Calcutta High Court
Union Of India (Uoi) And Ors. vs Burn Standard Co. Ltd. And Ors. on 2 February, 1988
Equivalent citations: 1988(18)ECC108
JUDGMENT M.N. Roy, J.
1. This appeal is directed against the judgment and order dated 8th January, 1987, passed in Civil Revision case No. 1612(W) of 1978 by Suhas Chandra Sen, J. and whereby the rule which was obtained by M/s. Burn Standard Company Ltd. and another (hereinafter referred to as the said petitioners), against Union of India, the respondent appellants in this appeal (hereinafter referred to as the said appellants), was made absolute and it was directed that a writ of or writ in nature of mandamus do issue, commanding the said appellants to act and proceed in accordance with law and/or to cancel, rescind and withdraw the impugned trade notice dated 31st August, 1977, the show cause notices dated 20/22nd September, 1977 and 3rd December, 1977 and the demand notices dated 24th November, 1977, 9th December, 1977 and 30th November, 1977 and so also a notice dated 8/10th March, 1978 and further to forbear from giving any effect or further effect or continue to give effect to the notices as mentioned hereinbefore or to act further or to continue to act on the basis thereof or in pursuance thereto.
2. The respondent No. 1, was initially comprised of M/s. Burn & Company Limited and Indian Standard Wagon Co. Ltd. prior to their nationalisation by the Central Government in pursuance of an Ordinance No. 8 of 1976, which has since been replaced by Act 97 of 1976 and those constituted companies were public limited companies. It has been stated that by and under the said Act No. 97 of 1976, the undertakings of the two companies as mentioned above, and their right, title and interest in relation to their respective undertakings stood transfered to and vested absolutely in the Central Government on and from the appointed date which was 1st April, 1975.
3. It has been stated that the said respondent No. 1, at all material times was and still is one of the leading engineering concerns in India having its factory at various places and the said respondents have stated that wagon building is one of their main business activities and as a matter of fact, they mostly cater to demand from the Central Government insofar as the manufacturing of wagons are concerned. It was their case that such manufacturing of wagons has been continuing for some time and in phased contracts entered into and between them and the Railway Board from time to time. It has also been indicated that different wagon building programmes were and/or are taken in hand by the said respondent as per the placement of orders for the required number of wagons by the Railway Board and those wagons are manufactured as per the specification and expressly under the terms and conditions entered into by and between them and Railway Board and it was also their case that although the said respondents are manufacturing the entire wagons, the Railway Board invariably and following the usual practice supplies certain amounts of finished components to be fitted on the wagons, which are required to the manufacture and at all material times the said finished components were termed as "free supply items" and the said respondents in terms of the agreement were and are obliged to fit in and/or use the said "free supply items" in the completed wagons as manufactured by them in terms of the orders of the Railway Board.
4. It has further been stated that insofar as the free supply items are concerned, the said petitioners are not manufacturing them at all and therefore, at no point of time any impost or levy of any fee was paid and/or taken into consideration in determining the value or the price of the completed wagons and the said free supply items, for all intents and purposes were deemed to be free. It was also the case of the said petitioners that in terms of the agreement between the Railway Board and themselves, they were obliged to fix the said free supply items on the wagons as manufactured without any corresponding benefit and the price of the wagons were not inclusive of any price of those free supply items and it was merely an obligation on them in terms of the concerned agreement to carry on business on the basis as mentioned hereinbefore, from the year 1956-57.
5. It has further been stated that in terms of the agreement as mentioned hereinbefore, with the Railway Board, they were required to fabricate and supply wagons and the wagons as constructed over wheel sets were duly mounted on roller bearing axle boxes received from the Railway Board and as such, the said items should be deemed to be job work, to be carried on by the said petitioners as a contractor for manufacturing the wagons. The said petitioners have further stated that at all material times they are paying excise duty on the contract value/ conversion cost and not on the total value and according to them such payment of excise duty was made on the basis of existing rates under the central excise tariff.
6. The said petitioner have stated that on or about 30th April, 1976, the respondent Union of India, issued a notification to the following effect:--
GSR. In exercise of the powers conferred by Sub-rule (1) of Rule 8 of the Central Excise Rules, 1944, the Central Government hereby exempts goods falling under item No. 68 of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944) manufactured in a factory as a job work, from so much of the duty of excise leviable thereon is in excess of the duty calculated on the basis of the amount charged for the job work.
Explanation: For the purpose of this notification, the expression "job work" shall mean such items of work where an article intended to undergo manufacturing process is supplied to the job worker and that article is returned by the job worker to the supplier, after the article has undergone the intended manufacturing process on charging only for the job work done by him.
and it was their further case that under the said notification the expression "job work" has been defined or included or meant such items of work, where an article intended to undergo manufacturing process is supplied to the job worker and the same is returned by the job worker to the supplier after the article is undergone intending manufacturing process or charged only for the job work as done. The said petitioners have contended that the concerned explanation to the notification in question as quoted hereinbefore and/or meaning of the expression "job work" is contrary to all existing laws and practices and in any event and consequently it has been contended by the respondent Union of India that in the matter of manufacturing of wagons in terms of the wagon building programme, so far as the said petitioners are concerned, the question of free supply of diverse components to them by the Railway Board cannot be taken into account in the matter of computation of excise duty and it was also contended by the respondent Union of India on the basis of the notification as mentioned above, that excise duty is to be determined on the total value of the wagons, taking into consideration the contract value together with the value of "free supply item" as supplied by the Railway Board in accordance with the concerned agreement.
7. It was contended by the said petitioners that they have no liability to pay any excise duty on the basis of the items received as "free supply items" from the Railway Board and it was their further case that the value of the contract was not dependent either on the free supply items and as such the question of payment of excise duty to be included in the value of said free supply items would not arise and that being the position, the demand as raised was illegal, wrongful, mala fide and not tenable in law. In any event, it was contended that the levy of excise duty, if any, on the said free supply items are not liable to be recovered from the said petitioners even it is assumed that the said appellants were and are entitled to levy such duty on the concerned free supply items. According to the said petitioners, the said free supply items were and are by themselves completed items of machinery delivered to them by the Railway Board and the excise duty, if any, to be paid at the time of removal of the said completed items of machineries from and out of the custody and/or godown of the manufacturers of such free supply items was on the Railway Board. By reason of the aforesaid, the said petitioners have stated and submitted that the question of computing and/or determining the excise duty on the basis of the value of the said free supply items would not arise and the liability, if any, should be with the Railway Board and not with them, the more so when, in view of the agreement to reimburse, by reason of the delivery of the completed item of machineries as mentioned above. According to the said petitioners, excise duty is determined and/or computed on the basis of the value in question with which the goods are sold and the value of the goods as sold would appear from the relevant invoices and excise duty is required to be paid thereon. The question of payment of further excise duty on the free supply items would not arise as those items are freely supplied items and their value is not included in the invoices and further-more when, the said petitioners have not derived any benefit from and out of the said free supply items. It was contended by the said petitioners that the payment of excise duty should only be on the manufacture of the goods in question, provided the goods as manufactured are excisable commodity within the meaning of Section 3 of the Central Excises and Salt Act, 1944 (hereinafter referred to as the said Act).
8. The said petitioners have further stated that in order to become excisable, there must be a distinct commercial entity and such commodity as manufactured, must be bought and sold in the market and in this case, the free supply items, according to them, are not at all marketable goods and as such, no duty within the meaning of the said Act could be levied thereon and on the said petitioners. They have further pointed out that the wheels and axle boxes which are free supply items given to them by the Railway Board in terms of the agreement are not manufactured by them nor are those items bought or sold by them and the said items, in terms of the clauses of the concerned agreement are assembled with the wagons and as such, they do not become excisable goods within the meaning of Section 3 of the said Act. It was their further case that before the duty under the said Act can be levied on any items, they must answer to the description of the goods within the meaning of Section 3 of the said Act i.e. , the said goods must be items, which can be either bought or sold by the concern, which cannot be the case, since the said petitioners neither buy nor sell the said free supply items and as such, they cannot be made liable to pay duty on them. The said petitioners have further pointed out that it may be true that Railway authorities, who buy the aforesaid free supply items from, Durgapur Steel and others have paid the excise duties on them.
9. It was the case of the said petitioners that wagon building programme was initiated in 1974-75 onwards in terms of the agreement as entered into between them and the Railway Board and in the said agreement a clause has been inserted to the effect that whatever duty may be leviable on the wagons in question, the same would be paid and/or reimbursed by the Railway Board and such clause was not available or incorporated in the earlier agreement. It was the case of the said petitioners that after 30th August, 1977, excise duty was levied and paid on the basis of the pro forma invoices, i.e., the value of the wagons as disclosed in the contract and subsequently, on or about 31st August 1977, pursuant to a trade notice, excise duty is being computed on the completed wagons inclusive of the said free supply items by the Collectorate of Central Excise and Customs in West Bengal. According to the said petitioners, the impugned trade notice purports to convert the said free supply items into excisable goods within the meaning of Section 3 of the said Act and the impugned show cause notice and so also the demand notice being based on the said trade notice were and are also bad in law and mere nullities. The said petitioners have further indicated that immediately after the publication of the concerned trade notice in West Bengal which has been disclosed as Annexure A to the writ petition, they duly made diverse representations before the appropriate authorities, but such representations became futile or of no effect. It was the categorical case of the said petitioners that they had no liability to pay any excise duty on the completed wagons which included the said free supply items.
10. The show cause notice in question, has been disclosed as Annexure C to the writ petition, which was received by the said petitioners on or about 24th September, 1977 and they have stated that they were surprised to receive the same, which required them to show cause as to why they should not be required to pay Rs. 1,76,600 under Rule 10 read with Rule 173J of the Central Excise Rules, 1944 and the said petitioners have further claimed that the said notice to be bad, illegal, unenforceable and not binding on them. According to them, there was and/or no contravention of any statutory rules or any violation of any provisions of the statute by them and they have been regularly paying all duties, levy and/ or other statutory charges. It has been stated that in fact, there is no outstanding on account of any of the dues as claimed. The said petitioners have stated that however, in pursuance of the notice as mentioned above, they on or about 11th October, 1977, duly showed cause, contending inter alia amongst others that wheels were supplied to them free of cost by the Railways for fitting them in the wagons and whatever may be the price of these wheels, the value of them to the said petitioners would be nil and it was also contended that all necessary declarations as required by the concerned notification dated 30th April, 1975 as disclosed, were furnished. The petitioners have further indicated that they also prayed for personal hearing in the matter.
11. The said petitioners have further stated that subsequently on 23rd November, 1977, some hearing was given to them and the Superintendent of the Central Excise, Calcutta " V " Division, passed an order on demanding Rs. 1,75,600 under Rule 10 read with Rule 173J and more particularly under tariff item No. 68, after determining the value under Section 4 of the said Act. Such determination was claimed by the said petitioners to be bad, illegal and unenforceable on the face of the order and more so because of the determinations of the value as made under Section 4 of the said Act.
11A. It was further claimed by the said petitioners that subsequently, diverse other show cause memos were issued, which were duly replied by them and even in spite of such replies or without considering them, the Superintendent of Central Excise as mentioned hereinbefore, arbitrarily and illegally raised demand for the sums of Rs. 500, Rs. 2,98,000 and Rs. 19,229.90P, apart from the said demands as mentioned hereinbefore and thereafter, on or about 8/10th March, 1978, the said petitioners received the notice as disclosed in Annexure G to the writ petition, issued by the Assistant Collector of Central Excise, Calcutta " V " Division, intimating that the sums as mentioned hereinbefore, were recoverable from them in terms of the assessment orders and it was contended by the said petitioners that the said notice was also wholly illegal, wrongful, mala fide and not tenable in law and no amount was legally or otherwise recoverable from them. The said petitioners have further claimed that the assessment on the basis of the concerned trade notice was not tenable in law and in the facts and circumstances of this case it was their further case that there cannot be any retrospective applicability of any notification in a fiscal statute and in any event, considering the facts and circumstances of the instant case, the demand of excise duty, on the basis of the concerned trade notice, if at all, could be made prospective and not retrospective in operation and further more when by reason of the fact that the said petitioners would not be able to shift the incidents on the purchaser, as the excise duty is always paid by the purchaser rather than bearing the incidence on the manufacturer. It has also been indicated by the said petitioners that by reason of the issuance of the concerned show cause notice it has become difficult, if not impossible for them to recover the amount of excise duty, if ultimately it is held to be recoverable from them.
12. It was further stated by the said petitioners that the concerned trade notice was dated 31st August, 1977 and therein, there has been no reference regarding the retrospective operation of the same, whereas, on the basis of the said trade notice, the appellants were raising demands with effect from January, 1977 and show cause notices were issued in that manner and that being the position, the show cause notices according to them were bad in law and without jurisdiction inasmuch as by that, levy of duty was being sought to be made retrospectively, whereas the trade notice, on the basis whereof such duty was sought to be levied is silent or has not indicated its operation to be retrospective. According to the said petitioners, in the absence of any intention of retrospective operation in the trade notice in question, the executive authorities cannot authorisedly create any obligation retrospectively on them specially when financial obligation are involved. Thus it was contended by the said petitioners, that the impugned show cause notice and the demand notices were without jurisdiction and bad in law. The said petitioners have also indicated that by the issue of the memo dated 8/10th March, 1978, the Superintendent of Central Excise as mentioned above and the other respondents have acted illegally in the matter of non-finalisation of the said petitioners' refund claim amount of Rs. 25,414.04P till the satisfaction of their outstanding demands and such steps were contrary to all norms and canons of business and in any event, the respondent including the Collector of Central Excise as mentioned hereinbefore, had no right, jurisdiction and authority to withhold the said amount, which was lying on them for a considerable time. The trade notice in question, was characterised by the said petitioners to be an executive order and according to them by such order no liability under the said Act can be created and that being the position, the impugned show cause notice and the subsequent demand orders were absolutely illegal, inoperative and invalid.
13. It was the further case of the said petitioners that by the purported trade notice, the " free supply items " were sought to be equated with excisable goods and as such, the initial assumption of jurisdiction was bad and illegal and therefore, the show cause notices and the assessment orders as issued thereon, were vitiated by total lack of jurisdiction. It was pointed out by them that the said Act does not contain provisions for creating liability with retrospective effect and such being the position, the concerned show cause notices, which sought to create liability retrospectively, were also without jurisdiction and ultra vires, the provisions of the said Act. It was also claimed by the said petitioners that since the beginning of the wagon building programme all excise duties have duly been paid and there was or has been no failure or any neglect on their part in that respect. They further contended that in' any event, the demand under Rule 10 read with Rule 173J of the said Rules, would not be tenable either in fact or in law and it was claimed specifically that Rule 10 of the said Rules has no application in the facts and circumstances of the case, since the basis of the applicability of the said rule is short levy through inadvertence, error, collusion or misconstruction on the part of an officer of the said appellants or through misstatement as to the quantity, description or the value of the concerned article on the part of the said petitioners. It was stated that there was neither any inadvertance nor error or collusion and misconstruction on the part of the said petitioners.
14. It was claimed by the said petitioners that there was not even any allegation in the concerned show cause notices, for which Rule 10 of the said Rules could be attracted and as such, the said appellants would not be entitled to proceed under that rule read with Rule 173J of the said Rules and consequently, there was or has been no obligation on the part of the said petitioners to comply with the requirements as asked for in the concerned show cause notices and such being the position, the notices were bad in law and unenforceable. It was also specifically claimed that without such or necessary allegations, the notices were not tenable and consequently, the issue of them was without jurisdiction and as such null and void and not binding on the said petitioners. They have further contended that the concerned trade notice and the subsequent demand for payment of excise duty on free supply commodities has affected their right to property and also the right to carry on trade and business and as such, they have infringed Articles 19(1)(f) and (g) and Article 31 of the Constitution of India. It was further contended that the concerned imposition of duty having been made without jurisdiction, the duty as sought to be levied and collected, was also without any authority of law and as such, such action was violative of the provisions of Article 265 of the Constitution of India.
15. The affidavit-in-opposition in the instant case was dated 23rd July, 1979 and the same was filed on behalf of respondent Nos. 1 and 5 to 8 by Shri Atul Chandra Tikadar, Assistant Collector of Central Excise, Calcutta, V Division, who is Respondent No. 6. The said deponent has stated that Burn and Company Limited and Indian Standard Wagon Ltd., prior to their nationalisation by the Central Government, pursuant to Ordinance No. 6 of 1976, which has since been replaced by Central Act 97/76, were public limited companies. It has been stated that by and under the Central Act as mentioned above, the undertaking of Burn and Company Ltd. and Indian Standard Wagon Company Ltd. and all their rights, title and interest in relation to their respective undertakings stood transferred to and vested absolutely in the Central Government on and from 1st April, 1975.
16. It has been stated that Burn Standard Company Ltd. from their factories inter alia at Howrah are manufacturers and suppliers to the Railway Board, wagons under phased contract entered into by and between them and the Railway Board from time to time. The deponent has stated that the Railway Board supplies certain quantities of finished components parts, to be fitted to the wagons to be manufactured by the said petitioners and those components are, amongst others, wheel sets, etc., known as "free supply items".It has been indicated that on and from 1st March 1975, the Railway wagons became excisable goods on incorporation of tariff item No. 68 as under:--
All other goods, not elsewhere specified, but excluding--
Ten per cent ad valorem.
(a) ...
(b) ...
(c) ...
Explanation....
It has been stated that the said petitioners cleared the completed wagons and supplied to the Railway Board on payment of duty at the price rate calculated on the basis of contract rate as job works and the price of the wagons were not inclusive of the value of free supply items as mentioned above and in terms of the agreements the Railway Board had supplied to the said petitioners wheel sets duly mounted with roller, bearing, axle boxes and they, as per contract, after fabrication, supplied the complete wagons to the Railway Board.
17. The deponent has stated that in terms of the Ministry's letter No. F 350/45/76 True dated 18th August, 1977, it has been decided that in cases where a number of component parts are supplied to the manufacturers, to do necessary fabrication of wagons/ coaches from and other component parts, raw materials, purchased on behalf of the Railways from the market, the appropriate duty will be payable on the value of the wagons/coaches as determined under Section 4 of the said Act, which is quoted hereunder:--
Section 4. Valuation of excisable goods for purposes of charging of duty of excise.--(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--
(a) 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 wholesale trade for delivery at the time and place of removal, where the buyer is not a related person and the price is the sole consideration for the sale:
Provided that
(i) where, in accordance with the normal practice of the wholesale trade in such goods, such goods are sold by the assessee at different prices to different classes of buyers (not being related persons) each such price shall, subject to the existence of the other circumstances specified in Clause (a), be deemed to be the normal price of such goods in relation to each class of buyers;
(ii) where such goods are sold by the assessee in the course of wholesale trade for delivery at the time and place of removal at a price fixed under any law for the time being in force or at a price, being the maximum, fixed under any such law, then, notwithstanding anything contained in Clause (iii) of this proviso, the price or the maximum price, as the case may be, so fixed, shall, in relation to the goods so sold, be deemed to be the normal price thereof;
(iii) where the assessee so arranges that the goods are generally not sold by him in the course of wholesale trade except to or through a related person, the normal price of the goods sold by the assessee to or through such related person shall be deemed to be the price at which they are ordinarily sold by the related person in the course of wholesale trade at the time of removal, to dealers (not being related persons) or where such goods are not sold to such dealers, to dealers, (being related persons), who sell such goods in retail;
(b) where the normal price of such goods is not ascertainable for the reason that such goods are not sold or for any other reason, the nearest ascertainable equivalent thereof determined in such manner as may be prescribed.
(2) Where in relation to any excisable goods the price thereof for delivery at the place of removal is not known and the value is determined with reference to the price for delivery at a place other than the place of removal, the cost of transportation from the place of removal to the place of delivery shall be excluded from such price.
(3) The provisions of this Section shall not apply in respect of any excisable goods for which a tariff value has been fixed under Sub-section (2) of Section 3.
(4) For the purposes of this Section--
(a) "assessee" means the person who is liable to pay the duty of excise under this Act and includes his agent;
(b) "place of removal" means--
(i) a factory or any other place or premises of production or manufacture of the excisable goods; or
(ii) a warehouse or any other place or premises wherein the excisable goods have been permitted to be deposited without payment of duty, from where such goods are removed;
(c) "related person" means a person who is so associated with the assessee that they have interest, directly or indirectly, in the business of each other and includes a holding company, a subsdiary company, a relative and a distributor of the assessee and any sub-distributor of such distributor.
Explanation.--In this clause "holding company", "subsidiary company" and "relative" have the same meanings as in the Companies Act, 1956 (1 of 1956);
(d) "value", in relation to any excisable goods,
(i) where the goods are delivered at the time of removal in a packed condition, includes the cost of such packing except the cost of the packing which is of a durable nature and is returnable by the buyer to the assessee.
Explanation.--In the Sub-clause, "packing" means the wrapper, container, bobbin, pirn, spool, reel or wrap beam or any other thing in which or on which the excisable goods are wrapped, contained or wound;
(ii) does not include the amount of the duty of excise, sales tax and other taxes, if any, payable on such goods and, subject to such rules as may be made, the trade discount (such discount not being refundable on any account whatsoever) allowed in accordance with the normal practice of the wholesale trade at the time of removal in respect of such goods sold or contracted for sale.
Explanation.--For the purposes of this Sub-clause, the amount of the duty of excise payable on any excisable goods shall be the sum total of--
(a) the effective duty of excise payable on such goods under this Act; and
(b) the aggregate of the effective duties of excise payable under other Central Acts, if any, providing for the levy of duties of excise on such goods, and the effective duty of excise on such goods under each Act referred to in Clause (a) or clause (b) shall be,--
(i) in a case where a notification or order providing for any exemption (not being an exemption for giving credit with respect to, or reduction of duty of excise on such goods equal to, any duty of excise already paid on the raw material or component parts used in the production or manufacture of such goods) from the duty of excise under such Act is for the time being in force, the duty of exise computed with reference to the rate specified in such Act in respect of such goods as reduced so as to give full and complete effect to such exemption; and
(ii) in any other case, the duty of excise computed with reference to the rate specified in such Act in respect of such goods.
(This explanation is appended to the saving clause, Section 47(2), of the Finance Act, 1982.--Ed.) Explanation.--For the removal of doubts, it is hereby declared that no act or omission on the part of any person shall be punishable as an offence which would not have been so punishable if this section had not come into force.
(e) "wholesale trade" means sales to dealers, industrial consumers, Government, local authorities and other buyers, who or which purchase their requirements otherwise than in retail.
18. It has been claimed that accordingly, the said petitioners were served with four notices-cum-demand for payment of differential duties calculated in terms of Section 4 and that, taken into consideration of the value of the wagons as a whole without any deduction as to the cost of free supplies items for the wagons already cleared from 1st April, 1975 to November 1977 and the total amount of differential duties as demanded, was Rs. 6,40,000. It has been stated that, the Assistant Collector concerned, on careful consideration of the said petitioners' written reply and submissions as made at the time of personal hearing, confirmed the demands as raised and being aggrieved by such order, the said petitioners have moved and obtained the present rule on the ground that they were and are not manufacturers of free supply items, and as such are not liable to pay any excise duty thereon. It has been claimed that such submissions of the said petitioners would not be correct on a proper interpretation of the concerned notification as mentioned hereinbefore. It has also been stated that the orders as made and passed, were due, legal and proper and if at all, the said petitioners should [have] preferred appeal against such order and such appeal not having been preferred, the said petitioners are not entitled to invoke the writ jurisdiction of this Court.
19. The said deponent has agreed that in terms of the concerned contract with the Railway Board, the said petitioners fitted the wagon bodies as manufactured by them to the free supply item, which brought into existence a complete wagon and was delivered to the Railways after proper test and necessary certificate. In any event, it has been stated that the said petitioners delivered a complete wagon from their factory and such being the position, they should be deemed or treated to be as manufacturers of a complete wagon and duty is payable on value of the complete wagon under Section 4 of the said Act as quoted hereinbefore. It has been submitted by the deponent that the fitting of the bodies of the wagon as manufactured by the said petitioners on the wheel sets supplied by the. Railways is or could be a job work within the meaning of the notification No. 119/CE dated 30th April 1975, as involved and in terms whereof, duty is payable on the job charges. It has also been claimed that by fitting the wagons on the wheel sets as mentioned hereinbefore, the said petitioners became the manufacturers of a complete wagon which is delivered from their factory in the manner as indicated hereinbefore, after necessary tests and certificate of fitness. The concerned notification has been annexed with the affidavit-in-opposition and that has disclosed that the Central Government has exempted goods falling under item No. 68 of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944) manufactured in a factory as a job work from so much of the duty of excise leviable thereon as is in excess of the duty calculated on the basis of the amount charged for the job work.
Explanation--For the purpose of this notification, the expression 'job work shall mean such items of work where an article intended to undergo manufacturing process is supplied to the job worker and that article is returned by the job worker to the supplier, after the article has undergone the intended manufacturing process, on charging only for the job work done by him.
The deponent has stated that the said petitioners have paid duty on the actual value of the wagons as per invoices raised on the Railways in terms of the notification as mentioned, which was subsequently found to be not applicable and as such, four demand notices as involved in this proceeding, were issued to recover the duty on the full wagon value, i.e., the duty paid on the value of the wagon bodies as per contract together with the duty involved on the cost of free supplies being the differential duties.
20. The deponent of the affidavit has indicated that the said petitioners have really challenged the definition of the job works as contained in the explanation to the above notification dated 30th April, 1975 and that, all other subsequent allegations and submissions of the said petitioners was not correct It has been reiterated that the said petitioners were and are liable to pay excise duty on the value of the complete wagons as delivered to the Railways as the free supply items like wheel sets, etc., upon which the bodies of the wagons are mounted, would became a part of the complete wagon, thus losing their identity.
21. It has also been stated that the said petitioners delivered the complete wagons under the contract and they became the manufacturers of such complete wagons within the meaning of Section 3 of the said Act, which is to the following effect:--
Section 3. Duties specified in the First Schedule to be levied--(1) There shall be levied and collected in such manner as may be prescribed duties of excise on all excisable goods other than salt which are produced or manufactured in India and a duty on salt manufactured in, or imported by land into, any part of India as, and at the rates, set forth in the First Schedule:
Provided that the duties of excise which shall be levied and collected on any excisable goods which are produced or manufactured in a free trade zone and brought to any other place in India shall be an amount equal to the aggregate of the duties of customs which would be leviable under Section 12 of the Customs Act, 1962 (52 of 1962) on like goods produced or manufactured outside India if imported into India, and where the said duties of customs arc chargeable by reference to their value, the value of such excisable goods shall, notwithstanding anything contained in any other provision of this Act, be determined in accordance with the provisions of the Customs Act, 1962 (52 of 1962) and the Customs Tariff Act, 1975 (51 of 1975).
Explanation 1.--Where in respect of any such like goods, any duty of customs leviable under the said Section 12 is leviable at different rates, then, such duty, shall, for the purposes of this proviso, be deemed to be leviable under the said Section 12 at the highest of those rates.
Explanation 2.--In this proviso, "free trade zone" means the Kandla Free Trade Zone and the Santa Cruz Electronics Export Processing Zone and includes any other free trade zone which the Central Government may, by notification in the Official Gazette, specify in this behalf.
(1A) The provisions of Sub-section (1) shall apply in respect of all excisable goods other than salt which are produced or manufactured in India, by or on behalf of Government, as they apply in respect of goods which are not produced or manufactured by Government.
(2) The Central Government, may by notification in the Official Gazette fix, for the purpose of levying the said duties, tariff values of any articles enumerated, either specifically or under general headings, in the First Schedule as chargeable with duty ad valorem and may alter any tariff values for the time being in force.
(3) Different tariff values may be fixed:--
(a) for different classes or descriptions of the same excisable goods; or
(b) for excisable goods of the same class or description
(i) produced or manufactured by different classes of producers or manufacturers; or
(ii) sold to different classes of buyers;
Provided that in fixing different tariff values in respect of excisable goods falling under Sub-clause (i) or Sub-clause (ii), regard shall be had to the sale prices charged by the different classes of producers or manufacturers or, as the case may be, the normal practice of the wholesale trade in such goods and accordingly they were and are liable to pay excise duty on the full wagon value including the cost of free supply items under Tariff Item No. 68 as quoted hereinbefore.
22. The deponent has further stated that prior to the raising of the demands, the said petitioners paid duty on invoice value, i.e., the value of the wagons built for the Railways in terms of their option as contained in the notification dated 30th April, 1975 and between 1st March, 1975 and 29th April, 1975 on such goods, duty was payable according to tariff item No. 68. It has also been indicated that show cause notices in question, were issued to recover differential duties amounting to Rs. 1,75,00,000 on the value of free supply items fitted to the complete wagons, as delivered between January 1977 to July 1977. It was also the case of the deponent that the said petitioners being the manufacturers of complete wagons would be bound to pay excise duty for such complete wagons under Section 4 of the said Act and this was made clear to them by the confirmation as made by the Ministry concerned, in their clarification dated 18th August, 1987.
23. The deponent has further stated that the hearing in the instant case which was given to the petitioners was not a pretended one as alleged and the necessary decision was taken after giving them hearing and after considering their representation. The deponent has also indicated that the demand of Rs. 19,229.90P was not related to the subject-matter of the present petition and he, in paragraph 23 of his opposition, in reply to paragraph 19 of the petition has indicated the relevant particulars of the show-cause notices, the date of adjudications with numbers and so also the amount as involved and has also stated that the concerned demands were not raised retrospectively as claimed. It was also his case that the demands in question, were not consequential to the trade notices, but they were raised under Rule 10 of the said Rules and the said appellants were and are entitled to adjust and/or set off all amounts due to the Government against pending refund claims of the said petitioners.
24. The deponent has further denied that the impugned trade notices were executive orders and has stated that the amounts as involved were and are payable by the said petitioners under Rule 10 of the said Rules and such payments were required not on account of any instructions of the concerned Collectorate. It was also his case that the demands in question were issued, not because of any executive order and he has further denied that under the concerned trade notices, the free supply items were sought to be equated with exciseable goods. It has further been indicated by the deponent that the said petitioners used to pay duties on the value of the goods of the wagons supplied to the Railways which would appear from the invoices in question and subsequently it was found that they were and are the manufacturers of complete wagons, which is being delivered from their factory and consequently their liability for duty was raised on the total value of a complete wagon, as determined under Section 4 of the said Act.
25. It has further been indicated that the Superintendent of Central Excise Respondent No. 8 requested the said petitioners to submit price list for railway wagons for determination of excisable value in terms of Section 4 of the said Act, but no reply was received. According to the deponents Rule 10 of the said Rules was and is correctly applied in the facts of this case and the value of the wagons quoted in the invoice, represents the value of wagon bodies only, though a complete wagon falling under tariff item No. 68 was manufactured and delivered to the Railways. It was his further case that the wagon body was mounted on the wheel sets supplied free by the Railways and before delivery, those wagons are tested for operational efficiency and as such also the said petitioners should be deemed to be the manufacturers of complete wagons and they are also liable to pay the duty on the full value of the wagons, in terms of Section 4 of the said Act. It was also the case of the said deponent that the demands in question, were raised under Rule 10 of the said Rules for realisation of differential duties as involved on the cost of the free supply items, i.e. , the duty involved on the value of the complete wagons less duty paid on the value of wagon bodies. According to the said deponent there has been no violation of the provisions of Article 265 of the Constitution of India and the demands as raised, were lawful, due and proper.
26. It was also the specific case of the said deponent that since the said petitioners manufactured complete wagons and delivered them to the Railways, they would be liable to pay duty on the full value of the wagons as manufactured under Section 4 of the said Act, including the cost of free supply items. He has submitted that complete railway wagon is a goods within the meaning of Section 3 of the said Act and thus attracts duty under or in terms of tariff item No. 68. It was also his case that the free supply items such as wheel sets would lose their identity when fitted to wagon bodies and would become a part of the complete wagon and as such, it would be the subject-matter of payment of excise duty in terms of the tariff item No. 68. He has also stated that the concerned wagons were and are delivered to the Railways after necessary tests regarding their operational efficency and when fitness certificate is issued by the Railways authorities, the liability to pay excise duty under the said Act would therefore be on the said petitioners, as manufacturers of complete wagons. He has also indicated that the said petitioners charged excise duty on the invoice value of the wagon bodies which obviously includes the cost of fitting of free supply items as mentioned above and as such, they cannot escape their liability to pay duty on the full value of the wagons under the provisions of the said Act as mentioned above and the more so when, a complete wagon is a goods within the meaning of Section 3 of the said Act and is dutiable under tariff item No. 68. The deponent has further denied that any of the rights of the said petitioners under Articles 19 and 31 of the Constitution of India have been violated or encroached.
27. The question of duty liability of a manufacturer, who fabricated and supplied specified wagon stores constructed on wheel sets received duly mounted with roller bearing axle boxes, was examined on the question of central excise levy and more particularly as it was represented that excise duty should be levied on the control price as charged from the Railways, without taking into account the value of materials supplied by them and it was decided that in cases where a number of component parts are supplied to the manufacturer who do necessary fabrication of wagon-coaches from those and other component parts/raw materials, purchased on behalf of the Railways, from the market, the appropriate duty will be payable on the value of the wagons/coaches as determined under Section 4 of the said Act. The above decision will be apparent from trade notice No. 205/Goods N.E. Section 7/CE/77 dated 31st August, 1977 as issued by the Collector concerned and as disclosed as Annexure "A" to the petition of motion. In fact, Mr. Bhattacharjee made a reference to the said notification for establishing the decision to levy as indicated hereinbefore and he further contended that railway wagons as involved in this case, thus became excisable goods, on introduction of tariff item No. 68 as mentioned earlier and as such there was no illegality or any irregularity in the levy as made and further more, when the levy in question was made in terms of the said tariff item No. 68, there was no excessive or unauthorised use of power, competence and jurisdiction.
28. Mr. Bhattacharjee then referred to the agreement in question dated 1st September, 1982, which has been disclosed as Annexure "B" to the supplementary affidavit dated 14th November, 1986 of the answering respondents, on the subject of 1981-82 and 1982-83 Rolling Stock Programme, which was entered into with the said appellants and the Ministry of Railways (Railway Board) and was executed on behalf of the President of India, and whereby order was placed for the fabrication and supply of wagon stock as mentioned therein on the terms and conditions as stipulated. He, in fact, apart from referring [to] the paragraphs 3 to 10, of the said agreement, made specific reference to paragraphs 5.3 and 5.4, the exact terms whereof are quoted hereunder:--
5.3: Excise duty, as statutorily leviable shall be reimbursed by the purchaser after verification by the Paying Authority of the documents evidencing payment of the same. Under the extant orders, where self renewal procedure is in vogue, the gate pass may be admitted as evidence of payment of excise duty. The rate of duty may, however, be indicated by the contractor and verified with reference to the notification(s) issued by the Ministry of Finance from time to time.
5.4: You shall obtain set-off of excise duty for such of the free supply components as also components procured by you on behalf of the President of India on which excise duty has already been paid under item 68 of the central excise tariff or any other relevant item of the tariff as applicable from time to time and the same shall be passed on by you to the purchaser. You shall maintain all necessary records required as per extant rules in this regard for claiming 'set off'. Details of the set off of duty which thus accrues to the Railways shall be indicated by you to the Paying Authority a certificate that the set-off of excise duty on components procured by you as admissible, has been obtained in full and is being passed on to the Railways, in full and on the basis of those terms Mr. Bhattacharjee contended that when there is or has been a specific stipulation for claiming necessary set-off, so the levy as made, cannot be said to be unauthorised or unrealistic or irregular or without any justification. He further claimed and contended that even if there is or has been a dispute with regard to the manner or mode of valuation, the said petitioners would not be without any remedy, as they would be entitled to claim set off for the five items supplied by the Railways, viz., (i) wheel sets, (ii) roller bearing axle boxes, (iii) centre buffer couplers (iv) cast steel bogie side frames and cast steel bogie bolster (for MBC Wagons) and (v) laminated bearing springs (for BOXC/T and BOXT Wagons). It was also pointed out by him that the items as mentioned above and so also the most costly items which are supplied by their owner, viz., the Union of India. It was further pointed out by him that the total cost given in Column 8 under clause I of the order which is indicated hereunder:--
_______________________________________________________________________________________ * * Descrip- Specific- Qty. Basic Basic Total Base tion of ation ord. fabri- Compo- Cost. date stock. drawing cation nent for No. cost. cost. escala tion.
_______________________________________________________________________________________ * * 3 4 5 6 7 8 9 _______________________________________________________________________________________ * * BG Bogies 03-BOX 2226 53845 29153 83000 1-1-82 open II - II (Two (Eighty wagons 80-81 thou- three-
type sand thousand
BIX II MD80697 two only).
Mark. II B2 (With hund-
amendment red
No. 1 of twenty
Jan. 81 & six
only).
No. 2 of
March, 81).
________________________________________________________________________________________ meant the exclusion the cost of rolling items, which are required to be procured by the President of India and to be supplied to the said petitioners free of cost F.O. R. their sidings, if any, or the nearest railway station. It was also contended by Mr. Bhattacharjee that there cannot be any doubt, that on due consideration of the relevant provisions of the said Act, duty is fixed and required to be paid on manufacture and since wagon is manufactured as a complete product, so there has also been no illegality or any irregularity in this case as duty has been levied on complete manufacture of wagons and such being the position, it was also claimed by him that the incidence of duty was and still is attached on the manufacture of a complete wagon, which the said petitioners were and are doing and the more so when, under or in terms of the statute, the entire valuation of excisable goods, viz., wagons in this case, was required to be considered or taken into consideration in fixing the levy.
28. It was indicated by Mr. Bhattacharjee that in the circumstances as above, the show cause notice dated 20/22nd September, 1977, as in Annexure "C" to the petition of motion was issued by the Superintendent of Central Excise, Calcutta V Division, asking the said petitioners, why they should not be required to pay the amount of Rs. 1,75,600 as indicated in the notice, on account of differential duty, as according to the authorities concerned, the said amount was short levied and thus recoverable under Rule 10 of the said Rules read with Rule 173J of the same and central excise duty on wagons was leviable under tariff item No. 68 as mentioned hereinbefore. It was also claimed by Mr. Bhattacharjee that ad valorem duty was payable according to the value of completed wagons. All other show cause notices, even for different amounts and different periods were in the same line of the specimen copy of the show cause notice as mentioned earlier. On consideration of the records and the representation as made by the said petitioners, the Assistant Collector of Central Excise, Calcutta V Division, passed order in the same line, holding the said petitioners liable to pay the duties as involved. In fact, he has recorded that the said petitioners have paid duties on the wagon bodies, i.e., less the duty involved on the cost of wheel sets and they argued inter alia amongst others that in the facts and circumstances of the case no duty could be levied under item No. 68 of the tariff item. Since the manufacturer of those free supply items must have paid the necessary duties on them and more particularly when the said petitioners received the free supply items free of cost and do not charge for them in invoices and also that as such the value of them and/or the wheel sets cannot be included in invoice price. Such assertions were also claimed by Mr. Bhattacharjee to be inappropriate.
29. Mr. Bhattacharjee also referred to Section 2(d) of the said Act which specified that "excisable goods means goods specified in the First Schedule as being subject to a duty of excise and includes salt," apart from referring to Sections 3 and 4 as quoted hereinbefore and so also the tariff item No. 68 as mentioned earlier and submitted that wagons would come under or in the terms "all other goods" as mentioned therein and as such 10% ad valorum as excise duty was payable on them and to the levy as made was not unauthorised or illegal. He then referred to Central Excise (Valuation) Rules, 1975 (hereinafter referred to as the said Valuation Rules), which was incorporated by the Central Government in exercise of the powers conferred by Section 37 of the said Act. It was pointed out by Mr. Bhattacharjee that under Rule 2(c) of the said Valuation Rules, "value" would mean the value under the said Act. He also made specific reference to the following Rules of the said Valuation Rules.
Rule 3: The value of any excisable goods shall, for the purposes of Clause (b) of Sub-section (1) of Section 4 of the Act, be determined by the proper officer in accordance with these rules.
Rule 4: The value of the excisable goods shall be based on the value of such goods sold by the assessee for delivery at any other time nearest to the time of the removal of the goods under assessment, subject, if necessary, to such adjustment on account of the difference in the dates of delivery of such goods and of the excisable goods under assessment, as may appear reasonable to the proper officer.
Rule 5: Rule 6: If the value of the excisable goods under assessment cannot be determined under Rule 4 or Rule 5, and,--
(a) where such goods are sold by the assessee in retail, the value shall be based on the retail price of such goods reduced by such amount as is necessary and reasonable in the opinion of the proper officer to arrive at the price at which the assessee would have sold such goods in the course of wholesale trade to a person other than a related person:
Provided that in determining the amount of reduction, due regard shall be had to the nature of the excisable goods, the trade practice in that commodity and other relevant factors;
(b) where the excisable goods are not sold by the assessee but are used or consumed by him or on his behalf in the production or manufacture of other articles, the value shall be based
(i) on the value of the comparable goods produced or manufactured by the assessee or by any other assessee:
Provided that in determining the value under the Sub-clause the proper officer shall make such adjustments as appear to him reasonable, taking into consideration all relevant factors and, in particular the difference, if any, in the material characteristics of the goods to be assessed and of the comparable goods:
(ii) ...;
(c) where the assessee so arranges that the excisable goods are generally not sold by him in the course of wholesale trade except to or through a related person and the value cannot be determined under Clause (iii) of the proviso to Clause (a) of Sub-section (1) of Section 4 of the Act, the value of the goods so sold shall be determined--
(i) in a case where the assessee sells the goods to a related person who sells such goods in retail, in the manner specified in Clause (a) of this rule;
(ii) in a case where a related person does not sell the goods but uses or consumes such goods in the production or manufacture of other articles, in the manner specified in Clause (b) of this rule;
(iii) in a case where a related person sells the goods in the course of wholesale trade to buyers, other than dealers and related persons and the class to which such buyers belong is known at the time of removal, on the. basis of the price at which the goods are ordinarily sold by the related person to such class of buyers.
Rule 7: If the value of excisable goods cannot be determined under the foregoing rules, the proper officer shall determine the value of such goods according to the best of his judgment and for this purpose he may have regard, among other things, to any one or more of the methods provided for in the foregoing rules, and submitted that the said Rule 4 has laid down the relevant mode of assessment and the basis of levy being the price available at the nearest point of delivery. Rule 5 according to him lays down the mode of finding out the real value on the basis of aggregate value of any additional consideration and Rule 6(a) and (b) and the various Sub-rules under the same lays down the avenue of exemptions. He further indicated that Rule 7 is the residuary power of the proper officer, in case valuation cannot be fixed under the other Rules as mentioned above. It was also pointed out by Mr. Bhattacharjee that the Rules have not been challenged and there is no doubt or any dispute that the said petitioners have acted on the basis of the agreement in question or have followed the terms of the same, the relevant particulars whereof have been indicated hereinbefore. It was also pointed out by Mr. Bhattacharjee that the learned trial Judge has not also agreed with the claim of the said petitioners that they perform or undertake job works or really a job contract and has categorically held and found them to be engaged in the manufacture of wagons and such being the position and the admitted findings, which have not been challenged by the said petitioners, even though manufacturing of wagons is a complex process, the levy as made, cannot be claimed to be illegal, irregular or un authorised as such levy or the duty which is required to be paid, is on the manufacture of a complete wagon, which again is specifically done by the said petitioners.
30. Mr. Bhattacharjee made a reference to the case of Free India Dry Accumulators Ltd. v. Union of India and Ors. 1980 ELT 168 and pointed out that determination by the learned single Judge of this Court has been set aside by a Bench decision of this Court in the case of Union of India and Ors. v. Free India Dry Accumulators Ltd., 1983 ELT 733, where the valuation cost of raw materials supplied by the customer if should be included in the manufacturing cost of the resulting end product under Section 4 of the said Act and the relevant tariff item was considered. The respondent in that case entered into the contract for the manufacture of the batteries for the Railways. The Railways supplied the containers and lead acid and the value thereof was to be adjusted against the price of the finished product in the form of rebate. Instead of procuring such containers and lead acid from the market, the respondent got the same from the Railways and paid the price for the same which was adjusted as rebate. Thus, the respondent had not to incur any cost with regard to the container and lead acid that were supplied by the Railways and it has been held that since the respondent had to adjust the price of the lead acid against the price of the finished product, viz., batteries and not parts thereof, the value of container and lead acid will form part of the assessable value of batteries under Section 4 of the Central Excises Act because the manufacturing cost of the finished storage battery cannot be conceived of without taking into consideration the cost of its container, and lead acid. The decision, Mr. Bhattacharjee claimed to be applicable in all force in the facts of this case and more particularly in case of a complete wagon as battery in the facts of that case was held to be completion of manufacture and liable to the necessary levy. It was also contended by him that price of a complete commodity will have to be found out and determined on the basis of the relevant rule and applying such tests wagons cannot be of any exception. The above Bench decision of this Court, of course, Mr. Bhattacharjee has pointed out, has been distinguished by a Bench decision of the Andhra Pradesh High Court in the case of Mysore Structurals Ltd. v. Assistant Collector of Central Excise, Hyderabad and Ors. , where also the point arose for determination as to whether the cost of materials supplied by the customer is to be included in the assessable value. In that case, the petitioners supplied sleepers exclusively to the Railways, who used to supply inserts for insertion in sleepers and it has been observed that since the sleepers as manufactured, were sold, exclusively to the Railways, there was no wholesale trade as such in the sleepers manufactured by the petitioner. The inserts which are supplied by the Railways to the petitioner are neither sold, nor gifted to the petitioner with the result they do not become the property of the petitioners. They are supplied to the petitioners only with a view to enable the petitioner to insert them into the sleepers at the time of manufacturing of sleepers, that is, at the time when concrete is poured into the moulds. These inserts cannot be fixed to the sleepers after the sleepers are manufactured. The contract clearly provides the rate at which the sleepers are to be supplied or whatever is price mentioned does not include the value of the inserts, for the obvious reason that the inserts never become the property of the manufacturer of the sleepers. Therefore, the petitioner cannot include their value in the sale bill or invoice. Since the Railways is not a "related person" as defined in Section 4(1)(a) of the Act and there is no other consideration for the sale except the price agreed between the parties, therefore, the price shown by the petitioner in the invoice is the normal price of the sleepers for purposes of levy of duty under Sections 3 and 4 of the Central Excises Act. Really, this Court's decision has been distinguished on the findings and observation as indicated in paragraph 7 of the report, ([1985] 4 ECC 165 at p. 168) which distinction, Mr. Bhattacharjee claimed to be unintelligible and not appropriately applicable on the basic facts of this case. This judgment was also very heavily referred to and relied on by the learned Advocates appearing for the said petitioners, for the purpose of establishing and indicating the distinction as have been made in respect of the Bench decision of this Court, as reported in 1983 ELT 733. Such distinction as made was claimed by Mr. Mukherjee, appearing for the said petitioners to be due, just, fair and proper. We have already mentioned the submissions put forward by Mr. Bhattacharjee. It was further claimed by Mr. Mukherjee that in the Andhra Pradesh decision, rebate was fixed at Rs. 50, but in this case, there is no scope for any rebate, as the price of the wagon is fixed and as such also, he contended that the said decision will not be applicable in this case. Mr. Bhattacharjee also pointed out that the determination in the Andhra Pradesh case was on Section 4(1)(a) of the said Act and really the same went on the basis and only on the question of grant of rebate and cannot be said to be an appropriate authority on the question of claim for set-off, which question is involved in this case and only on the basis of the question as involved before them and thus the Bench decision of the Andhra Pradesh High Court was also not justified in disagreeing with or distinguishing the Bench determination of this Court as mentioned earlier, as such decision was made on the question of set-off and not on the question of any claim for rebate. Such being the position, Mr. Bhattacharjee claimed the said Bench decision of this Court to be available and effective in this the claim for determination were and are the same in the two cases.
31. Then, Mr. Bhattacharjee referred to and relied on the case of Union of India and Ors. v. Bombay Tyre International Ltd. , where the Supreme Court has considered in detail the scope of Section 4 of the said Act before and after the amendment and how the value of an article, for the purpose of excise levy, is to be determined and has indicated that pursuant to the old Section 4(a) the value of an excisable article for the purpose of the excise levy should be taken to be the price at which the excisable article is sold by the assessee to a buyer at arm's length in the course of wholesale trade at the time and place of removal. Where, however, the excisable article is not sold by the assessee in the wholesale trade but, for example, is consumed by the assessee in his own industry, the case is where under the old Section 4(a) the value must be determined as the price at which the excisable article or an article of the like kind and quality is capable of being sold in wholesale trade at the time and place of removal and where the excisable article or an article of the like kind and quality is not sold in wholesale trade at the place of removal, that is, at the factory gate, but is sold in the wholesale trade at a place outside the factory gate, the value should be determined at the price at which the excisable article is sold in the wholesale trade at such place, after deducting there from the cost of transportation of the excisable article from the factory gate to such place and finally, where the wholesale price of the excisable article or an article of the like kind and quality is not ascertainable, then pursuant to the old Section 4(b) the value of the excisable article shall be the price at which the excisable article or an article of the like kind and quality is sold or is capable of being sold by the assessee at the time and place of removal or if the excisable article is not sold or is not capable of being sold at such place, then the price at which it is sold or is capable of being sold by the assessee at any other place nearest thereto, apart from indicating that in every case the fundamental criterion for computing the value of an excisable article is the price at which the excisable article or an article of the like kind and quality is sold or is capable of being sold by the manufacturer, and it is not the bare manufacturing cost and manufacturing profit which constitutes the basis for determining such value. It has also been indicated that in enacting the new Section 4 in supersession of the old Section, no material departure was intended from the basic scheme for determining the value of the excisable article. It has further been indicated that the basic scheme for determining of the price in the new Section 4 is characterised by the same dichotomy as that observable in the old Section 4. It was not the intention of Parliament, when enacting the new Section 4 to create a scheme materially different from that embodied in the superseded Section 4. The object and purpose remained the same, and so did the central principle at the heart of the scheme. The new scheme was merely more comprehensive and the language employed more precise and definite. As in the old Section 4, the terms in which the value was defined remained the price charged by the assessee in the course of wholesale trade for delivery at the time and place of removal. It has further been indicated that the value of an article for the purpose of the excise levy cannot be confined to the manufacturing cost and the manufacturing profit in respect of the article. While the nature of an excise is indicated by the fact that it is imposed in respect of the manufacture or producing of an article, the point at which it is collected is not determined by the point of time when its manufacture is completed but will rest on consideration of administrative convenience, and that generaly it is collected when the article leaves the factory for the first time. In other words, the circumstances that the article becomes the object of assessment when it is sold by the manufacturer does not detract from its true nature, that it is a levy on the fact of manufacture. While the levy has the status of a constitutional concept, the point of collection is located where the statute declares it will be. Any standard which maintains a nexus with the essential character of the levy can be regarded as a valid basis for assessing the measure of the levy. The original Section 4 and the new Section 4 satisfy this test and the true position under the Central Excises and Salt Act, 1944 as amended by Act 22 of 1973 can be set forth as follows:
(i) The price at which the excisable goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and place of removal as defined in Sub-section (4)(b) of Section 4 is the basis for determination of excisable value provided, of course, the buyer is not a related , person within the meaning of Sub-section (4)(c) of Section 4 and the price is the sole consideration for the same. This proposition is subject to the terms of the three provisos to Sub-section (1)(a) of Section 4. (ii) Where the price of excisable goods in the course of wholesale trade for delivery at the time and place of removal cannot be ascertained for the reason that such goods are not sold or for any other reason, the nearest ascertainable equivalent thereof determined in the manner prescribed by the Central Excise (Valuation) Rules, 1975 should be taken as representing the excisable value of the goods; (iii) Where wholesale price of any excisable goods for delivery at the place of removal is not known and the value thereof is determined with reference to the wholesale price for delivery at a place other than the place of removal, the cost of transportation from the place of removal to the place of delivery should be excluded from such price; (iv) Of course, these principles cannot apply where the tariff value has been fixed in respect of any excisable goods under Sub-section (2) of Section 3; (v) On a proper interpretation of the definition of "related person" in Sub-section (4)(c) of Section 4, the words "a relative and a distributor of the assessee" do not refer to any distributor but they are limited only to a distributor who is a relative of the assessee within the meaning of the Companies Act, 1956. So read, the definition of "related person" is not unduly wide and does not suffer from any constitutional infirmity. It is within the legislative competence of Parliament. It is only when an assessee so arranges that the goods are generally not sold by him in the course of wholesale trade except to or through such a related person that the price at which the goods are ordinarily sold by the related person in the course of wholesale trade at the time of removal to dealers (not being related persons) or where such goods are not sold to such dealers, to dealers (being related persons) who sell such goods in retail is liable to be taken as the excisable value of the goods under proviso (iii) to Sub-section (1)(a) of Section 4, apart from indicating that the old Section 4 provided by the explanation thereto that in determining the price of any article under that section no abatement or deduction would be allowed except in respect of trade discount and the amount of duty payable at the time of the removal of the article chargeable with duty from the factory or other premises aforesaid. The new Section 4(2) and Section 4(d)(ii) are clear provisions expressly providing for deduction, from the price, of certain items of expenditure and now the price of an article is related to its value (using this term in a general sense), and into that value have poured several components, including those which have enriched its value and given to the article its marketability in the trade. Therefore, the expenses incurred on account of the several factors which have contributed to its value up to the date of sale, which apparently would be the date of delivery, are liable to be included. Consequently, where the sale is effected at the factory gate, expenses incurred by the assessee up to the date of delivery on account of storage charges, outward handling charges, interest on inventories (stocks carried by the manufacturer after clearance), charges for other services after delivery to the buyer, namely after-sales service and marketing and selling organisation expenses including advertisement expenses cannot be deducted. It will be noted that advertisement expenses, marketing and selling organisation expenses and after-sales service promote the marketability of the article and enter into its value in the trade. It has also been indicated that where the sale in the course of wholesale trade is effected by the assessee through its sales organisation at a place or places outside the factory gate, the expenses incurred by the assessee up to the date of delivery under the aforesaid heads, cannot, on the same grounds, be deducted. But the assessee will be entitled to a deduction on account of the cost of transportation of the excisable article from the factory gate to the place or places where it is sold. The cost of transportation will include the cost of insurance on the freight for transportation of the goods from the factory gate to the place or places of delivery and where freight is averaged and the averaged freight is included in the wholesale cash price so that the wholesale cash price at any place or places outside the factory gate is the same as the wholesale cash price at the factory gate, the averaged freight included in such wholesale cash price has to be deducted in order to arrive at the real wholesale cash price at the factory gate and no excise duty can be charged on it, in addition to indicating that the new Section 4(4)(d)(i) has made express provision for including the cost of packing in the determination of "value" for the purpose of excise duty. The position in regard to the cost of packing is the same under the Act, both before and after the amendment of the Act. The packing, of which the cost is included, is the packing in which the goods are wrapped, contained or wound when the goods are delivered at the time of removal. In other words, it is the packing in which it is ordinarily sold in the course of wholesale trade to the wholesale buyer. The degree of packing in which the excisable article is contained will vary from one class of articles to another and while packing is necessary to make the excisable article marketable, the statutory provision calls for strict construction because the levy is sought to be extended beyond the manufactured article itself and also that the degree of secondary packing which is necessary for putting the excisable article in the condition in which it is generally sold in the wholesale market at the factory gate is the degree of packing whose cost can be included in the "value" of the article for the purpose of the excise levy. To that extent, the cost of secondary packing cannot be deducted from the wholesale cash price of the excisable article at the factory gate. It was claimed and contended by Mr. Mukherjee that in view of the true position under the said Act as amended by Act XXII of 1978 and as set forth in paragraph 48(1) of the report, the particulars of which have been quoted earlier, the determination has no relevance or nexus and application in the facts of this case and more particularly when, price of wagon is ascertainable here and more particularly from the agreement itself.
32. Reference was made by Mr. Bhattacharjee also to the Bench decision of the Allahabad High Court in the case of Jay Prestressed Products Ltd. and Anr. v. Union of India and Ors. . The petitioners in that case supplied to the Railways mono block concrete sleeper in which at the time of manufacture are embedded malleable cast iron inserts and fastenings which form integral parts of the commodity manufactured by the petitioner and on a question whether the cost of inserts and fasteners would form integral part of the commodity includible in the assessable value under Section 4 of the said Act, it has been observed that the valuation of mono block sleeper for the purpose of charging of duty of excise under Section 4 of the Central Excises & Salt Act cannot be conceived of without taking into consideration the cost of the inserts and fasteners. In fact, in the present case, under the contract the petitioner was not to supply any part of the mono block sleepers but was to supply the finished mono block sleepers in which inserts and fasteners were to be embedded at the time of the manufacture of these sleepers, because the plain concrete slab without containing the inserts and fasteners could not be used as railway sleeper as it would not hold the rails on it. Therefore, while determining the valuation of mono block sleeper for charging the duty the excise authorities were quite justified in adding the cost of inserts and fasteners under Section 4 of the Central Excises & Salt Act. It should be noted that the above determination was made on a reliance to the Bench decision of this Court reported in 1985 (20) ELT 733 Obviously a reference to 1983 ELT 733--Ed. and on dissension with the views as expressed by the Andhra Pradesh High Court in . Mr. Mukherjee contended that the views as expressed by the Allahabad High Court approving the Calcutta view cannot be held to be a good law, as the cases and the principles involved were different and in fact, on closer scrutiny, it will appear that really the views of the Andhra Pradesh High Court have been approved. It was specifically contended by Mr. Bhattacharjee that if the majority view as indicated above, is considered along with the views as expressed by the Supreme Court in the case of Union of India v. Bombay Tyre International Ltd. (supra), there cannot be any doubt that the decision to levy as made by the authorities concerned in the facts of this case, was due, authorised, proper and legal.
33. Mr. Bhattacharjee, then referred to the Bench decision of the Bombay High Court in the case of New Shakti Dye Works Pvt. Ltd. v. Mahalakshmi Dyeing & Printing Works and Ors. 1983 ELT 1736, whereby several writ petitions were disposed of and the petitioners in all the cases used to carry on the business of processing cotton fabrics and man-made fabrics by bleaching, dyeing, printing and finishing them. The question is, whether the petitioners, who carry on the business of bleaching, dyeing, printing and finishing cotton fabrics, are liable to the excise duty as the manufacturers for the purpose of the Central Excises and Salt Act, 1944 (hereinafter referred to as the "Excise Act"). Since it is common ground that the business carried on by all the petitioners is of the same nature, for the purpose of convenience we shall refer to the facts as alleged in Writ Petition No. 623 of 1979 (New Shakti Dye Works Pvt. Ltd. v. Union of India and Anr. According to the petitioner-company, cotton fabrics and man-made fabrics are received in the company as fully manufactured fabrics commercially known as grey fabrics, which are cleared after payment of excise duty under tariff items Nos. 19 and 22, as the case may be. The process to which the grey fabrics are then subjected is called bleaching process in which grey fabrics are boiled in soap and soda solution and thereby by use of a bleaching agent the grey fabrics are made white. After the bleaching process is completed, the material is then taken for the dying process, which according to the petitioner, consists of imparting of required shades of colours. After the material is dyed, it is subjected to the printing process, that is, printing of required designs on the fabrics by a printing machine. The final stage is called finishing process which consists of giving final touches for better appearance. The petitioners say that at no stage is the spinning and weaving involved in the processes carried on by the petitioners. The petitioners claim that it is an independent process used and has no activity of spinning of yarn or weaving of cotton or man-made fabrics which can be done only on looms. The petitioner has also alleged that it has no discretion in the choice of shades of colours or designs and has to comply with the directions of the customers. The final processed fabrics cannot be sold by the petitioner in the market and all that the petitioner collects from its customers consists of charges for the job work of processing done by the petitioner-company which has no proprietary or ownership interest in the fabrics either before or after it is processed and on the relevant facts a point arose for consideration inter alia amongst others whether duty paid on grey cloth as well as processed printed material, amounts to double taxation under Section 3 of the said Act read with Rule 56A of the said Rules and it has been held that under Sub-rule (2) of Rule 56A of the Central Excise Rules, it is expressly provided that a manufacturer will get credit of the duty which is already paid on the articles already used in that manufacture, subject to certain conditions. In view of this, when excise duty will be charged on a processed printed material, the processors will be given credit for the duty already paid on the grey cloth by the manufacturer of grey cloth and there was no double taxation apart from indicating that when a statutory provision provides for a credit being given whether that credit is substantial or meagre or the liability is excessive, is a matter of policy for the Parliament to decide and will not fall within the jurisdiction of the High Court under Article 226 of the Constitution. On the basis of such determination, Mr. Bhattacharjee claimed that duty in this case was required to be paid by the said petitioners subject to such set-off as indicated and involved in this case.
34. In support of his submissions, Mr. Bhattacharjee also referred to the case of Empire Industries Ltd. and Ors. v. Union of India and Ors. , in which case the petitioners stated that the processing operations in their factory were job work operations of dying, bleaching and printing of the said fabrics which are cotton fabrics and man-made fabrics. When the said fabrics are received in the factory of the petitioner-company, the same are fully manufactured and are in a saleable condition and are commercially known as grey fabrics, i.e., unprocessed fabrics which are cleared after payment of the excise duty under tariff item Nos. 19 and 22, as the case may be. The petitioners further state that the said grey fabrics, i.e., unprocessed, undergo various processes in the factory of the petitioner-company. The grey fabrics are boiled in water mixed with various chemicals and the grey fabric is washed and thereafter the material is taken for the dyeing process, that is, imparting of required shades of colours. The next stage is printing process, i.e. , putting the required designs on the said fabrics by way of screen printing on hot tables. The final stage is the finishing process, that is, to give a final touch for better appearance. According to the petitioners, they do not carry out any spinning or weaving of the said fabrics. The machinery installed by the petitioner-company in its factory is only for the purpose of carrying out one or more of the aforesaid four processes and cannot be used for the purpose of either spinning or weaving of yarn for manufacture of "fabric", i.e., "woven material". For spinning or weaving of yarn, one requires, according to the petitioners, looms and the petitioner-company is merely a processing house. The petitioner-company's case is that the petitioner-company begins with man-made or cotton fabrics before it starts the said processes and also ends with man-made or cotton fabrics after subjecting the fabrics to the various processes. The petitioner-company receives fully manufactured man-made fabrics and cotton fabrics from its customers only for the purpose of carrying out one or more of the aforesaid processes thereon as per the requirement and instructions of the customers and after the necessary processes are carried out, the same are returned to the customers. According to the petitioners, what is received by the petitioner-company is known as cotton/ man-made fabrics and what is returned is again known as cotton/man-made fabrics. The petitioner-company states that it has no discretion or choice of the customers. The finally processed fabric is not and cannot be sold by the petitioners in the market as the petitioner-company's product. The petitioner-company merely collects from its customers charges only for job work of processing done by it. The petitioner-company further states that it has no proprietary interest in the fabric either before or after the same is processed. The manufacture of the fabrics and sale in the market of the processed fabrics are effected by the petitioner-company's customers and not by the petitioners. Further the processed as well as the unprocessed fabric, whether cotton or man-made, can be put to the same use. It should be noted that the repondent-authorities were so long collecting and the petitioners had been paying excise duty and/or additional duty as the petitioner-company was manufacturing cotton fabrics under tariff item Nos. 19 and 22, as the case may be. Since the decision of the Gujarat High Court in New Shakti Dye Works Pvt. Ltd. 1983 ELT 1736 (Bom) and the petitioners and the processing houses like petitioners have been claiming refund and on the facts and claims in that case the Supreme Court has observed, the process of bleaching, dyeing and printing etymologically also mean manufacturing processes. The amendment of the term "manufacture" in Section 2(f) of 1944 Act, so as to include these processes and the substitution of items 19 and 22 of the 1st Schedule to the Act of 1944 and the Act of 1957 are not ultra vires the Constitution, apart from holding that the taxable event under the excise law is manufacture. The moment there is transformation into a new commodity commercially known as a distinct and separate commodity having its own character, use and name, whether be it the result of one process or several processes "manufacture" takes place and liability to duty is attracted. The word "manufacture" properly construed would doubtless cover the transformation, and as regards fabrics, bleached fabric is treated by the Indian Standard Institution as something different from fabric which has not undergone the bleaching operations and the processes of bleaching, dyeing and printing which have been incorporated by the amending Act in "the definition of term "manufacture" are not so alien or foreign to the concept of "manufacture" in entry 84 of List I that these could not come within that concept and the word "produced" appearing in entry No. 84 of List I of the Seventh Schedule is used in juxtaposition with the word "manufactured". Consequently it would appear to contemplate some expenditure of human skill and labour in bringing the goods concerned into the condition which would attract the duty. It was not required that the goods would be manufactured in the sense that raw material should be used to turn out something altogether different. If this aspect of the matter is kept in mind, then expenditure of human skill and material have been used in the processing of fabrics and it may not be that the raw material was first transformed but over the transformed material, further transformation was done by the human labour and skill making this fit for human consumption. The amendment is therefore within entry 84, in any event entry 97 of List I of the Seventh Schedule would apply. It has further indicated that section deals with the valuation of excise goods for the purpose of charging duty. Where for the purpose of calculating assessable profits, a notional and conventional sum is laid down by the legislature to be arrived at on a certain basis, it is not permissible for the Courts to engraft into it any other deduction or allowance or addition or read it down on the score that the said deduction or allowance or addition was authorised elsewhere in the Actor in the Rules. A conventional charge should be measured by its own computation and not by facts relating to other method of computation. The contention that thereby the benefit of any exemption granted by the legislature may be lost and that in some cases hardships might result are not matters which would influence Courts on the construction of the statutes. A taxpayer subject is entitled only to such benefits as is granted by the legislature. Taxation under the Act is the rule and benefit and exemption, the exception. And in this case, there is no hardship. When the taxtile fabrics are subjected to the processes like bleaching, dyeing and printing, etc., by independent processors, whether on their own account or on job charge basis, the value for the purposes of assessment under Section 4 of the Central Excise Act will not be the processing charges alone but the intrinsic nature [value] of the processed fabrics which is the price at which such fabrics are sold for the first time in the wholesale market. That is the effect of Section 4 of the Act. The value would naturally include the value of grey fabrics supplied to the independent processors for the processing and excise duty, if any, paid on the grey fabrics will be given pro forma credit to the independent processors to be utilised for the payment on the processed fabrics in accordance with Rules 66A or 96D of the Central Excise Rules, as the case may be. Read in this context and in the context of the prevalent practice followed so long until the decision of the Gujarat High Court in Real Honest case, there is no hardship and no injustice to the petitioners or the manufacturers of grey fabrics. The fact that the petitioners are not the owners of the end-product is irrelevant. Taxable event is manufacture and not ownership. The conclusion that inevitably follows that in view of the amendment made in Section 2(f) of the Central Excises Act as well as the substitution of new item 191 and item 22(1) in excise tariff in place of the original items, the contention of the petitioners cannot be accepted. Under Sub-rule (2) of Rule 56A, it is expressly provided that a manufacturer will be given credit of the duty which is already paid on the articles used in the manufacture subject to certain conditions. Excise duty will be charged on the processed printed material. Processors will be given credit for the duty already paid on the grey cloth by the manufacturer of the grey cloth. In such view of the matter the decision in 1983 ELT 1736, which was also cited by Mr. Bhattacharjee, was approved. He then referred to the decision of the Bombay High Court in the case of Pentax Engineering Pvt. Limited and Anr. v. Union of India and Ors. , which has indicated that under Sub-rule (2) of Rule 56A of the Central Excise Rules, it is expressly provided that a manufacturer will get credit of the duty which is already paid on the articles used in the manufacture of the goods subject to certain conditions. In view of this, the value for purposes of assessment will not only be job charges but also the value of the manufactured goods for purposes of Section 4 of the said Act. On the basis of this decision, Mr. Bhattacharjee specifically claimed that because of the conduct of the said petitioners in the matter of their concerned manufacture of wagon, they had incurred the duty liability. Lastly, Mr. Bhattacharjee referred to and relied on the case of Ujagar Prints v. Union of India and Ors. , where the mode of determination of assessable value under Section 4 of the said Act, amongst others was in issue and it has been indicated that it is clear from the decision of this Court in Union of India v. Bombay Tyre International Ltd. , that under the Central Excises and Salt Act and the Rules made thereunder the assessable value of the manufactured goods is to be determined at the factory gate, that is, at the stage when the manufactured goods leave the factory and enter the mainstream. We may assume and indeed in view of the decision of this Court in Empire Industries' case (supra) we must so assume, that processing of grey fabric involves manufacture and that when the processor carries out processing on the grey fabric he manufactures the processed fabric. But the assessable value of the processed fabric must obviously be taken to be the wholesale cash price of the processed fabric at the factory gate, that is, when the processed fabric leaves the factory of the processor and it cannot possibly include the selling profit of the trader who subsequently sells the processed fabric. It is at the point when the processed fabric leaves the factory of the processor that its assessable value has to be determined and that assessable value cannot include the selling profit of the trader and the Supreme Court further did not accept the contention that we cannot accept the contention (sic) of the learned Counsel on behalf of the petitioners and the appellants that the value of the grey cloth which is processed by the processor should not be included in the assessable value of the processed fabric since the grey cloth is one of the raw materials which goes into the manufacture of the processed fabric and the value of the processed fabric cannot be computed without including the value of the raw material that goes into its manufacture. The assessable value of the processed fabric cannot therefore be limited merely to the value of the job work done but it must be determined by reference to the wholesale cash price of the processed fabric at the gate of the factory of the processsor. Thus in the example given above the assessable value of the processed fabric [must be taken to be Rs. 20 + 5, that is Rs. 25 and the profit which the trader may make by selling the processed fabric cannot be included in the assessable value. The element of selling profit of the trader would be entirely an extraneous element and it cannot be taken into account for the purpose of determining the assessable value of the processed fabric which would comprise the value of the grey cloth and the job work charges but exclude the profit at which the trader may subsequently sell the processed fabric. On the basis of the above determination, it was claimed by Mr. Bhattachrjee that thus duty was liable to be paid by the said petitioners on the total value of the actual cost of wagon. He also contended that if the prices of free supply items were not included in the total cost of a wagon for the purpose of necessary levy, the position may become impossible and unworkable, as there may be cases where all excepting a few items necessary for manufacture of a wagon and not five items as in this case may be supplied by a buyer and in that case, the price of a wagon will become negligible or may be ridiculous. It was Mr. Bhattarjee's categorical submission that provisions of Section 4(1)(b) will be applicable in the facts of this case.
35. Mr. Ganguly opened the submissions on behalf of the said petitioners in the absence of Mr. Mukherjee. After taking us through the definition of " related person " as in Section 4(4)(c) of the said Act and which means a person who is so associated with the assessee that they have interest, directly or indirectly, in the business or each other and includes a holding company, a subsidiary company, a relative and a distributor of the assessee, and any sub-distributor of such distributor.
Explanation.--In this clause " holding company ", " subsidiary company " and " relative " have the same meanings as in the Companies Act, 1956 (1 of 1956), he pointed out that thus the sale in this case, was definitely not to a related person and further claimed that therefore the normal price in this case is the price at which the assessee/the said petitioners have sold the goods to the known buyer, viz., the Railways. On a reference to the other records, to which reference has already been made, Mr. Ganguli also claimed that the price of a wagon in this case was admittedly paid by the buyer, viz., the Railways and it would not be permissible to say or contend that in the facts of the case they were or have manufactured a complete wagon and that too in view of the availability of the free supply items and such being the admitted position, it will be idle to contend, more particularly when, out of about 350 articles and/or materials necessary for fabrication of a complete wagon, the said petitioners were or are manufacturing wagons, when all the component parts were and are not supplied by them and as such they are required to pay central excise duty on the excisable goods, viz., wagons manufactured in their factory. Even though such proposition of the said petitioners was not accepted by the learned Judge and there has been no appeal preferred by them, it was contended that the said petitioners were and are performing job works, which submissions were denied by Mr. Bhattacharjee on a reference to his clients' supplementary "affidavit dated 14th November, 1986 and also to the observations of the learned Judge.
36. Mr. Ganguli then referred to the said Rules and also to Section 37 of the said Act which deals with the power of the Central Government to make Rules to carry into effect the purposes of the said Act and on a specific reference to Sub-section (2)(i) thereunder, which has indicated that such Rules may provide for determining under Section 4 to nearest ascertainable equivalent of the normal price; that as such, the real price will be the nearest equivalent price or normal price if and when available and in such case of the availability of normal price, there would be no necessity of referring to the said Rules. He also claimed that since no such equivalent price is available in this case, the real or normal price will have to be found out or ascertained from the concerned contract, which has fixed the price of a wagon. While on the contract as in this case, Mr Ganguli claimed that reading the terms of the same and the contracting parties and more particularly when the same was entered with the said petitioners by the President of India or on his behalf, so the same under Article 299 of the Constitution of India, would be binding on the appellant Union of India and as such, most of the cases other than those already distinguished, would not apply. It was also claimed and indicated by him that when normal price of a wagon is fixed in this case, so there could be no scope for any manipulation and the more so when, the sale in this case not admittedly to a related person.
37. We have quoted earlier, the terms of Section 4 of the said Act. Mr. Ganguli claimed that the use of the words "that is to say" as in Section 4(1)(a) really explains the meaning of the statute in the manner or light as indicated hereinbefore and for the meaning of these terms, he referred to Stroud's Judicial Dictionary (5th Edition) Volume 5, which has indicated the said meaning to be " which explains the meaning". In fact it appears that the words ''that is to say" has said to be the commencement of an ancillary clause which explains the meaning of the principal clause. On interpretation and construction of Section 4(1)(b) of the said Act, Mr. Ganguli contended that thus in this case the same has no application and Section 4(1)(a) will apply and as such the price of a wagon should be fixed on the basis of the price as indicated in the concerned contract. To establish such rule or construction, he referred to the case of K.P. Varghese v. Income-tax Officer, Ernakulam and Anr. , which has observed that the rule of construction by reference to contemporaneo expositio is a well established rule for interpreting a statute by reference to the exposition it has received from contemporary authority, though it must give way where the language of the staute is plain and unambiguous.
38. At this stage, with the leave of the Court, Mr. Mukherjee made further submissions on behalf of the said petitioners. He reiterated that the buyer in this case is a limited buyer and not admittedly a related one and the price of a wagon under the concerned contract is also fixed and the said petitioners cannot authoritatively change the same or charge more. He further pointed out that there has also been no question of any charge of manipulation of price made against the said petitioners. Such consideration, on the basis of which the levy, if at all can or should be paid is the price of the wagon, which price according to him is fixed by a duly entered and executed agreement. Clause 5.4 of the agreement in question has mentioned or indicated the right to claim set-off of excise duty for the concerned free supply items and so also the other component parts which are secured by the said petitioners on behalf of the President of India, on which excise duty has already been paid under item 68 of the tariff and the free supply items in this case are incorporated in paragraph 1(a) of the Special Concession of Contract for fabrication of wagon, the relevant particulars whereof have already been indicated hereinbefore. It was Mr. Mukherjee's submission that under the relevant terms, the said petitioners never became the owners of these free supply items and such ownership remained with the Railways, for whom the said petitioners had manufactured the wagons or fitting these free supply items with the wagons as manufactured. As such, the said petitioners had not actually manufactured these free supply items and for that they could not be asked or made to pay excise levy for them and more particularly when these items were secured by the Railways on payment of necessary duty. Such being the position Mr. Mukherjee also claimed that price of a wagon should then be the price as fixed by the contract and the said petitioners are liable to pay excise duty on such contract price and not on the total value of a wagon, which is arrived at after adding the price of the free supply items with the actual contract price. Price of a wagon for excise levy according to him will be the price of a wagon as fixed by the contract. Mr. Mukherjee also reiterated that Section 4(1)(b) has no application in this case.
39. On a reference to the said Valuation Rules, some terms whereof have been quoted earlier, Mr. Mukherjee indicated that under Rules 5 and 6, price is the sole criterion or consideration for imposition of excise levy and where such price cannot be determined under Rule 6 the provisions of best judgment assessment as in Rule 7 will have to be resorted to and according to him, the determination as made by the learned Trial Judge was due, legal, proper and justified in the facts of this case.
40. Mr. Mukherjee claimed as mentioned earlier that the decision in the case of Union of India and Ors. v. Free India Dry Accumulators Ltd. (supra), is not applicable in this case and the same is distinguishable on facts. It was also claimed and contended by him that the said determination was duly distinguished in the case of Mysore Structural Ltd. v. Assistant Collector of Central Excise, Hydrabed and Ors. (supra).
41. In support of his submissions as above, Mr. Mukherjee also referred to the case of Joint Secretary to the Government of India and Ors. v. Messrs. Food Specialities Ltd. . In that case, the respondents, Messrs. Food Specialities Ltd., Moga entered into a number of agreements with Messrs. Nestle's Products (India) Limited, a subsidiary of a foreign company, Messrs. Nestle's Holdings Limited, to manufacture for and on behalf of Messrs. Nestle's Products (India) Limited, (hereinafter referred to as "Nestle's") sweetend condensed milk, soluble coffee, baby milk food, milk powders and infant cereal foods for sale in India by Nestle's under certain trade marks in respect of which the latter was registered as the sole registered user in India. The agreements stipulated that the respondent would manufacture the goods and supply them to Nestle's in such quantities as Nestle's might specify from time to time subject to a prescribed minimum and maximum, and Nestle's was obliged to buy the products so. manufactured by the respondent. The products were manufactured by the respondent in accordance with detailed quality specifications supplied by Nestle's, and the price of the products was determined under the agreements free on rail at Moga or free on lorry at factory. The respondent enjoyed no interest in the trade marks and lables and undertook not to sell any of those products to any person other than Nestle's. They disputed the claim that their products as manufactured were subject to excise duty under the said Act and also the value of the goods as determined by the Revenue for the purpose of the concerned levy and on consideration of the facts and law, it has been observed by the Supreme Court that what were sold and supplied by the respondent were goods manufactured by it with the trade marks affixed to them and it is the wholesale price of such goods that must determine the value for the purpose of assessment of excise duty. It is immaterial that the trade marks belonged to the purchasing company. What is material is that that company had authorised the respondent to affix the trade marks on the goods manufactured by it and it is the goods with the trade marks affixed to them that were sold by the respondent to that company. The value of trade marks of that company cannot be added to the wholesale price charged by the respondent to that company for the purpose of computing the value of the goods manufactured by the respondent in the assessment to excise duty. On the basis of the said determination. Mr. Mukherjee claimed that in the facts of this case the invoice price is the only price relevant and material to be considered. Mr. Bhattacharjee claimed that the said determination would not be of any help or assistance in this case since firstly, the same was made in a controversy over a trade mark, secondly, there the price involved for levy was really in respect of the whole product, while in this case the same is with regard to component parts and the wagons, on the materials as available, the Railways were the only registered user of the products of the said petitioners. He also pointed out that Nestle's could sell or they had really sold at a high rate because of their trade mark. According to him, the components in question, viz., the free supply items should go into the manufacture of excisable goods, viz., the wagons in this case. Thereafter, Mr. Mukherjee relied on the determination in the case of Sidhosons and Ors. v. Union of India and Ors. , where it has been indicated that excise duty is payable on the market value fetched by the goods, in the wholesale market at the factory gate manufactured by the manufacturers, i. e., the price charged by the manufacturers to the buyers under the agreement. It cannot be assessed on the basis of the market value obtained by the buyers who also add to the value of the manufactured goods the value of their own property in the goodwill of the ''brand name". However, the position would be different in case of a manufacturer who manufactures and sells his goods under his own brand name or under a brand name which he has acquired a right to use. In such a case the sale price fetched by sales effected by him under such brand name in wholesale will be the basis for computation of excise duty payable by him. The position would also be different in case of a brand name owner who himself is the manufacturer of goods or to sales effected in favour of "related" persons as defined by the Central Excises and Salt Act, 1944. It was the contention of Mr. Mutherjee on a reference to the impugned notice and the show cause notice, that they were irregular and not tenable since the buyer in this case had corporate control in the matter of fixation of price or had in fact fixed the price of each wagon. This case was also stated by Mr. Bhattacharjee to be factually distinguishable and he also contended that a brand name, on the basis of the determinations in the case of Empire Industries Ltd. and Ors. v. Union of India and Ors. (supra), do not go into the manufacture. Such submissions were also put forward by him against the case Messrs. Food Specialities Ltd. (supra). It was further contended by Mr. Mukherjee that since in this case the manufacturing by the seller, viz., the said petitioners was on behalf of the buyer, viz., the Railways, so the levy of excise duty as sought to be made was also unauthorised. In support of such proposition reliance was placed by him in the case of Union of India and Ors. v. Cibatul Limited , where such question of the goods being manufactured under an agreement by the seller and buyer up to the buyer's standard specification and bearing buyer's trade mark on approved prices or the effect thereof was considered and it has been observed that in the facts of that case the seller manufactured the goods as his own goods and not on behalf of the buyer and the seller being the "manufacturer", the wholesale price charged by him was the wholesale price at which such goods were sold by him to the buyer and not the wholesale price at which the buyer sold the goods to others. In reply, Mr. Bhattacharjee also referred to his submissions as recorded hereinbefore in respect of the case .
42. Mr. Mukherjee then referred to and relied on the case of Union Carbide (India) Ltd. v. Union of India and Ors. 1979 ELT 633 which inter alia amongst others has laid down that Section 4(1)(a) postulates that in order to arrive at the " normal price" there should be a factory gate sale and not that the normal price at factory gate should be inferred. Because it is the concept of delivery at the factory gate that is the pre-dominant factor in Section 4(1)(a). Mr. Bhattacharjee claimed that the findings and observations as made in the case are neither material non relevant for this case. Lastly, Mr. Mukherjee placed reliance on the case of I.T.C. Ltd. and Ors. v. Union of India and Ors. 1981 ELT 690, on the question of effect of duty collected in excess. The said determinations laid down that the levy of excise duty collected in excess of invoice value was without the authority of law and, therefore without jurisdiction. On the analogy of the said determination, Mr. Mukherjee claimed the levy as sought to be made and imposed or the levy of Excise Duty in excess of invoice price as made was bad and without jurisdiction. Mr. Bhattacharjee claimed that since the normal price in this case is the price of a complete wagon, so the above cases would not help the said petitioners. It was his categorical case and assersion that normal price in this case would mean the normal price of a wagon and the levy as made was due, legal and proper, as excisable goods in this case was the wagon.
43. While on their submissions on Article 299 of the Constitution of India, Mr. Mukherjee referred to the letter dated 1st September, 1982, addressed to the said petitioners by the Joint Director, Stores (Wagons)/Rly, Board, disclosed with the supplementary affidavit as referred to hereinbefore and which also contained and disclosed the terms of the concerned agreement. The said communication was admittedly made on behalf of the President of India and that being the position it was submitted that a different Ministry, meaning thereby the Ministry under which the said appellants were operating, cannot dispute the terms of the agreement and as such, the price of a wagon according to Mr. Mukherjee, as fixed by the concerned agreement, cannot now be disputed and in the event of such being allowed to be raised, he claimed that the innocent, viz., the said petitioners, who had acted on the basis of the said agreement, should not be made to suffer. In support of the above submissions, reference was made by Mr. Mukherjee to the case of Chtturbhuj Vithaldas Jaggri v. Moreshwarn Parashram and Ors. , wherein it has been observed that the provisions of Article 299(1) were not inserted for the sake of mere form. They are there to safeguard Government against unauthorised contracts. If in fact a contract is unauthorised or in excess of authority it is right that Government should be safeguarded. On the other hand, an officer entering into a contract on behalf of Government can always safeguard himself by having recourse to the proper form. In between is a large class of contracts probably by far the greatest in numbers, which, though authorised are for one reason or other not in proper form. It is only right that an innocent contracting party should not suffer because of this and if there is no other defect or objection Government will always accept the responsibility and it has been held that the Chairman of the Board of Administration acted on behalf of the Union Government and his authority to contract in that capacity was not questioned. There can equally be no doubt that both sides acted in the belief and on the assumption which was also the fact, that the goods were intended for Government purposes, namely amenities for the troops. The only flaw was that the contracts of this purely technical defect, the principal could not have been sued. But that is just the kind of case that Section 230(3), Contract Act is designed to meet, apart from holding that it would be disastrous to hold that the hundreds of Government Officers who have daily to enter into a variety of contracts, often of a petty nature and sometimes in an emergency, cannot contract orally or through correspondence and that every petty contract must be effected by a ponderous legal document couched in a particular form. It may be that Government will not be bound by the contract in that case, but that is a very different thing from saying that the contracts as such are void and of no effect. It only means that the principal cannot be sued; but there would be nothing to prevent ratification especially if that was for the benefit of Government. When a Government Officer acts in excess of authority Government is bound if it ratifies the excess. The contracts in question were not void simply because the Union Government could not have been sued on them by reason of Article 299(1).
44. Apart from the above, Mr. Mukherjee relied on the rule of promissory estoppel in the facts and circumstances of the case and claimed that such rule would be available to the said petitioners, because on the basis of the assurances given to them through the agreement in question, they had changed their position and acted to their detriment in taking up the responsibility of manufacturing wagons for the Railways and in support of such submissions, he referred to the principles as laid down and enunciated in the case of the Union of India and Ors. v. Anglo-Afghan Agencies, etc., AIR 1968 SC 718 and he also pointed out that such principles as indicated on the point in the case of Robertson v. Minister of Pensions, (1948) 2 All ER 767, have been followed in the case under consideration. Mr. Mukherjee then contended that the determinations in Union of India and Ors. v. Bombay Tyre International Ltd. (supra), will have no application in the facts of the present case.
45. We find that the submissions as made by Mr. Bhattacharjee that the distinction as made by the Andhra Pradesh High Court in the case of Mysore Structural Ltd. v. Assistant Colletor of Central Excise, Hyderabad and Ors. (supra), of the Bench decision of this Court in Union of India and Ors. v. Free India Dry Accumulators Ltd. (supra), was not just, proper and due, are of substance and we respectfully agree with the said Bench decision of this Court, which again has not been dissented from by the Allahabad High Court in the case of fay Prestressed Products Ltd. and Ors. v. Union of India and Ors. (supra) and as also considered and found to be correct in the case of Empire Industries Ltd. and Ors. v. Union of India and Ors. (supra). We hold that on the majority view on the point as appearing from the decisions as indicated above, the levy as made, was neither illegal nor unauthorised or bad.
46. Admittedly, in this case, the cost of wagon as a whole has not been mentioned in the agreement and we feel that the cost of normal price should include cost of construction and furthermore, when sale is the charge and the same under the charging section of the said Act would mean actual price of the goods, viz., wagon as a whole, so the value of a wagon as a whole, will form part of the relevant and necessary assessable value under Section 4 of the said Act, as the manufacturing cost of a complete wagon cannot be conceived of without taking into account or consideration (sic). We are further of the view and as indicated earlier, that if the cost of free supply items are excluded, then there may be cases where the value of a complete commodity, here in this case a complete wagon, may become ridiculous too. We hold that the valuation cost of the free supply items should be included in the manufacturing cost of wagons. We think that Section 4(1)(a) of the said Act applies in this case and as such, the valuation of excisable goods will be charged or will take place when manufacture takes place. Thus, we also find and hold that while determining the valuation of wagons for charging the duty, the Revenue Authorities had acted duly and with justification, in adding the cost of free supply items under the provisions of the said Act as indicated above, the more so when, under the agreement in this case, the said petitioners were and are required to manufacture and supply completed wagons, in which the free supply items were and are required to be fixed at the time of manufacture. There cannot be any doubt that without fixing the free supply items, the production and manufacture of a wagon would not be effectively completed. The manufacture of a complete wagon, thus takes place as soon as or as and when the free supply items are fitted and fixed by the said petitioners and with such manufacture, the process of manufacture would be completed under Section 2(f) of the said Act and the liability to duty will also be attracted. We hold that the value of the manufactured goods must be determined at the factory gate, i.e. , at the stage when the manufactured goods, here in this case wagons, leave the factory. This should also be noted that so far [as] wagons are concerned a ready market is not always available and the decision as made by the Trial Judge was contrary to the statutory provisions and we also feel that in view of his findings that the said petitioners do not carry out any job work, he was not justified in making the impugned order. The said petitioners are required to pay the duty subject to set-off as involved.
47. There is also no doubt that because of the conduct and manner of their manufacture and production the said petitioners incurred the duty liability and furthermore the concerned duty was liable to be paid by them on the total value of the actual cost of wagons. We also do not find any justification in the submissions as put forward on behalf of the said petitioners on Article 299 of the Constitution of India. Since we are of the view that in this case duty was sought to be levied duly and not illegally or unauthorisedly, we hold that the decision in I.T.C. Ltd. and Ors. v. Union of India and Ors. (supra), as cited will not be of any help or assistance to the said petitioners.
48. We also feel that the distinction as made by the learned Trial Judge of the Bench decision of this Court as reported in 1983 ELT 733, was not proper and the real effect, scope and purport of the determination in Bombay Tyre International Ltd's case (supra) was not properly appreciated by him. We have already indicated our views with regard to the Andhra Pradesh High Court's decision in Mysore Structural Ltd's case (supra) and we feel that the learned Trial Judge was not justified in taking a view contrary to such view.
49. In view of the findings and observations as above, we feel that this appeal must succeed and we order accordingly.
50. The appeal is thus allowed. The judgment and order as impeached is thus set aside. There will be no order as to costs.
51. There will be stay of operation of this order for four weeks as prayed for. We however made it clear that such stay will be available to the writ petitioners only.> Dilip Kumar Basu, J.
I agree.