Delhi High Court
Hindustan Milkfood Manufacturers ... vs Union Of India And Others on 1 January, 1800
Equivalent citations: 1980(6)ELT487(DEL)
JUDGMENT S. Ranganathan, J.
1. These three writ petitions filed by Hindustan Milk Food Manufactures Ltd. (now shown as HMM Ltd.), hereinafter referred to as `the assessed', raise the question of determination of the `assessable value' of the assessed's products for purposes of levy of the ad valorem duty of central excise. All the three writ petitions raise the same issue and the facts are also similar but for minor differences that will be noticed at the appropriate pieces. The writ petitions have been argued on the basis of the affidavits, material and counter-affidavits placed on record in C. W. 980/79 and hence the issues will be discussed in the context of these facts in this judgment.
2. The assessed is engaged in the manufacture and sale f milk food and dairy products and sells, inter alia, the goods popularly known as Horlicks, Elaichi Horlicks and Boost. These products fall under Tariff Item No. 1-B of the list set out in the First Schedule to the Central Excises and Salt Act, 1944 (`the Act') viz. "Prepared of preserved foods put up in unit containers and ordinarily intended for sale.......". Excise duty is leviable on them ad valorem on the assessable value determined under section 4 of the Act. The duty, leviable was 10% on the said value from 1-3-1969 to 28-2-1978. From 1-3-1978, a special duty of 5% was added thereto. However, with effect from 1-3-1979 the special duty was abolished but the rate of duty was raised to 15%. We are, however, concerned in these writ petitions with goods manufactured and sought to be cleared between 15th May, 1971 and December, 196. One material fact that is of great importance in deciding the writ petitions in that section 4 of the Act which provides for the determination of the Assessable Value was substantially and materially amended by Act 22 of 1973 (with effect from 1-10-1975). The questions as issue in these writ petitions, therefore, used separate consideration under the pre-amendment as well as the post amendment language of the above section. Before proceeding to consider the contentions urged before us, it is necessary to set out the material and relevant facts.
3. The assessed manufactures its products at two factories situated in Nabha (Punjab)_ and Rajahmundry (Andhra Pradesh). All the produce, however, is sent by road transport to packing stations located at Faridabad (Haryana), Bangalore (Karnataka) and Howrah (West Bengal) where they are not packed by independent contractors. For example, the powder manufactured at Nabha is seal from time to time in steel drums to the packing station at Faridabad. At Faridabad, the packing of this powder into smaller containers like glass bottles is effected by a firm of packers known as A. K. Packaging at certain rates fixed by a written contract. All the packaging material is provided by the assessed. The packaging firm provides the company with storage space for the powder, the packaging material and other accessories free of charge. The packing contractors give the assessed a complete account tallying each consignment of powder received by them with the packaging done by them At this stage, the manufacturing process of the assessed is claimed to have come to an end. The packing stations are thus part of the `factory' for the purposes of the Act. The selling operations, it is claimed, start from the stage when the packed goods have to be sold in the market.
4. The selling operations are carried out by the assessed in the following manner. All the stock of the assessed is lifted by three selling agents, M/s. G. Atherton & Co. (P.) Ltd., M/s. Agentia Esquiria and M/s. Parry & Co. According to the assessed, some of the stock is also directly sold to these agents leaving it to them to market it according to their desire. It is also stated that if any bulk consumers approach the assessed at the packing stations, the assessed enables them to purchase the goods from the agents at the same price for which the assessed sells in these agents. All these direct sales of the assessed, however, form only an insignificant proportion of the total product manufactured by the assessed, say about 4%. So far as the remaining 96% is concerned. It is also lifted by the three agents but they do so as the assessed's selling agents. Till 31- 10-1975, the three agents distributed the goods to various wholesalers, sub-distributors and stockists, collected the sale proceeds and forwarded the same to the assessed deducting their commission. After 1-11-1975, it is claimed that they had no sub-distributors and directly sold the products to the wholesalers but otherwise the procedure was the same. The sales to the three agents were consignment sales it is common ground that the title to the goods remained in the manufacturers (assesseds) till the goods were passed on to the wholesale purchasers. This being so, the assessed had to bear the costs of transport and insurance for conveying the packed goods to the various stations where sales were effected: It is claimed that the assessed's endeavor was to sell its products at uniform rates throughout India to the ultimate consumer, but that since transport charges, sales tax rates and local incidents varied from place to place, it had to supply the goods to the wholesalers at various places at different list prices, so, however, as to result in the final sale price being constant.
5. In order to enable the proper determination of the assessable value, Rule 173-C (of the Central Excise Rules 1944) requires every assessed to file with the appropriate officer a price list in such form and manner and at such intervals as may be required by the Collector, showing the sale price of the goods. The Rule empowers the officer to approve the price list after making such modifications as he may consider necessary to bring the value shown in the price list to the correct value for purposes of assessment as provided in section 4. Such an approval authorises the assessed to remove the goods from the factory on payment of duty in accordance therewith. It is unnecessary to refer in detail to the provisions of this rule or he contents of the forms prescribed there under. We shall, however, refer to one price list submitted by the assessed before October 1975 and one after October 1975 in order to bring out prominently the point of controversy between the parties. Price list 1/75, effective from 26.2.1975, relating to the Howrah packing station, pertained to Horlicks in units of 12 doz. bottles of 450 gms. each. The list gives the following figures :-
Rs.
Price to agent inclusive of excise duty but exclusive of sales-tax. 109.40 Admissible expenditure :
Octroi Rs. 2.04 Insurance Rs. 0.75 Freight Rs. 2.21 Selling organisation and advertisement expenses Rs. 4.82 -------- 9.82 -------- Price less trade discount but inclusive of excise duty 99.58 Assessable value, i.e. price excluding trade discount and excise duty of 10% (i.e. 10/11 of the price) 90.53 --------
The price list submitted after October 1975 was more elaborate and was required to be submitted in various parts. Part I required the details fo sales to "related persons" as defined in Section 4 (which will be referred to later). Part IV gave the price list of sales at various places. Price list I of the Faridabad packing station, effective from 1-10-1975, is extracted below giving the details of prices in respect of the same commodity in respect of three far flung stations to bring out the points made by the petitioners :-
Delhi Bombay Bangalore Rs. Rs. Rs.
Price at which goods are ordinarily sold in the course of wholesale trade by the related persons to dealers other than retail traders. 115.64 110.58 111.16 Deductions claimed from above price under Section 4 (2), 4(4) (d) Freight 0.25 2.30 4.00 Octroi 0.43 6.66 2.22 Insurance 0.26 0.26 0.26 Service charges to distributor 4.56 4.56 4.56 Selling expenses 5.77 5.77 5.77 Excise duty 9.44 8.30 8.58
------- -------- ------
21.21 27.85 25.39
- ------ -------- ------
Assessable value 94.43 83.03 85.77
------- ---- ----- ------
The highest of the sale prices was Rs. 116.56 at Cuttack and the lowest was Rs. 110.84 in U.P. for which the assessable values were claimed to be Rs. 93.65 and Rs. 90.86 respectively on a similar basis as above.
6. One head of the assessed's grievance was that the respondents would not approve of the price lists with such modifications as they considered necessary but kept them in abeyance permitting the petitioner to clear the goods on the basis of provisional assessments under rule 9B and that when this was eventually done and partly confirmed on appeal and the petitioner preferred revision petitions to the Government they were again kept pending indefinitely. However, these revisions have subsequently been allowed, the assessed having had to file two writ petitions C.W. 419/78 (which was withdrawn and C.W. 498/78 (which was allowed) for this purpose. This aspect of the matter, therefore, need not detain us.
7. The Deputy Collector of Central Excise passed two orders on 9-12- 1976. By the first order, he dealt with the price lists of the period 7-2-1973 to 30-9-75. So far as this period was concerned, he observed that the sales to Atherton & Co., Faridabad were negligible 9about 4% of the total sales), that the said agents had no independent sales organisation or godown or office premises at Faridabad, that the petitioners claim that the agents had an office in the petitioners' factory at Faridabad could not be accepted and, that, in any event he agent was a favored buyer through whom 96% was sold to appointed stockists. He was, therefore, of opinion that these sales should be ignored. On the question of assessable value, he observed that as the petitioner had fixed different prices in different areas for the same goods, the highest price at which the goods were sold during the given period of time should be taken as the assessable value. In his view, no deductions could be allowed from this sale price as the ownership of the goods remained with the petitioners till they entered the wholesale stream of trade. Moreover, the claims for freight, octroi and insurance were based on averages, not actuals, and were, therefore, not allowable. He, therefore, ordered "that the highest price at which the goods had been sold during the given time less excise duty payable in the case of the prices declared inclusive of excise duty will constitute the assessable value under Section 4 (old) for purposes of assessment" and that the 21 price lists submitted be approved on the above basis. For the second period, he passed a separate order on the same date. But though referring to the new Section 4(1)(a)(iii), the order merely embodied the same conclusion as before. Here again he rejected the nominal sales to the agents as not reflecting the market value and selected the highest prevalent price as the basis for assessable value. He also rejected the claim for deductions for the same reasons as before.
8. The petitioner preferred two appeals to the Appellate Controller of Central Excise which were disposed of by a common order dated 15-6- 1977. The appellate Controller held that as the appellants had "one uniform price for all destinations including the price at which they sell the goods to M/s G. Atherton & Co.", and as the actuals fo the expenses are not known,"expenses, the deduction of which has been claimed are part and parcel fo the wholesale cash price under old section 4...."and/or the normal price under the new section..." He also rejected the sales to G. Atherton & Co. as manipulated ones, and observed that the wholesale list price cannot be said to include any post- manufacturing expenses as the goods sold by the petitioner entered the wholesale market only when they are sold by their distributor stockists to wholesale dealers and till that stage is reached, they remain the property of the petitioners. So far as the post amendment period is concerned he pointed out that the sales through the agents had to be ignored as sales through 'related persons'. He confirmed the orders of the Deputy Controller.
9. Against the above consolidated order of the Appellate Controller and against for more like orders passed by him, the petitioner preferred revision petitions to the Government of India. The Government disposed fo all the matters by its consolidated order dated 26-3-1979 after examining the records and giving a personal hearing. So far as the old section 4 was concerned, it was pointed out, the wholesale cost price had to be the assessable value provided it was a genuine one. In this case the sale price to the agents could not be taken as the genuine wholesale cost price; it was only the price at which the agents sold to wholesalers that could be taken into account for that purpose. However, it was not the highest price that should be taken but "the price which is obtained nearest to the factory gate". To this extent the appellate order was modified. Regarding the post-October 1975 prices, it was pointed out that the agents being "related persons" the sale price to them had to be ignored. Here, it was only the normal price that would be relevant; this was the price at which "the goods are in fact ordinarily sold by the agents to the various dealers". It was held that, under the new section, no deduction for post manufacturing expenses would be permissible. Only actual freight could be allowed under sub-section 2 but this would not cover the "equalised freight" claim made by the petitioner. In the light of these findings, it was directed as in respect of the earlier period that not the highest price but the price at which the agent, who sold the goods nearest to the factory in the course of wholesale trade, markets the goods should be taken as the assessable value.
10. The petitioner has filed C.W. 980/79 challenging the correctness of the above determination of the Central Government. The other petitions arise in like circumstances and raise the same issues.
11. The Act, passed in 1944, was declared by its preamble to have been intended to "consolidate and amend the law relating to central duties of excise on goods manufactured or produced in British India" - now "certain parts of India" - (leaving out the reference to Salt, which is irrelevant for our present purposes). It may be mentioned here that the legislative competence in this respect was derived in so far as the imposition of excise duties was concerned from item 45 of List I of the Seventh Schedule to the Government of India Act, 1935. Item 45, referred to above which now finds its counterpart in item 84 in the Union Legislative list appended to the Constitution of India reads :
"Duties of excise on tobacco and other goods manufactured or produced in India except...."
Section 3 of the Act, which has been held to be the charging section, directs by sub-section (1) that "there shall be levied and collected in such manner as may be prescribed duties of excise on all excisable goods other than salt which are produced or manufactured in India...at the rates, set forth in the First Schedule". Under sub-section (2) of this Section 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" Section 4, prior to its amendment, ran thus :
"Where, under this Act, any article is chargeable with duty at a rate dependent on the value of the article, such value shall be deemed to be
(a) the wholesale cash price, for which an article of the like kind and quality is cold or is capable of being sold at the time of the removal of the article chargeable with duty from the factory or any other premises of manufacture or production for delivery at the place of manufacture or production, or if a wholesale market does not exist for such article at such place, at the nearest place where such market exists, or
(b).................."
The Explanation to the section provided that, in determining the price of any article under this Section, no abatement or deduction shall be allowed except in respect of trade discount and the amount of duty payable at the time of the removal of the article chargeable with duty from the factory or other premises aforesaid.
12. On the above provisions, a dispute has arisen between the parties on two questions :
(a) Can the price at which the goods were directly sold by the petitioner to the selling agents at the factory (packing station) be taken as the wholesale cash price of the goods envisaged in section 4 or are these sales liable to be ignored for arriving at the assessable value ?
(b) Is the petitioner entitled to claim from the above, or other, figures of wholesale cash price that may adopted all or any of the deductions (other than excise duty) mentioned by the petitioner in its price lists ?
13. On the first question, the respondent's contention is that the sales at the packing stations should be ignored. In support of this plea, they have raised a cloud of suspicion regarding the genuineness of the arrangement claimed by the petitioner and have also raised a legal contention that, at any rate, the selling agents are "favored buyers" and the transactions with them cannot be considered to be at arms' length. We think that Sri Gulati is right in contending that the aspersions on the genuineness of the arrangement are based on no material. The petitioner's case is that while the selling agents serve as conduit pipes for the distribution of the major part of the petitioner's production, they are also the direct purchasers from the petitioner of about 4% of the goods. This fact does not appear to be disputed by the respondents but it is said that the selling agents do not have proper office, godown or marketing arrangements for the resale of the goods purchased by them and that the office premises claimed to be occupied by them in a portion of the packing station had not been specifically shown in the ground plan of the factory submitted under the rules. Sri Gulati points out that oral evidence and correspondence had been placed before the officer which showed that the packing station building at Faridabad belonged to the partners of the packing firm and that the petitioners as well as the selling agents had been allowed to use separate portions thereof free of any rent or license fee. It was also deposed that the name plates of the petitioner as well as the selling agents were on the premises. The mere fact that, when the license for th factory was applied for the portion of the selling agents was not earmarked would not be a ground to reject the above evidence on which there was no cross- examination by the Department. In fact while the Assistant and Appellate Controllers raise this objection, the order in revision, rightly, ignores it. Moreover, the oral evidence was also categorical that, apart from the consignment sales for which the agents only acted as intermediaries, there were outright sales of goods to the selling agents which, after adding their profit, they sold themselves - though such sales were only to the extent of about 4% of the total sales. It does appear that the selling agents do not have an elaborate set up or marketing facilities but here is nothing suspicious about it. The direct purchases by them were not of a very large magnitude and they could resell the goods easily through the same channels as the consignment purchases effected by them. There is no interest personal relationship alleged between the persons behind the petitioner company, the partners of the packing firm and the persons behind the selling agents. The selling agents are independent companies which have their own reputation in the market. For instance, Parry & Co. Ltd. is a well-known concern which has wide range of business activities. It is further stated at the time of hearing that these organisations have been selling agents for these products since 1956 or, even before excise duty come to be levied on prepared foods and even before the petitioner started manufacturing operations in India. It is therefore, clear that there is no reason to doubt the genuineness of the claim of the petitioner that it had made direct sales on wholesale basis to the selling agents at the site of the packing station, i.e., factory and to hold that this was a make shift arrangement or a manipulated affair. The respondents have not brought on record even an of material to support their conclusion that the direct sales to the selling agents which are admitted, were manipulated or colourable.
14. The real stand of the respondents, which Mr. Chandrashekharan also put forward, appears to be that the sale price to the agents at the factory gate should be ignored because they are not 'third parties' but 'favored buyers'. His argument was that the petitioners and the selling agents had a mutual commercial relationship; in respect of 96% of the petitioner's sales, they had to rely upon the selling agents and so the arrangement on direct sales must have involved some concession or special treatment. In this context, both sides relied upon the leading Supreme Court decisions in Voltas - and Atics - . It will be necessary to refer to these two decisions later while discussing the second point of controversy but so far as the present issue is concerned, these two decisions, following the ruling of the Privy Council in the Ford Motors Co. case and overruling several High Court decisions held that the price at which the goods are sold on wholesale basis cannot be ignored merely because the percentage of such sales to the total turnover is small or because agreements with the purchasers in question stipulate for certain commercial advantages. So the fact that the selling agents also act as agents for the sale of 96% of the petitioner's goods does not detract from the weight to be attached to them as wholesale sales. The wholesale cash price obtained by an assessed can be disregarded only where the buyer is a favored buyer (where extra commercial considerations have entered into the bargain or the term are not fair and reasonable) or the transaction is shown to be not at arms' length (again due to personal relationship or collusion or like factors. Such is not the case here. On behalf of the petitioner, it was contended alternatively that at Faridabad there were direct sales not only to the selling agents but also to certain other wholesale purchasers like Government departments, canteen stores etc. though the quantum of such sales was not very large. It was stated that when certain local wholesale purchasers like canteens, department stores etc. approached the petitioner, they were allowed to purchase from the selling agents at the same price at which the sale had been effected to the selling agents themselves. It is argued that these, at any rate, would reflect the wholesale cash price at factory gate. Counsel for the respondent stated that there was no evidence or proof of such sales. It is, however, unnecessary to consider whether this was so, as in our opinion, the direct sales to the selling agents cannot be ignored and have to be taken as indicating the wholesale cash price at the factory. Mr. Chandrashekharan pointed out that in Voltas case, the sales to the distributors on wholesale basis was only about 5 to 10% and the balance of sales at all and the two sets of wholesale sales were at the same price; and that the facts of the present case are different int hat the present petitioner effects only wholesale sales but at different prices. The attempt of Mr. Chandrashekheran was apparently to contend that it was open to the respondents to ignore the price charged by the manufacturers to the wholesalers (selling agents) and to adopt as the assessable value the price charged by the wholesale dealer to another wholesale dealer. This argument was considered in detail by Bhagwati J. in Atics and rejected (vide paras 11 and 12). We therefore, hold hat the price at which the goods were sold to the selling agents at the respective packing stations will be the wholesale cash price for purpose of old Section 4.
15. This takes us to the question whether the petitioner is entitled to claim any deductions (other than trade discount provided for in the explanation to section 4) from the wholesale cash price determined as above in order to arrive at the assessable value. In Voltas (supra), the Supreme Court pointed out the characteristic feature of excise duty and explained how, in charging duty on the basis of the wholesale cash price at the factory gate, the section ensured that post- manufacture elements like interest, freight, octroi and other charges are excluded from the purview of the duty and Mathew J. who spoke for the court said :
"Excise is a tax on the production and manufacture of goods (see Union of India v. Delhi Cloth and General Mills, Section 4 of the Act therefore provides that the real value should be found after deducting the selling cost and selling profits that the real value can include only the manufacturing cost and the manufacturing profit. The section makes it clear that excise is levied only on the amount representing the manufacturing cost plus the manufacturing profit and excludes post-manufacturing cost and the profit arising from post-manufacturing operation, namely, selling profit. The section postulates that the wholesale price should be taken on the basis of cash payment thus eliminating the interest involved in wholesale price which gives credit to the wholesale buyer for a period off time and that the price has to be fixed for delivery at he factory gate thereby eliminating freight, octroi and other charges involved in the transport of the articles. As already stated it is not necessary for attracting the operation of Section 4(a) that there should be a large number of wholesale sales. The quantum of goods sold by a manufacturer on wholesale basis is entirely irrelevant. The mere fact that such sales may be few or scanty does not alter the true position".
This being so, normally speaking there is no scope for any deductions at all from the wholesale cash price at the factory gate, except trade discount (if any) and the excise duty payable, for arriving at the assessable value.
16. It is, however, contended on behalf of the petitioner that the cash price at factory as well as elsewhere includes element of post- manufacturing costs and profits. It is claimed that the elements involved are octroi, insurance, freight and selling expenses and that these should be deducted from the sale price for arriving at the assessable value. The Department has rejected the claim by observing that no such element could be included in the factory gate price in the very nature of things as observed by the Supreme Court in Voltas and that the petitioner's claim which was not on the basis of actuals but on an equalised basis could not be allowed to be deducted. We are concerned here only with an analysis of the factory gate price but since the constituent elements according to the petitioner of the sale prices not only at the factory gate but also at the different stations will need to be considered while dealing with the post October 1975 position, it is better to consider the matter in some detail here itself. We have extracted above the details of the price lists submitted by the petitioner in regard to three stations. A perusal thereof will show that, of the six deductions claimed, four viz., freight, octroi, insurance and excise duty are based on actuals whereas the other three viz., insurance, service charges and selling of expenses have been worked out on an average basis. THe full details were, Mr. Gulati says, placed before the authorities for necessary verification, if need be, and even now, he says the petitioner does not shirk and examination. So far as octroi is concerned, it is a matter of simple verification as to the rates prevalent at the several stations. So far as freight is concerned, Mr. Gulati points out, the contracts between the petitioners and various transport organisations out, the contracts between the petitioners and various transport organisations as well as their bills were placed before the authorities. FOr instance, the transport charges in respect of 500 packages (i.e. 1000 units) from Faridabad to Cuttack, Patna, Madras and Vijayawada respectively are shown from the bills to be Rs. 2,950/- , Rs. 2,100/-, Rs. 4000/- and Rs. 3300/- respectively. The deductions listed in respect of freight at these places are Rs. 2.95, Rs. 2.10, Rs. 4.00 and Rs. 3.30 respectively . It does, therefore appear, that the freight are only being claimed at actuals in the above cases and this has been stated to be so in respect of all freight claimed. SO far as insurance is concerned again one of cover notes produced by the petitioner shows that the insurance premium to cover risks of transport was charges at 0.325% and a bottle of Horlicks was valued at Rs. 80/- per doz. for this purpose. The insurance premium thus worked out to Rs. 0.26 per unit. Thus, it appears that all these expenses were claimed on the basis of actuals; the relevant documents were before the authorities and this was capable of simple and easy verification. The service charges and selling expenses were, however, admittedly averaged. Mr. Gulati stated that the petitioner maintained a special marketing division which met all the expenses on publicity, advertisement and sales organisations and that the selling agents, for the services rendered by them in the shape of exercising their management skills, handling the consignments, conducting the sale and undertaking the responsibility of collection of sale proceeds and claims for defective and damaged goods from the stockists and the like were paid service charges. The total expenses incurred on these were averaged on the total sales of the petitioner - the selling expenses on all the sales including those to the selling agents ad the service charges on the total sales for which the selling agents acted as distributors. These details were explained in a letter addressed to the revisional authority on 19-69-1978 while clarifying certain points raised at the hearing and an auditor's certificate was also furnished regarding the average selling expenses and marketing overheads per Kg. Since these are essentially matters of fact, we cannot, and do not give our findings but it seems to us that the nature of the deductions are as explained above. The petitioner's grievance that, without going into all the details placed before them and without verifying the actual position, the authorities have erred in summarily rejecting the claim for deductions as having been claimed on equalised basis appears to be well founded. However, we shall leave this question open and, as will be indicated later, give another opportunity to the respondents to examine the factual position and satisfy themselves that the petitioner,s claim is on actual basis in respect of four of the items of deductions claimed and that the average basis is only in respect off selling expenses and service charges.
17. If we come to the wholesale cash price determined as above in the above context, it will be seen that there can be no deductions claimed in respect thereof except the average selling expenses per unit. There can be no octroi or freight at th packing station. Nor can there be any question of insurance for risks in the course of transport and the insurance on the factory stock etc. will be covered in the manufacturing cost and so not deductible. No deduction for service charges can be claimed against this either as that can arise only in respect of goods handled by the selling agents. The only two aspects of the question, that arise for consideration here are (a) whether the petitioner is entitled to claim deduction against the factory gate sale price in respect of the expenses incurred by it "for putting the goods in the stream of trade, by creating and managing the selling force or promoting the sales of goods by known methods of advertisement and sale campaigns and (b) whether such a deduction could be claimed on an average or equalised basis. Neither Voltas nor Atics cover this situation for, in those cases, no deductions appear to have been claimed from the wholesale cash price, except trade discount. But such deductions are now claimed, relying on the principle enunciated in these decisions that excise duty can be levied only in respect of manufacturing cost and manufacturing profits and that selling cost and selling profit have to be eliminated in working out the assessable value. We think after careful consideration, that the answer to both the queries should be in the affirmative. The definition of wholesale cash price, as pointed in Voltas, is arrived at achieving this result but it does not take into account the possibility of the wholesale cash price at the factory gate including an element of post-manufacture expenses also, as is claimed in the present case. IF the petitioner is in fact maintaining a marketing division and incurring expenses for marketing these goods the impact of such expenses cannot be excluded even from the sale price at the factory itself. In principle and logically speaking, there can be no objection if all these expenses are spread over the entire production of the assessed and th entire turnover, including the sales to the selling agents at the factory gate itself. It is also inevitable that the cost of this activity can only be spread over the entire turnover on an equalised basis for it would be impossible to attribute them sale-or-consignmentwise. There seems to be nothing absurd or unacceptable in the petitioner claiming to deduct, on an equalised basis, the selling and marketing expenses, from the sale price charged to the selling agents and others at the site of the packing stations. There are, however, two matters which need verification. The first is whether the selling expenses of the petitioner have been actually averaged over the entire production including direct sales to the selling agents as claimed. The second is whether all the expenses under this head relate only to post-manufacture activities or whether some portion itself is also attributable to manufacturing activity. As pointed out by the Bombay High Court in I.T.C. v. Union [1979 ELT (J 476)] advertisement expenses would be incurred both before as well as after manufacture is complete so that a part of it may well be referable to manufacturing activity. On the other hand, marketing and distribution expenses would ordinarily be referable to the selling activity. It may, therefore, be necessary to bifurcate the total cost of advertisement and other expenses claimed by the petitioner under this head, and only such part of the expenditure, if any, as may be referable or attributable to the selling activity of the petitioner, will have to be deducted from the wholesale price charged by it to wholesalers.
18. We may say that we would not have arrived at the above conclusion which seems at first blush to run counter to the mandate of section 4 that the wholesale cash price at the factory gate less trade discount should be taken as th assessable value but for two important considerations. The first is that the duty levied under the Act is an excised duty within the meaning of Entry 45 of the Central is in the Government of India Act and is intended to be a tax on goods at the stage of manufacture or production and, therefore, as pointed out in Voltas, is a tax on the value of the goods reflecting the manufacturing cost and the manufacturing profits. It is not intended to include within the purview of the duty any selling cost and selling profit. The interpretation of the stature should, therefore, be harmonious with the scope of the legislative entry in pursuance of which it is enacted. Thus, though the language of section 4 is somewhat wide, ti should be read so as to carry out, and not militate against the basic concept of excise duty. It should be, therefore, taken as referring to the wholesale cash price at the factory gate without taking into account any part of the selling cost. The second consideration is that this is the view which appears to have found favor almost unanimously with several High Courts in the context of claims for carious types of deductions such as equalised freight (although strictly speaking, freight is an element which cannot enter into the concept of the factory gate price), advertisement expenses (to the extent referable to selling activity), marketing and distribution expenses, interest and so on. Though we are concerned here only with the question of selling expenses, the deductibility of other items like freight, octroi, insurance, service charges has to be considered in relation to period subsequent to October 75 and so ti will be useful to refer here briefly to these decisions.
19. The Indian Tobacco Co. Ltd. appears to have raised successfully a plea for the deduction of such expenses before a number of Courts. I.T.C. v. Union (1979 ELT (J 476)] is the decision of the Bombay High Court. The deductions claimed from he wholesale cash price were marketing and distribution expenses, advertising expenses, freight nd interest charged to wholesalers. The argument on behalf of the Revenue that section 4 embodies a statutory fiction to which full effect should be given and that no deductions can be permitted from this deemed assessable value except trade-discount and excise duty mentioned in the application was rejected. It was pointed out that section 3 was the charging section [c.f. Modi Rubber Ltd. - 2nd 1978 - 2 Delhi 352 at p. 361 = 1978 E.L.T. (J 146)] and section 4 which was only the machinery section could not enlarge the ambit of the excise duty. It was held that the deeming provision was enacted for the limited purpose of defining the assessable value of article for the purpose of calculating the excise duty and reliance was placed, in this regard, not the decision of the Privy Council in the Ford Motor Co. case . In regard to the department's reliance on the explanation, it was pointed out that the real question raised was not one fo allowing any deduction but one of exclusion of post- manufacturing expenses and profit in arriving at the assessable value having regard to the true nature of excise duty. As regards advertising expenses and interest it was held that it might be necessary to bifurcate the same between the manufacturing activity and the selling activity and deduct only the latter and it was pointed out that marketing and distribution expenses would ordinarily be referable to selling activity. As regards freight, Tulzapurkar, J. observed :
".....as regards freight, though it is true that in both types of delivery - i.e., at the factory gate and at the wholesaler's godown - " effected by the petitioner company to its wholesalers a uniform price is bring charged, that by itself would not be a valid ground to refuse the relief of deduction. The mere fact that the same price is charged both at the factory gate and also at the godowns of the wholesalers would not mean that the price charged at the factory gate would always be exclusive of non- manufacturing element of freight. It is quite possible that the petitioner company may for the purpose of maintaining good relations with its wholesalers a uniform price in both types of delivery, but at the same time in fixing the uniform price may have struck an average in regard to freight. It would therefore, be a matter of investigation and ascertainment whether the wholesale price charged by the petitioner company at the factory gate included non-manufacturing element of freight."
The Karnataka High Court considered the same question in I.T.C. v. Union (1976 Tax L.R. 2003) and held that the assessable value should be determined after eliminating from the wholesale cash price the expenses incurred in connection with marketing and distribution of goods, interest charged to wholesaler, freight, octroi and other transport charges and proportionate advertisement expenses. Reference was made to the decisions. of he Kerala High Court in Madras Rubber case [1976 Tax L.R. 1263 = 1977 ELT (J 85)], the Bombay decision earlier discussed and an unreported decision of the Andhra Pradesh High Court. The Allahabad High Court took the same view in I.T.C. vs. Union, [1977 T.L.R. 2060=1977 E.L.T. (J 29)] following the above Bombay, Kerala and Karnataka decisions and a Madras decision (since reported in 1978 T.L.R. 1824). An attempt to suggest that there was a conflict between Voltas and Atics was REPELLED. The Patna High Court also took the same view in I.T.C. v. Union [1978 Tax L.R. 1644 = 1978 E.L.T. (J 137)]. A Division Bench of the Kerala High Court appears to have affirmed the judgment of the single judge in the Madras Rubber Case: See 1978 T.L.R. (N.O.C.) 50 and Ramanujam, J. of the Madras High Court also took the same view in W.P. 2180/72 decided on 13-2-1976. A claim for deduction of freight charges on actual or equalised basis was allowed in Calcutta Chemical Co. [1978 E.L.T. (J 671)] Union Carbide [1979 E.L.T. (J 86)] Bangalore Bottling Co. [1978 E.L.T. (J 561)] and Coromandel Fertilisers [1979 E.L.T. (J501)]. The judgment of Divan C.J. in Vazir Sultan Tobacco Co. Ltd. [1978 E.L.T. (J 461)] appears to be subsequent to the Coromandel case (supra) and contains an elaborate discussion, and points out that barring the Golden Tobacco case [1977 E.L.T. (J 133)] decided by the Gujarat High Court , all courts are unanimous on this issue. In para 18, the learned C.J. pointed out :
"It is, therefore, clear that, when considering S. 4 one has to bear in mind that the section provides for machinery of collection of excise duty for administrative convenience. If, in enacting S. 4 and Explanation thereto, any words are used which are capable of being construed as enabling the excise authorities to calculate the excise duty on anything other than manufacture or production of goods by the well known doctrine of "Reading down", which has been evolved by courts of law, first in Australia and then followed in India, the language of S. 4 must be confined to the power of the Legislature referable to item 84 in the Union List in the Seventh Schedule to the Constitution, viz. that only the manufacture or production should be borne in mind and no post-manufacturing item of expenditure should be taken into consideration by the excise authorities while fixing the value of the goods for the purpose of excise duty when excise duty is leviable an ad valorem basis."
Again in para 37 it was observed after discussing Voltas and Atics :
"Mr. Subrahmanya Reddy for the appellants in the writ appeals and the respondents in the writ petitions with which were are concerned in these cases, has very strongly relied upon the conclusion of the Supreme Court in Atic Industries V. Asst. Collector, Central Excise (1975 Tax L.R. 1515) (SC) (supra) as set out in para 13 of the report and contended that, in the instant case, the price charged by the manufacturers to the first wholesalers, be they referred as distributors or wholesalers, is th wholesale cash price and it is that wholesale cash price less trade discount and excise duty which should be the basis for imposition of excise duty in view of the language of Section 4. We are unable to accept this argument of Mr. Subrahmanya Reddy in its entirely. It is clear from the observations of Mathew, J. in Voltas case (1973 Tax. LR 1710) (SC) (supra) which were approved by the Supreme Court in Atic Industries V. Assistant Collector, Central Excise (supra) that the excise duty, which is a duty payable on manufacture or production of goods, can only be on the aggregate of manufacturing costs and manufacturing profit.
(c) "related person " means a person who is so associated with the assessed that they have interest directly, or indirectly in the business of each other and includes a holding company a subsidiary company a relative and a distributor of the assessed and any sub- distributor of such distributor., Explanation. In this clause "holding company" a subsidiary company " and " relative" have the same meanings as in the Companies Act, 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 assessed.
Explanation - In this sub-clause "packing" means the wrapper container bobbin, pin, 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 excisable sales tax and other taxes if any, payable on such goods an 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;
(e).............
22. The above amendment was effected by Act 22 of 1973 but with effect from 1-10-1975. The objects and reasons for the amendments were set out in the bill as follows :-
"Section 4 of the Central Excise and Salt Act, 1944 provides for the determination of value for the purposes of charging the duty of excise under the Act. With the increase in the ad valorem levies in the Central Excise Tariff, the operation of that section has presented certain practical difficulties some of which got highlighted in the recent judgment of the Supreme Court (A. K. Roy and another v. Voltas Limited) in a case where a manufacturer was selling a small percentage of his production through a distributor and the rest directly to the consumers from his branch offices at a much higher price. The Court held that the sale to the distributor constituted transactions is the wholesale the market, and, therefore, the entire production should be assessed under clause (a) of that section and not clause,(b) thereof, i.e. on the basis of the price charged to the distributor. The court has also-made an observation that under the law, as it stands at the present the valuation for purpose of excise levy would include only manufacturing cost plus the manufacturer's profits. In order to overcome the various difficulties experienced in the working of the section it is proposed to suitably revise the valuation provision contained in section 4 of the Act, providing as far as practicable for assessment of excisable goods at the transaction value, except in areas where there may be scope for manipulation (such as sales to or through related persons) and making specific stipulations with respect to situations frequently encountered in the sphere of valuation. The Bill mainly intended to achieve the above objects."
23. It may be mentioned here that the Gujarat High Court in two decisions Atic Industries [1979 E.L.T. (J 513)] and Cibatul Ltd. [1979 E.L.T. (J 407)] declared that the concept of 'related person ' occurring in the amended section 4 is ultra vires the legislative competence of Parliament under Article 246 read with Entry 84 of the Union List in the light of Entry 54 of the State List in the Constitution ., The expression " the buyer is not a related person and ....." and proviso (ii) to clause (a) in s. 4(1) were struck down accordingly It may not however be necessary to consider this aspect of the matter as Mr. Gulati contended that for his purposes, it was sufficient if the provision of the new section new section were "read down " in conformity with the Constitution and that, if this were done, it would not be necessary for him to take up any stand on the constitutionality of the amendment. we shall, therefore proceed for the time being on the basis that the amendment is valid and fully operative in law.
24. On the above basis, there is no controversy before the us that the selling agents are "related persons" within the meaning of definition. Mr. Gulati, however, has drawn our attention to have evidence led before the authorities, which remained uncontradicted, that after October 1975 there were no sub- distributors appointed by the petitioner or the selling agents as before. A representative of G. Atherton & Co. deposed that they "did not maintain any distribution stockists after October 1975 ." There were also affidavits filed to the same effect on behalf of this company as well as Parry & Co. with the results that after October, 1975 the petitioner as well as the selling agents directly sold to wholesalers without any sub- distribution arrangements. Copies of the selling agents agreements for the period subsequent to October 1975 were also placed before the revisional authority along with the letter dated 19-6-1978. There appears to be no contradiction of this version of the petitioner. The Departments in the impugned orders have also taken into account only the prices at which the goods were sold to wholesale dealers at various stations and there is no basis for a suggestion made by Mr. Chandrashekheran that actually the princes at which the goods were sold to retail trader at the various places should have been taken into account by applying section 4(1)(b) instead of section 4(1)(a), proviso (iii), The Government of India in the revisional order has directed that he least of the wholesale prices in respect of each of the factories should be taken into account as the normal price for the purposes of the amended section 4 and about this the petitioner has no quarrel.
25. The only plea of Mr. Gulati, so far as the post-amendment sales are concerned is that the wholesale price taken in accordance with thee Central Government decision should be reduced by the amount of freight octroi, insurance selling expenses and services charges which have been detailed in the various price lists, This contention however,is resisted on behalf of the Revenue, It is pointed out that the amendment to section 4 was made in order to overcome the difficulties caused by the Voltas decision that the new section has deemed the "normal price " to be the assessable value and further that is has specifically enumerated the deduction permitted from the "normal price " It is argued that after the amendment there can be no deduction. allowed from the 'normal price. This controversy, it will be seen is practically the same as we have already considered under the unamended section, that section also defined assessable value as the wholesale cash price at the factory gate and the explanation provided that only trade discount and excise duty could be deducted from this amount. Nevertheless, as discussed above, judicial decisions had held unanimously that the wholesale cash price was liable to be adjusted so as to eliminate post-manufacturing cost and profit.
26. Mr. Gulati beings to our notice that there are decisions to the like effect even after the amendments. The Patna High Court considered the question in the Telco case - 1977 Tax L. r. 2189 = 1977 E.L.T. (J 14). In this case the petitioner objected to the treatment of its regional sales offices at different places as related persons and also contended that the post manufacturing expanses should be deducted from the gross-price for the arriving at the assessable value. These contentions were accepted. This case was followed and applied by the Kerala High Court in Madras Rubber Factory [1979 E.L.T. (J 397)]. This company was engaged in the manufacture of the automobile tubes, tread rubber and other rubber products. Its products were supplied to its 32 depots at various places throughout the country and the deposits in their turn sold to the other dealers or consumers. There were no factory gate sales. Excise duty was sought to be levied on the value of the goods after taking into account the post-manufacturing cost and profit on such items as freight, transport, interest, traveling expenses of agents, insurance etc. The court first discussed the nature of excise duty as explained in the decisions of the Federal Court in the C. P. Motor Spirit Act case (AIR 1939 F.C.L.) = [1978 E.L.T. (J 269)] and the Supreme Court in the Sea Customs Act case ( AIR 1963 S C 1760). Then setting out Entry 84 of List 1 and entry 54 of List 11 in the Seventh Schedule to the constitution the court summarised the arguments for the petitioner thus :
"With the lines squarely drawn between the above the two legislative entries, one for the Union and the other for the States it is contended that there must be a dividing line between the two to define where manufacture or production ends and also begins, May be, in Thackeray's phrase, "thin walls do their bands divide." but however tenuous, a line of division must be found at lest by a process of judicial interpretation. The argument of counsel for the petitioner was that post- manufacturing expenses pertain to sale and not to manufacture or production , and a duty which takes into account those post- manufacturing expenses the resultant levy would fall outside the legislative periphery of entry 84 of list 1 and outside the scope and content of the livable duty as demerited by section 3 of the Act. In either event counsel for the petitioner would argue that section 4 would have to be read down to square with that the impost sanctioned by section 3 and with the legislative power under Entry 84 of list 1, and outside the scope and content of the leviable duty as demarcated by section 3 of the Act. In either event, counsel for the petitioner would argue and that section 4 would have to be read down to square with that the impost sanctioned by section 3 and with the legislative power under Entry 84 of List Schedule 7 of the Constitution."
After referring to the Supreme court decisions in Tata Iron & Steel , Voltas (Supra) and Shinde Brother's case and the Federal Court decisions in Boddu Paidanna (AIR 1942 FC 33) and G.C. v. Madras Province (AIR 1945 P.C. 981). the court concluded :-
"The learned Central Government Pleader contended that whatever be the position under the act before its amendment in 1973 after the said amendment, it is permissible and possible to levy a duty of excise on the value of the goods as determined by section 4. It was pointed out that the criterion for the levy under section 4(1)(a) was the normal price in the course of wholesaler trade for delivery at the time and place of the removal where the buyer is not a related person." It is the case of the petitioner that this section would not apply to it as it has no factory gate sale. That is quite apart from its contention that the section itself is ultra vires. The Central Government pleader also placed reliance on section 4(1)(b) where a power is given to determine the value of the goods in such manner as may be prescribed. But neither this power nor the power to determine tariffs as provided in the first Schedule to the Act. and as relied on the Central Government pleader, would carry with it a power to cross the frontiers levy sanctioned by section 3 of the Act. Both by reason of the legislative entry - 84 of List 1 and by reason of the express provision of section 3 the power is only to levy a duty of excise, as explained by the Supreme Court in Voltas case (AIR 1974 SC 225). atic Industries's case and Shinde Brothers case - not to mention the other cases referred to already. The very nature of the excise duty requires a proximate connection with the production or manufacture. At any rate, what the has passed beyond the region of manufacture and production and entered the domain of sale cannot pass as excise duty., It appears to us clear enough that the inclusion of post manufacturing expenses would indicate that the levy is something other than a duty of excise."
It was then held, following Tisco (supra) that even under section 4(2) the post-manufacture charges and expenses will have to be excluded. There was an attempt then on the part of the Government to sustain the levy on the price including these charges by reference to Article 243 of the Constitution read with residuary Entry No. 97 in List I of the seventh Schedule but this arguments was negatived.
28. In this context, the decision of the Bombay High Court in Union Carbide [1979 E.L.T. (J 633)] may also be noticed. In this case the petitioner submitted a price list in respect of its Bombay sales and separate price lists in the respect to sales out of Bombay. showing the same uniform price plus the actual cost of freight for each place. The department rejected the petitioner out-of-Bombay lists and passed an order that since the price for delivery at thee Bombay was available under section 4(1)(a), there was no justification for approving the prices under section 4(2)/4(4)(d)(iii) The court observed :
"Assuming that the section 4(1)(a) is applicable even so what cannot be against said is that the cost of transportation from the petitioner factory to various sales deposits is a post- manufacturing expenses and therefore must be excluded from the assessable value. What the petitioner claims is a deduction of that post-manufacturing elements consisting of the actual amount expended for transporting the finished articles from its factory at Chembur to the various deposits. The real value of the goods under the old section 4 or normal price under thee new section 4 must be ascertained by inclusion only of the manufacturing cost and manufacturing profit and after deducting the selling cost nd selling profit. Excise is levied only on the amount representing the manufacturing cost plus the manufacturing profit and after deducting the selling cost nd selling profit. Excise is levied only on the amount representing the manufacturing cost plus the manufacturing profit and excluded post manufacturing cost plus the manufacturing profit and excluded post manufacturing cost and profit. arising from post manufacturing operation. namely, selling profit this is the ratio laid down by not less than two decisions of the Supreme Court, namely, in A. K. Roy v. Voltas Ltd. 1977 ELT 177 and in Atic Industries v. Asstt. collector, Central Excise, and has been followed by the Division Bench of this Court in India tobacco Co. Ltd. v. Union of India 1979 ELT 476 and in Century Spinning and Manufacturing Co. V. Union of India 1979 ELT 199. Those decisions were under the old section 4., However while interpreting the new section 4, the same ratio laid down by the Supreme Court in Voltas and Atic Industries case has been followed by not less than six High court in the India, namely, by the Andhra Pradesh High Court in Indo-National Ltd. v. Union of India 1979 ELT 334 the Madras High Court in Nagpal Petro-Chem Ltd. v. Assistant Collector 1979 ELT 117, the Kerala High Court in Madras Rubber Factory v. Assistant Collector 1979 ELT 397, the Delhi High Court in Madras Rubber Factory Ltd. v. Union of India. 1977 ELT 173 the Patna High court in Tata Engineering and Locomotive Co. Ltd. v. S. N. Guha Thakuria, 1977 ELT 14, and the Gujarat High Court Cibatul Ltd. v. Union of India 1979 ELT 407."
" 6. In the circumstances looked at from any angle, the transportation cost being post-manufacturing expenses must be excluded from the assessable value and cannot be taken into account in assessing the normal price of thee goods as contemplated by section 4(1)(a)."
Thus it would appear there is a uniform lien of decision even under the amended section 4 that expense of the nature claimed by the present petitioner are to be deducted in arriving at the assessable value.
29. Faced with this position, Mr. Chandrashekheran contended that whatever may have been the justification for the above view under the old section the same could not be extended to interpret the amended section for two reasons :-
(a) that the amendment was specifically made with the view to get over the difficulties created by Voltas and Atics; and
(b) that the amended section being a legislation of Parliament could lawfully extend the scope for levy even beyond the purview of and excise duty, stricto sensus, in view of Entry 97 of in the 7th Schedule to the constitutions.
30. In regard to both the aspects argued by the learned counsel, it is necessary to bear in mind the law as declared by the Supreme Court in the Voltas case, the objects of the legislature introducing the amendments the difficulties it intended to provide for and also the language by which the object is the intended to be achieved,. we have earlier set out the statement of objects and reasons as explained in the amendment bill. A perusal thereof would show that the primary purpose of the amendment was to overcome the difficulties created by the Voltas decision which had declared the small percentage of sale to or distributor as wholesale market sales. This objects is sought to be achieved by introducing a concept of "related persons ": and excluding transaction of sale to or through then the arriving at the excisable value. We are not concerned with this aspect in considering the present contention,. so far as the aspects presently under consideration is concerned, the statement of objects and reason only contains two sentences :-
"The court has also made an observation that under he law as it stands at present the valuation for purposes of excise levy would include only manufacturing cost plus the manufacturer profit. In order to overcome the various difficulties experienced in the working of thee section it is proposed to suitably revise the valuation provision contained in S. 4 of the Act......making specific stipulation with respect of situations frequently encountered in the sphere of valuation,"
It will thus be seen from the above the no intention is manifested to modify the position resulting from the decision of the Supreme Court that the assessable value would include only manufacturing cost plus manufacturer profits. All that is intended to be done is to make specific stipulation regarding situations frequently encountered. The amended section therefore, does not contain any words to suggest or imply that the value of the goods should also be loaded with any part or ingredients of post- manufacturing cost or profit. On the other hand the new section also requires the department only to take into account the wholesale cash price at the factory gate with the difference that this rule is modified where the wholesale transaction are put through with the help of related persons. This as the Supreme Court pointed out in para 21 of its judgment in Voltas extracted earlier, only emphasises the basic character of excise duty and intention to excluded post-manufacturing charges from its ambit. The exclusion of transport costs, where the value is determined with reference to the price at the place at other than the palace of removal-sub-section (2) - also indicates that the basic concept is still the same as before, Apart from the introduction of the concept of "related persons" to get over a situation like that in Voltas, the specific stipulations referred to in the statement of objects are those contained in clause (i) and (ii) of the proviso to section 4(1)(a) - which do not concern us here-and those contained in the section 4(4)(d) to exclude from the "Value" the cost of packing trade discount and excise duty but this was not considered as exhaustive of the permissible deductions from the wholesale cash price. In short, there are no considerations in deciding the question on the position after amendment that were not there when the pre- amendment statute was considered and there is no reason why the position should be different.
31. But apart from the above consideration which flow from a study of the amended section and its comparison with the old section. the constitutional setting in which it is enacted cannot be overlooked. Mr. Chandrashe :- Kheran's contention (which was raised for the first time only during the arguments) that the language of the new section should be given an enlarged scope and interpretation by relating it to entry 97 of List 1 of seventh Schedule cannot in our opinion, be accepted. We do not think in considering this arguments, that it is necessary for us tot discuss whether if Parliament were to enact a law imposing on goods manufactured or produced a duty based not only on the manufacturing cost/profits but also including in dutiable value the whole or some part of post- manufacturing cost/profit such a law would be intra vires or not because it appears to us that no such law has been enacted it this case. we are clear in our minds that the legislature has neither intended a changes in the basic concept of the levy. The Act when framed in 1944 intended to consolidate several statutes that were in force under which excise duty was being levied on several articles. Basically, the concept was the same and it was this legislative practice that was embodied in Item 45 of the Federal List of the 1935 Act and adopted in Item 84 of the Union List in the constitution (Vide the observations of Gwyer, C.J. in In re, C. P. Motor Spirit Act. AIR 1939 FCI at p. 12, adopted in Ralla Ram v. U. P. 1948 FCR 207 at 215 and Gordhandas v. Municipal Commissioner AIR 1963 SC 742) We shall assume with Mr. Chandrashekheran, that, in view of Entry 97 in the Union List under the Constitution it is open to and competent for the legislature to expand or even modify the nature of the levy. The question however will be whether it has done so. The statement of objects and reasons does not contains a whisper about such a radical change if intended to be made by it. The preamble to the Act the language of he charging section and the description of the levy throughout remains the same as before. these amendments only touch cases where duty is charged on under weight or volume which will be governed by the same consideration as before. we have also pointed out that even the language of section 4 does not spell any indications of any radical change. The pith and substance of the legislation remains the same. An avowed attempt to remove certain difficulties in the matter of valuation cannot be equated with an attempt to restructure the whole levy. Moreover, Voltas (and even Atics) did not touch upon the question of valuation at all. they were only concerned with the concept of wholesale market. Atics and all the decisions which have been referred to above in which the problems of the deducting freight octroi, insurance and other charges from the wholesale cash price were discussed all came up subsequent to the amendment which had been effected in 1973 itself (though given to from 1-10-1975). In these circumstances it is difficult to envisage this amendment as having intended to introduce any radical change in the basic nature of the levy under the Act. In this context,. the following observation of the Supreme Court in Ranganathan v. Government to which Mr. Gulati invited our attention are very apposite.
"There is also a presumption against implicit alteration of law and that is enunciated by Maxwell on Interpretation of Statutes, 10th Edition at page 81 in the following terms:-
"One of these presumption is that the legislature does not intend to make any substantial alteration in the law beyond what it explicitly declares, either in express terms or by clear implication, or in other words, beyond the immediate scope and object of the statute. In all general mater outside those limits the law remains undisturbed. It is in the last degree improbable that the legislature would overthrow fundamental principles, infringe rights, or depart from the general system of law, without expressing it intention with irresistible clearness....." This passage from the Maxwell was approved of by Their Lordships of the Privy Council in Murugian, P. v. Jainudeen C. L. (1) and their Lordships agreed that the law was correctly stated in the passage just cited. To the same effect are also the observations of the court of Appeal in National Assistance Board v. Wilkinson (2) where it was held that the Statute is not to be taken as affecting a fundamental alteration in the general law unless it uses words pointing unmistakably to that conclusion. In that case at page 653 Lord Goddard C. J. observed :-
"But it may be presumed that the legislature does not intend to make substantial alteration in the law beyond the what it expressly declares. In the Minet v. Leman (1) Sir John Romilly M.R. stated as a principle of construction which could not be disputed that 'the general words of the act are not to be so construed as to alter the previous policy of the law, unless no sense or meaning can be applied to those words consistently with the intention of the preserving existing policy untouched."
32. We also find that this matter has been considered. Though briefly by the Kerala High Court in the Madras Rubber Factory case [ 1970 E.L.T. (J 397)] :
"The Central Government Pleader had one other arguments to sustain the levy. He contended that the power of taxation was available to the Union government under the residuary power under Articles 248 of the Constitution read with the Entry 97 of List 1 of the 7th Schedule. The Article and the Entry give power only with respect to a matter 'not enumerated in Concurrent List' or State list,. The duty is expressly termed as 'excise duty'. That seem to be clearly referable to Entry 84 of List 1; and we see no case for pressing into service the residuary powers under Articles 248 and Entry 97 of List 1. Section 3 of the Act, again expressly refers to the duty as a duty of excise. In these circumstances we are afraid we cannot sustain the levy under the residuary powers pressed into service we cannot sustain the levy under the residuary powers pressed into service by the learned Central Government Pleader.
We are therefore of the opinion that the respondent were wrong in insisting on the post-manufacturing expenses and the post manufacturing profit to be included in the reckoning for determining excise duty. In the light of the decisions noticed. this is vitiated. The learned Judge was wrong in holding otherwise."
For the above reasons we are of the opinion that the interpretation of thee section has to be made in accordance with Entry 84 and not Entry 97 of the union List. Shri Gulati contended that if Department contention were accepted and the duty was leviable on the basis of the sale price unshorn of the post-manufacturing cost/expenses it would really be a tax on 'sale of goods ' covered by Entry 54 of List 11 of the seventh Schedule to the constitution and would not therefore be profited by Entry 97 in Union List, which can apply only where the topic is not dealt with the anywhere else specifically. In this context he invited our attention on the following observations in the Cibatul case (1979-7 Census 404-D at page 418 D)= 1979 ELT (J 407).
"Proviso (iii) to clause (a) of sub-section (1) of section 4 is ultra vires the parliaments legislative competence under Art. 246. read with the Entry 84 in the Union List and Entry 54 in the State List because even though the manufacture has charged his buyer - a "related person " - a fully commercial price consisting of manufacturing costs and manufacturing profits. he is liable to pay excise duty on the second price which his buyer "related person" - charges his buyer- an unrelated person. The second price as observed above is loaded with the selling costs and selling profits of the manufacturer buyer - a "related person ." Assessment of excise duty on selling costs and selling profits with the which the assessable value is loaded partakes of sales tax which falls under Entry 54 in the State List."
He drew our attention also the discussion in paras 69 to 75 of the above judgment. He, therefore, contended that the respondent cannot seek aid from the principle of Hazareth (AIR 1970 SC 999) and Dhillon where the purview of the State List was completely excluded and the substance of the legislation was not directly covered by a specific entry in the Union List. It is however, unnecessary for us to enter into this controversy or the further question whether even assuming that Entry 54 applies a part of the levy could be sustained under the Entry 92A of the Union List in the view we have taken of the scope of the amendment and thee interpretation of the amended section.
33. For the reasons discussed above, we are of opinion that, the while the respondent were right in determining the wholesale price in the manner they did, they erred in refusing to permit the deductions of the several ingredients which, according to the petitioners, have entered the said wholesale price. However as stated under the discussing regarding pre-October 1975 sales. the claims of service charges and selling expenses may need to be bifurcated between the manufacturing and selling operations.
34. Shri Gulati stated that all the writ petitions involve only the above contentions. While Civil Writ Petitioner No. 980/79 which relates to the Faridabad factory raises the question of determination of assessable value under section 4 both before the after the amendment C.W.P. 1169/76 and the C.W.P. 876/79 pertain to the production cleared at the Bangalore packing station, before and after the amendment respectively. These writ petitioner do not therefore require any separate consideration either on facts or in law.
35. For the reasons discussed above, we direct the issue of writs of the certiorari quashing the orders passed by the Government of India on the revision petitions preferred by the petitioner in regard to the three stations Faridabad, Bangalore and Calcutta the details of which are as follows :
C.W.P. No. Revision Orders Nos. Date. 1. 980/79 212 to 217 of 1979 26.3.79 2. 876/79 210 & 211 of 1978 (sic) 26.3.79 3. 169/76 1228 to 1230 of 1976 23.6.76
The consequence will be that the revisional authority will have to dispose of the revisions afresh in the light of the discussion and conclusions contained in this judgment. Before the doing so, however, the authority should give the petitioner an opportunity of being heard and may also obtain such details, calculations or other information which it may need to give effect to he judgment. As the matters have been pending for a long time and huge amounts are involved we direct that the revision petitioner should be disposed of afresh and in the accordance with law at most within four months of the date of receipt of certified copy of this judgment. It is unnecessary, in view of this directors to quash the appellate and assessment orders also, as sought for the by petitioner.
36. Mr. Gulati relying upon he directions given in the Gujarat decision in Atic Industries and Cibatul (1979 -7 Census 391 and 404 respectively ) sought for a direction that the refunds due to the petitioner should carry interest particular in view of the delay in the making of assessment and the disposal of the revision application by the Central Government. we are unable to accede to this request. In the first place, there is no specific prayer in the writ petition for such a direction and the respondent have had no opportunity of the meeting the allegations of delay on their part. Secondly the issue presented in these cases and in particular the positions after the amendment of section 4, is not free from the difficulty and most of the decisions cited by counsel are also recent. We, therefore, give no directions except that the matter be re-heard by the Government of India in the light of this decision and disposed of expenditiously.
37. In the result, these writ petitions are allowed to the extent indicated above, the petitioner will be entitled to one set of costs in C.W. 980/79 only. Counsel' free Rs. 500/-
March 31, 1980. /- S. Ranganathan JUDGE.
ORDER D.R. Khanna, J.
1. II have the privilege of going through the judgment of my learned brother. The conclusions arrived at have been in consonance with the almost unanimous view taken by different High Courts in the country. I therefore concur with the overall decision. So far as the pre- amendment period of section 4 of the Central Excise and Salt Act, 1944. there is not much scope fro controversy in view of the decisions given by the Supreme Court in the cases of the Voltas (AIR 1975 SC 225) and Atics . Earlier there was also the decision of the Privy Council in the Ford Motors Co. Case . It is however with the post amendment period that some difficulty arises and the contentions raised from the side of the respondent cannot be said to be entirely devoid of force. It may, further be said that normally the courts should be slow to interfere with finding of facts which three authorities in the course of assessment appeal with revision have concurrently arrived at. This may only be where the finding are perverse or not borne out by any material whatever on record. It is not as if the matter comes for the first time before the court that it has to freshly adjudicate upon the same. It is the absence of evidence and not its absoluteness which may provide justification for reversal of a finding of fact concurrently given by three authorities. There were certain factors taken into account by them. One of them was that the selling agents and the packing concern had no inter se personal relations. It therefore, appeared unusual that the packing firm would have allowed user of a part of its premises to selling agents without charging any rent or license fee. In the ground plan submitted under the rules, no such premises in possession of the agents was shown. The sales to the extent of which were said to been effected from there. were not of insignificant amount but were about rupees one crore. At the same time, in case the account books of the petitioner and the selling agents corroborated those sales, they also could not be ignored and had to be given their due weight, unless it could be found that the accounts were not regularly maintained.
2. When the legislature by deeming effect defines a term in a statue or elaborate any of its provisions the same has the effect of enlarging or abridging their purport and scope accordingly. In other words the normal connotations which such terms or provisions carry are deviated to the extent the deeming effect is given to . Statute books are replete with legislatures resorting to deeming. Once it is accepted that such provisions are within the constitution other competency of the legislature they have to be given effect to section 3 of the Act no doubt is the charging section. Section 4 in turn while the mode of the assessment elaborate in what the manner the assessable to be determined. Both these provisions are complementary to each mutually exclusive. They emanate from the same statue enacted by legislature. If the provisions are within the statutory and constitutional of that the legislature then normally no exception can be taken to the because by deeming effect a wider meaning is extended to a term or words must be allowed to the have their natural and full flow. refers or what could have been the underlying purport or intention of the can bee availed for the resolving ambiguity if any, and not to restrict or meaning of the words which are otherwise clear and unmistakable the Furthermore the object when the legislature in its wisdom incorporates an amendment with certain object in view or for undoing tan interpretation which the considers was not with the legislative intent of the original enactment, one should be slow to assume that the amendment was ineffective and the position of law continued to be thee same.
3. As the objects and reason for introducing amendment in section 4 of the Act showed it was motivated to render ineffective small percentages of sales at lesser value and thus getting the overall assessable value of the entire ordinarily sold was introduced. Further the concept of related persons was brought in and the sales to them were not to affect the other normal sales., emphasis on place of removal of the goods was also laid. These objects and reasons further referred to the observation of the courts about the manufacturing cost and similar profits. It was to overcome various difficulties experienced in the working of the section that the suitable amendments in the section 4 were introduced.
4. The principle is the well recognised that in the remedial legislations. even where the two interpretations are possible one that the remedy and suppresses the evil as the legislature envisioned must find favor and with courts. (see 1975 Taxation law Reporter 2129). Further more undue focusing of legislative periphery of one entry in Union List would not be essentially render the statutory provisions unconstitutional or invalid if the mater is covered by the another entry of the same list Normally nothing should prevent or restrict the simultaneous operation of two or more items of the list in the same statute more so when the operation is extended by deeming the effect, In other words incidence of two or more types of taxes can be combined and integrated to create a single tax. What the has to be taken guard is that the in this process the constitution power conferred on another legislature is not in any manner usurped or entrenched upon. In the case of H. C. Dhillon, it was recognised that so long as there is not prohibition in List pertaining to the state subject to the Parliaments competence to levy tax remains unfettered. In a recent unreported decisions. the Supreme Court has upheld the levy of the tax described as property tax by the Bareilly Zila Parishad so as to include tax on the trades Callings and professions . Merely because a particular tax or levy bears a certain name would not prevent its broader impact by deeming effect if otherwise is levy is within the competence of the legislature or the municipal body. It is correct that the Parliament may not be inter state sales such power is the earlier available. In the case of the petitioner overwhelming sales were of the inter -state nature In Hindustan Sugar Mills (1978 SC 1496) the Supreme Court upheld the levy of sales-tax on sale price which include freight.
5. Subject to these observations I concur in the overall finding arrived at by the learned brother in allowing these writ petitioner in terms of his judgment. This has been in line with the almost consistent approach adopted by different High Court and the we abide by that.