ormanager of, or to any other office or employment in, that other company;or
(c) that the directorship is held by an individual nominated by thatother company or a subsidiary thereof.
(3) In determining whether one company is a subsidiary of another-
(a) any shares held or power exercisable by that other company in afiduciary capacity shall be treated as not held or exercisable by it;
(b) subject to the provisions of clauses (c) and (d), any shares held orpower exercisable-
(i) by any person as nominee for that other company (except where thatother is concerned only in a fiduciary capacity); or
(ii) By, or by a nominee for, a subsidiary of that other company, notbeing a susidiary which is concerned only in a fiduciary capacity;
shall be treated as held or exercisable that other company;
(c) any shares held or power exercisble by any person by virtue of theprovisions of any debentures of the first mentioned comapany or of atrust deed for securing any issue of such debentures shall bedisregarded;
(d) any shares held or power exercisable by, or by a nominee for, thatother or its subsidiary (not being held or exerciable as mentioned inclause(c) shall be treated as not held or exercisable by that other, ifthe ordinary, business of that other or its sunsidiary, as the case maybe, includes the lending of money and the shares are held or the power isexerciable as aforesaid by way of security only for the purposes of atransactio entered into the ordinary course of that business.
(4) For the purposes of this Act, a company shall be deemed to be theholding company of another if, but only if, that other is its subsidiary.
(5) In this section, the expression "company" includes anybody corporate,and the expression "equity share capital" has the same meaning as insub-setion (8) of section 85.
(6) In the case of a body corporate which is incorporated in a countryoutside India, a subsidiary or holding company of the body coporate underthe law of such country shall be deemed to be a subsidiary or holdingcompany of the body corporate within the meaning and for the purpose ofthis Act also, whether the requirements of this section are fulfilled ornot.
(7) A private company, being a subsidiary of a body corporateincorporated outside India, which, if incorporated in India, would be apublic company within the meanig of this Act shall be deemed for thepurposes of this Act to be a subsidiary of a puclic company if the entireshare capital in that private company is not held by that body coporatewhether alone or together with one or more other bodiescorporated/incorporated outside India."
104. Clause (a) of sun-section (1) provides that a company which controls thecompositions of the Board of Directors of another company is a holdingcompany. In other words, the controlling company is the holding companyand the controlled company is the subsiodiary company. Sub- section (2)lays down the manner in which such control can be exercised. If acompany has power to appoint or remove all or majority of the directorsof another company, the former is the holdig company. In the instantcase, there is no allegation that the buyer has such power under theArticles of Association of the manufacturer nor is there an allegationthat the manufacurer has such power under the Articles of Association ofthe buyer. Therefore, clause (a) does not come into play in this case.
105. Clause (b) of sub-section (1) provides that a company which holdspreference shares of another company with the same voting rights as theholders of equity shares exercise and exerciese or controls more thanhald of the total voting power of such company is a holding company.Clause (b) of sub-section (1) further provides that if a company holdsmore than half in nominal value of the equity share capital of anothercompany, it is a holding company. So far as share holding is concerned,the buyer holds only 5% of the manufacturer's shares. So far as thebuyer is concerned 65% of its shares are held by the Swiss company. Themanufacturer holds no shares of the buyer. Therefore, requirements ofclause (b) of sub-section(1) of section 4 are not satisfied. So far asthe requirement of clause (c) is concerned, it is also not satisfiedbecause there is no evidence to show that the buyer is a subsidiary ofany other company-in this case, Swiss company of which the manufactureris also a subsidiary. Therefore, such a three-cornered relationship isalso absent in this case.
Section 2(41) of the Companies Act, 1956 defines "relative" as follows :
"relative" means with reference to any person, any one who is related tosuch person in any of the ways specified in section 6, and no others."
Section 6 provides as follows.
"A person shall be deemed to be a relative of another if, and only if,-
(a) they are members of a Hindu undivided familty; or
(b) they are husband and wife; or
(c) the one is related the other in the manner indicated in Schedulre1A".
Schedule 1A gives the list of relatives. Section 6 read with section 1Aclearly shows that it applies to human beings and not to impersonal legalentities such as companies. It is clear, therefore, that there is norelationaship of holding company and subsidiary company between the buyerand manufacturer. Therefore, in our opinion, they are not "relatedpersosn" within the meaning of that expression given in the Excise Act.
106. The concept of `related person' has been examined by Allahabad HighCourt in M/s. Hind Lamps Ltd. v. The Union of India and other-1977 ELT (J1). In that case M/s. Hind Lamps Ltd. was the petitioner assessee. Therewere only five share holdres of the petitioners company. They were;-
(1) Bajaj Electricals Ltd. Bombay.
(2) Crompton Parkinson Ltd. London.
(3) N. V. Phillips, Rnlhoven (Hooland).
(4) General Electricals Co. London.
(5) Mazda Lamp Co. Ltd. Liecester, England.
Bajaj Electricals Ltd. Bombay held 1,80,000 shares of M/s. Hind Lamp Ltd.The other four companies held the remainng 1,80,000 shares. BajajElectricals Ltd. Bombay, were called "A" shareholders. The other werecalled `B' shareholders. M/s. Hind Lamps Ltd. was engaged inmanufacturing lectric lamps,fluorescent lamps and ministure lamps. Itsold its entire production exclusively to the following five companies,viz.
(a) Bajaj Electricals Ltd.
(b) Philips India Ltd.
(c) Crompton Greaves Ltd.
(d) General Electric Co. of India Ltd.
(d) Mazda Lamps Co. Ltd.
The question which arose before the Allahabad High Court was whether theprices which M/s Hind Lamps Ltd., charged its customer companies for itsproducts or whether the prices which its customer companies charged theirbuyers should be taken into account of assessing the excise duty underSection 4 of the Excise Act. Allahabad High Court examined the scheme of Secs. 2, 3 and Section 4 (as amended) and also examined some decision of thePrivy Council and the Supreme Court. The controversy which arose waswhether the five customer companies were `related person' of M/s. HindLamps Ltd., within the meaning of the definition of that expression givenin Section 4. The High Court held that the first ingredient which isnecessary to be established for being a `related person' in that theassessee company (M/s. Hind Lamps Ltd.) and its customer company must"have interest, directly or indirectly, in the business of each other".In the opinion of the High Court, such of the customer companies whichheld shares of the assessees company (M/s. Hind Lamps Ltd) can be said tohave interest in the business of the assessee company. But, since theconverse was not established, there was no mutuality of business interestbetween them. We are in respectful agreement with the principle laiddown in that decision. In supports the view which we have taken. So fara sholding of shares was concerned, only Bajaj Electricals Ltd, Bombay,held shares of the assessee company. The remaining four customercompanies did not hold any shares of the assessee company. In otherwords, they were different companies though their names were similar ofthe assessess companies. It was also contended on behalf of the Union ofIndia in that case that four customer companies were respectivelyassociated companies of the four foreign companies which held shares ofthe assessee company and that, therefore, the said four customercompanies must be held to have interest indirectly, if not directly, inthe business of the assessee company. That argument was turned down.
107. The department has treated the manufacturer and the buyer as "relatedpersons" because of the declaration made under the Monopolies andRestrictive Trade Practices Act, 1969 (MRTP Act)_ stating that they are"inter-connected undertaking " as defined by Section 2(g) of that Act. Inthe affidavits filled on behalf of the department "inter - connectedundertakings" has been transferred into "inter-related undertakings"-analtogether new and unknown expression. From "interrelated undertakings",the department has jumped to "related persons" conveniently overlookingthe statutory definition of "related person" given in the Excise Act.this state of affairs relects loose thinking. Now, definition of anexpression give in one act cannot be used for the purpose of another Act.In our opinion, the argument raised by Mr. Bhatt in that behalf is wellfounded. The definition given in one statute is for effectuating theprovisions of the statute and not for effectuating the provisions ofanother statute. It is, therefore, risky to rely upon the definitiongiven in one Act, for the purpose of applying the provisions of anotherAct.
108. The department has treated the manufacturer and the buyer as "relatedpersons" because of the declaration made under the Monopolies andRestrictive Trade Practices Act, 1969 (MRTP Act) stating that they are"inter-connected undertakings" as defined by Section 2(g) of that Act. Inthe affidavits filled on behalf of the department "inter- connectedundertakings" has been transferred into "inter-related undertakings"- analtogether new and unknown expression. From "interrelated undertakings",the department has jumped to "related persons" conveniently overlookingthe statutory definition of "related person" given in the Excise Act. This state of affairs relects loose thinking. Now, definition of anexpression given in one Act cannot be uses for the purpose of anotherAct. In our opinion, the argument raised by Mr. Bhatt in that behalf iswell founded. The definition given in one statute is for effectuatingthe provisions of the statute and not for effectuating the provisions ofanother statute. It is, therefore, risky to rely upon the definitiongiven in one Act, for the purpose of applying the provisions of anotherAct.
109. In Ram Narain v. The State of Uttar Pradesh and others, AIR 1957 S.C.18, it has been laid down by the Supreme Court : "It is not a soundprinciples of constructions to interpret expressions used in one Act withreference to their use in another Act. The meanings of words andexpressions used in an Act must take their colour from the context inwhich they appear."
110. In Smt. Lila Vati Rai v. State of Bombay, AIR 1957 S.C. 521, theSupreme Court has observed :
".....observation made by a Court with reference to the constructions ofone statute cannot be applied with reference to the provisions of anotherstatute which is not pari materia with the statute which forms thesubject matter of the provisions decisions."
111. In The Commissioner of Sales Tax, Madhya Pradesh, Indore v. M/s.Jaswant Singh Charan Singh, AIR 1967 S.C. 1954, it has been observed :"It is a well-settled principle that in construing a word in an Actcaution is necessary in adopting a meaning ascribed in that words inother statutes." (paragraph 8 of the report).
112. In Directot, Enforecement, Government of India ad others v. SarojKumar, Bhotika and another (1978) 49 Company Cases 649, Calcutta HighCourt has laid down a similar principle. In our opinion, therefore, thedeclaration made under the MRTP Act that the manufacturer and the buyerwere "inter-connected undertakings" could not have been taken intoaccount by central excise authorties for deciding the case under theExcise Act.
113. The next proposition which Mr. Bhatt has tried to make out is thatthe impugned orders could not have been supported on the grounds otherthan those which were stated in the orders themselves. The two ordersAnnexures "J" and "J/1" state certain ground for holding that themanufacturer and the buyer are "related persons". Those grounds aresought to be reinfored by certain facts in the affidavits filed on behalfof the department. The orders made by the central excise authorities inthe proceedings under the Excise Act proceedings of a quasi-judicialcharacter. Therefore, the support for what has been stated in theimpugned order must be found from the order itself. It cannot later onbe found from outside the impugned orders to cloak them with the garb ofvalidity,Mr. Bhatt has, in this context, invited our attention to theobservations made by the Supreme Court in Mohinder Singh Gill and anotherv. The chief Election Commissioner, New Delhi and others, AIR 1978 S.C.851. They were made in the context of the Representation of the PeopleAct, 1951 and are as follows :-
"When a statutory functionary makes an order based on certain grounds,its validity must be judged by the reasons so mentioned and cannot besupplemented by fresh reasons in the share of affidavit or otherwise."
In absence of this principles, an order, had in the begining may by thetime it comes to Court on account of a challenge, get validated byadditional ground later brought out. The proceedings under theRepresentation of the People Act are really a different type ofproceedings because they affect several persons. Secondly, an electionpetition cannot be withdrawn by the petitioner unless public notice ofthe intended withdrawal has been given and no else comes forward toprosecute it. We are, therefore, disinclined to extend this principle toorder made under the Excise Act. However, even without taking help ofMohinder Singh's case(supra), we are of the opinion that since theproceedings before the central excise authorities are quasi judicial incharacter, they can be supported only on the materials stated in theimpugned orders and not on any other grounds.
114. In answer to the second contention raised by Mr. J.C. Bhatt on behalfof the petitioner, Mr. Vakil has given no reply on merits either in hisoral arguments or in his written agruments. All that he has stated isthat the revision application field by the petitioner before the CentralGovernment is pending and that, therefore, this Court should not decidethis contention on merits. We are unable to accede to this request madeby Mr. Vakil, firstly because we are not prepared to drive the petitionerto file another writ petition, if need arises, after the CentralGovernment has decided the revision application and secondly because thepetitioer has pleaded sufficient facts to enable us to come to the finalconclusion. The respondents have hardly controverted them except to thestated in this judgment Thirdly, even though the buyer has been payingthe manufacturer the fully commercial price, the manufacturer required topay excise duty on the price which the buyer charges his buyer merelybecause the buyer ad the manufacturer are regarded as "related persons'. We have struck down the concept of "related person" because it is ultravires the legislative competence of Parliment under Art. 246 read withEntry 84 in the Union List and Entry 54 in the State List. Merelybecause the buyer and the manufacturer are "related person", assumingthat it is so though we have decided otherwise, the central exciseauthorities have no juridiction to assess excise duty on the second priceand to ignore the first price. It, therefore, raises a jurisdictionalquestion. We have, therefore, decided the second contention.
115. In the result, we hold that the expression "where the buyer is not arelated person" used in Section 4(1)(a) of the Excise Act is ultra viresto Articles 246 read with Entry 84 in the Union List and that themanufacturer and the buyer are on facts also not "related persons". Therefore, the petitioner is liable to pay excise duty in respect of itsproducts on the first price which it charges the buyer. In that view ofthe matter, we allow the petition and issue a writ a mandamus directingthe respondents to cancel their orders at Annexures "J" and "J/1" andrefund to the petitioner the sum of Rs. 28,79,093-35 P. which they havecollected on the basis that excise duty is leviable on second price whichthe buyer charges his buyer. It will be open to the respondents torefund this amount to the petitioner within six month from to-day. Thisamount shall be refunded with interest at the rate of 6% per annum fromthe date on which different payment constituting the entire sum were madeuntil the date of refund.
116. The respondents are further directed to pay to the petitioner thecosts of Bank gurantee incurred by them in pursuance of the interim ordermade by this Court in this petition on 29th February, 1976. so far asthe expiry of the Bank guarantee specified in the interim order of thisCourt dated 29th February, 1976 is concerned, we direct that the Bankguarantee shall expire only on 30th June, 1979.
117. The respondent are further directed to finalise, in light of thefindings recorded in this judgment, on or before 31st July, 1979calculations in ragard to the excess payment of excise duty recovered bythem from the petitione during the pendency of this petition and torefund to the petitioner on or before 31st October, 1979 the whole orsuch part thereof as has not been included in ths sum of Rs.28,79,093-35 P. which we have ordered to be refunded. The amount soworked out shall also bear interest at the rate of 6% per anuum from thedate on which different payment were made by the petitioner till the dateof refund.
118. Rule is made absolute accordingly. The respondents shall pay to thepetitioner the costs of the petition.
119. Mr. Vakil applies for certificate of fitness under Art. 132 and Art. 133(1) of the Constitution for appearing against this decision to theSupreme Court. In our opinion, this is a fit case for granting thecertificate under Art. 133(1) because it raises a substantial question oflaw which, in our opinion, is required to be decided by the SupremeCourt. The substantial question of law which arise in this case is whether a part of the amended Section 4 of the Excise Act is ultra vires thelegislative competece of Parliment. This question is a substantialquestion of law of general importance because it pertains to the realm ofcentral excise which is levied throughout the country. We also cetifythis case as fit for appeal to the Supreme Court under Art. 132 becauseit involves the interpretation of Entries 84,92 and 97 in the Union Listand Entry 54 in the State List. Though we have relied upon the SupremeCourt decisions for recording the conclusions which have done, we thinkit is necessary to finally lay down the cumulative effect of all theseEntries on amended Section 4.
120. Mr. Vakil applies for time to approach the Supreme Court forobtaining necessary interim orders in this case and therefore, prays forstaying the operation of the writ which we have issued. We order thatthe operation of the writ issued herein shall, in the first instance, bestayed for a period of two months from to-day.