TMI Blog1992 (5) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... ch a measure will restrict the fixation of the value at figures even less than those that can be arrived at under Section 4. The tariff values of sulphuric acid and chlorine were validly fixed under the impugned notifications dated 28-11-1970 and 26-7-1971. Section 3(2) of the Act as well as the notifications are declared valid and constitutional. The judgment of the High Court under appeal is set aside. - 1432-33 of 1984 - - - Dated:- 14-5-1992 - S. Ranganathan, V. Ramaswami and Yogeshwar Dayal, JJ. [Judgment per : S. Ranganathan, J.]. - These two appeals under the Central Excises Salt Act, 1944 (hereinafter referred to as 'the Act') raise an interesting question as to the vires and interpretation of Section 3(2) of the Act. Under that provision, the Central Government issued notifications dated 28-11-1970 and 26-7-1971 fixing the tariff value on the basis of which excise duty was to be levied on sulphuric acid and liquid chlorine respectively. In respect of the former, the tariff value fixed was Rs. 260 per metric tonne where the strength of the acid was 93% to 99% and a proportionately lower figure where the strength of the acid was less. The tariff value for chlo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hese two sections read with the definition in Section 2(d) of, and the First Schedule to, the Act may be summarised thus : Excise duty is charged on all goods specified in the First Schedule to the Act. It is a duty on such goods produced or manufactured in India. It is levied at the rates specified in the First Schedule. These rates are charged in some cases on the basis of length, area, volume and weight but, in most cases, the rate is ad valorem i.e. dependent on the value of the goods. We are concerned here with the last of these modes of rate fixation where the rate is applied to the value. Naturally, in such cases, the crucial question is : what is the value of the goods to which the rate is to be applied? This question is answered in two ways. Section 3(2) empowers the Central Government, in such cases, to fix the tariff value by Gazette notifications issued from time to time. Section 4 empowers the assessing authority to determine the value of the excisable goods in individual cases on the basis of the wholesale cash price for which the goods are sold at the factory gate. 4. The Century Spinning and Manufacturing Co. Ltd. (the respondent, hereinafter referred to as 'the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as concerned with an attempt of the Revenue to ignore what was clearly a wholesale transaction because it represented only 10% of the total sales and to levy excise duty on the basis of retail sales which covered the major percentage of the total production. Pointing out the error of this and, after analysing the language of Section 4 of the Act the Court observed : "Excise is a tax on the production and manufacture of goods [see Union of India v. Delhi Cloth and General Mills - (1963) Supp. 1 SCR 586 = AIR 1963 SC 791]. Section 4 of the Act therefore provides that the real value should be found after deducting the selling cost and selling profits and 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e actually charged by the manufacturer consists of not merely his manufacturing cost and his manufacturing profit but includes, in addition, a whole range of expenses and an element of profit (conveniently referred to as "post manufacturing expenses" and "post manufacturing profit") arising between the completion of the manufacturing process and the point of sale by the manufacturer." On this issue, the contention urged on behalf of the Union of India which was accepted by the court ran on the following lines : "Shri K. Parasaran, the learned Solicitor General of India (when these cases were heard, and now the Attorney General of India) has strongly contended that the value of an excisable article for the purposes of the levy must be taken at the price charged by the manufacturer on a wholesale transaction, the computation being made strictly in terms of the express provisions of the statute and, he says, there is no warrant for confining the value to the assessee's manufacturing cost plus manufacturing profit. According to him, although excise is a levy on the manufacture of goods, it is open to Parliament to adopt any basis for determining the value of an excisable article, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t intended to say was that the entire cost of the article to the manufacturer (which would include various items of expense composing the value of the article) plus his profit on the manufactured article (which would have to take into account the deduction of 22% allowed as discount) would constitute the real value had to be arrived at after off-loading the discount of 22%, which in fact represented the wholesale dealer's profit. A careful reading of the judgment will show that there was no issue inviting the Court's decision on the point now raised in these cases by the assessees." (d) As to Atic Industries Ltd. v. H.H. Dave, Asstt. Collector of Central Excise and Ors. [1975 - 3 SCR 563 = 1978 (2) E.L.T. (J 444) (SC)], the Court, after quoting extensively from the decision, pointed out : "This case also does not support the case of the assessees. When it refers to post- manufacturing expenses and post-manufacturing profit arising from post manufacturing operations, it clearly intends to refer not to the expenses and profits pertaining to the sale transactions effected by the manufacturer but to those pertaining to the subsequent sale transactions effected by the wholesale buye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rer or producer. It appears to us clear that the value for the purposes of the excise duty on a particular product produced or manufactured by a purchaser or a manufacturer must be arrived at on the basis of manufacturing cost and manufacturing profit of that particular purchaser or manufacturer. The weighted average basis necessarily introduces irrelevant considerations, viz., the production or manufacturing cost or manufacturing profit of another manufacturer or producer al together. This in our view would be foreign to the concept of excise as envisaged by the charging Section 3(1)." In short, the High Court's reasoning restricts the freedom of rate fixation under Section 3(1) to the mode of determination of value set out in Section 4 and to the manufacturing cost and profit of an individual manufacturer-assessee before the authorities. It overlooks that, reading Sections 3(1), 3(2) and 4 together, in the light of Bombay Tyres, it is clear that the rate of excise duty need not necessarily be ad valorem; that, even when it is ad valorem, the mode of determination of value outlined in Section 4 is only one of the modes available to the Central Government which comes into operati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the statute which precludes the Government from fixing the tariff value in this manner. 9. But, then, says learned counsel, to read Section 3(2) in the manner indicated above, would make the provision vulnerable to challenge on the basis of violation of Article 14 of the Constitution. Such an interpretation, it is said, would leave it open to the Central Government to fix tariff values at its whim and caprice without any statutory guidelines laying down the parameters of such fixation. We think that the contention proceeds on a misconception. While we undoubtedly say that Section 3(2) confers a power on the Central Government to fix tariff values for goods at its pleasure, unrestricted to the terms of Section 4, we do not say that this can be done at the whim and caprice of the Government. This discretion has to be exercised by the Government in accordance with the crucial guideline that is inbuilt into the statute and also illustrated by the manner in which the determination is provided for in Section 4. The statute leaves one in no doubt that the rate of duty is to be fixed ad valorem i.e. on the basis of the value of the goods. It cannot be disputed that the normal indicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioners have benefited as they were required to pay excise duty at a rate less than what would have been payable under Section 4. It was also pointed out that there is a difference between the method of determining the value under Section 4 and under sub-section (2) of Section 3, and once the tariff value is fixed, the determination of value under Section 4 would be irrelevant. In the affidavit, the fixation of tariff value in respect of these items has been justified on the ground that it is a useful method to fix tariff value where the price fluctuation is violent and it has been pointed out that the tariff values have been fixed after a close study of price fluctuations, and it cannot, therefore, be said that the Central Government has absolute and unfettered discretion which is being used in an arbitrary manner. A similar approach is found in the affidavit of Shri S.R. Narayan is Special Civil Application No. 1276 of 1972 in respect of chlorine, and the fixation of the tariff values on weighted average basis is justified on the ground that it is the only workable method for determining the assessable value which would be fair and acceptable to all the manufacturing units through ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied under Section 3(2) for valid reasons and on germane grounds having a nexus to the 'value' of the goods and the High Court erred in accepting the assessee's plea that "the notifications are arbitrary, perverse and display a non-application of mind on the part of the authorities as the tariff values fixed are unrelated to the value or price or the manufacturing cost and manufacturing profit of the products". That the weighted average so fixed exceeds the manufacturing cost and profit of a particular manufacturer, can be no reason for doubting its validity. Equally, there is no acceptable logic in the High Court's suggestion that it should be fixed at the lowest of the prices at which the manufacturer is able to sell his goods in the wholesale market. To apply such a measure will restrict the fixation of the value at figures even less than those that can be arrived at under Section 4. The whole purpose of Section 3(2) is to enable the Revenue to free itself from the shackles of Section 4, inter alia, in cases where, as here, the Government feels that the application of that section would lead to difficulties and harassments. The criticism that the tariff value has been manipulated ..... X X X X Extracts X X X X X X X X Extracts X X X X
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