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2015 (5) TMI 25 - BOMBAY HIGH COURT

2015 (5) TMI 25 - BOMBAY HIGH COURT - 2015 (327) E.L.T. 41 (Bom.) - Valuation - Job work - Legality and validity of Rule 10A of The Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 - Imposition of penalty - Held that:- Rule 10A (i), comes into play when the excisable goods are sold by the principal manufacturer for delivery at the time of removal of the goods from the factory of the job-worker and where the principal manufacturer and buyer of the goods are not rel .....

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factory of the job-worker, but are transferred to some other place from where the said goods are to be sold after their clearance from the factory of the job-worker.

The Legislature had to evolve some measure or mode of computation and calculation and, therefore, inserted Rule 10A. The object and purpose of introducing or inserting it is apparent if one peruses the proviso and explanation to Rule 10A. The proviso clarifies that the cost of transport, if any, from the premises wherefr .....

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ffort which has been taken by the job-worker for and on behalf of the principal manufacturer enables the principal manufacturer to sell the completed product or finished goods. It cannot be, therefore, that the Legislature must only take the price which parties like the petitioners charge for the job-work to M/s. Tata Motors Limited.

It would be also clear from a reading of Rule 11 and the preceding rules that a combined or conjoint reading of these rules would enable us to conclude .....

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of the value of excisable goods and hence cannot be read as a stand-alone or isolated provision. It would have to be read together and harmoniously with other rules so also sections 3 and 4 of the Central Excise Act, 1944. So read, there is neither any merit in the challenge to the validity and legality nor is it necessary to read the Rule down or restrict its application as prayed for by the petitioners before us.

Rule which is termed as invalid and ultra vires the parent Act is inc .....

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or assessment and collection of tax for the nature of tax is different from the measure of tax. Thus, there are three components of a taxing statute viz. subject of tax, person liable to pay the tax and the rate at which the tax is levied.

We do not find that while valuing excisable goods for purposes of charging the duty of excise in the case of job-worker by taking into consideration the transaction value of the goods sold by the principal manufacturer, the rule in any way travels .....

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We are also not sustaining the legality and validity of Rule 10A on any notion of Revenue leakage. However, we are mindful of the fact that every arrangement devised by the parties like the petitioners and M/s. Tata Motors Limited could not be presumed to be genuine. It could be, in a given case, a device to avoid payment of excise duty in terms of the rate set out in the schedule. Therefore, to plug the loopholes and to discourage such arrangements as would be not conducive to the reco .....

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s SRP 87/91 irrespective of the conclusions that we have reached on the legality and validity of Rule 10A. Insofar as order dated 30th November, 2012 passed by the Tribunal is concerned, that clearly proceeds on the applicability of Rule 10A to the transactions and dealings noted therein. Therefore, it would be open for the petitioner to urge in other and future cases that the relationship being not covered by Rule 10A it has no applicability. In other words, they can urge that Rule 10A cannot b .....

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wn a general rule as to when can the process be said to be a jobwork and undertaken on behalf of a person named as principal manufacturer from any inputs or goods supplied by him or by any other person authorised by him. The contentions on the applicability of Rule 10A thus can be canvassed irrespective of Rule 10A being upheld by us. - Writ petition dismissed - However, levy of penalties set aside - Decided partly in favour of assessee. - Writ Petition No. 4427 of 2013, Writ Petition No. 9627 o .....

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been heard together and are disposed of by this common judgment. 2. Rule. Respondents waive service. By consent of parties, Rule made returnable forthwith. 3. The writ petitions raise a common question of legality and validity of Rule 10A of The Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 (for short "Valuation Rules, 2000"). The challenge is that this Rule is ultra vires being beyond the legislative competence of the Parliament. It is not subject ma .....

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October, 2009 of the Central Board of Excise and Customs and the final order dated 30th November, 2012 of the Customs, Excise and Service Tax Appellate Tribunal. 5. The facts necessary to appreciate the above challenge are that the petitioners engage themselves, inter-alia, in the activity of building body on the motor vehicle chassis supplied by various chassis manufacturers such as M/s. Tata Motors Limited, M/s. Ashok Leyland Limited etc. at their various factories located across the country. .....

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985. The petitioners avail of input or cenvat credit of duty paid on such chassis. For the purpose of building body, the petitioners purchase various raw materials on their own account and undertake this body building work. Thereafter, the said body is fitted on to the chassis and it is either used as vehicle for transportation of goods or passengers. In other words, the body built by the petitioners on the chassis makes the vehicle either a bus or a truck. The factory, plant and machinery and l .....

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e cost of body building and their profit. 7. The respondents have treated the petitioner alone as manufacturer of complete motor vehicles. They hold the registration certificate from the respondents as a manufacturer of motor vehicles under Rule 7 of the Central Excise (No.2) Rules, 2001. The excise duty on all these vehicles is being collected by the respondents from the petitioners. They also file returns for this purpose. The petitioners, therefore, state that their activity falls under secti .....

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to 1st April, 2007. 9. Post 1st April, 2007, the respondents started computing the assessable value of the complete vehicle for the purpose of payment of excise duty but that was not on the footing or basis indicated above. In other words, according to the respondents, the assessable value of the complete vehicle cleared by the petitioners on which they were liable to pay excise duty should be based on the price at which M/s. Tata Motors Limited sold the vehicle to their buyers. This insistence .....

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the Central Excise Act, 1944. Thus, for the position prior to 1st April, 2007, the petitioners rely on the averments in paragraph 5.1 to paragraph 9.2 of the writ petition. For the period consequent to the amendment to the rules and introduction of Rule 10A, our attention is invited to paragraph 9.3 onwards of the Memo of the writ petition. Our attention is also invited to a circular which has been issued on 20th October, 2009 by the Central Board of Excise and Customs clarifying that Rule 10A .....

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ioners filed their responses and demonstrated as to how Rule 10A cannot be invoked and applied to them. However, their contentions were rejected by the respondent No.2 who passed the order-in-original dated 17th April,. 2008, holding that petitioners are job-workers and goods manufactured by them viz. the body is laid on the chassis supplied by M/s. Tata Motors Limited and this activity has to be brought within the purview of Rule 10A of the Rules noted above. He, therefore, confirmed a demand o .....

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n all these orders to eventually urge that the authorities, including the Appellate Tribunal, would not be in a position to consider the legality and validity of the rule in question. They are, therefore, constrained to approach this Court challenging the validity of Rule 10A and the final order of the Tribunal in about four appeals which are more particularly referred to in paragraphs 25, 26 and 27 of the Memo of the writ petition. 13. Thus, it is in the above background, this writ petition has .....

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he customers and manufactures goods, it is not job-work. It could be job-work only if the worker adds from his end only minor items or minor or incidental items. In that regard, he relies upon the judgment of the Hon'ble Supreme Court rendered in the case of Preventive Engineering (India) Limited vs. Commissioner of Central Excise, 1994 (73) Excise Law Times, Pg. 497. 15. Mr. Sridharan has also invited our attention to the explanation to Rule 10A which defines the term "job-work". .....

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without admitting that Rule 10A governs the case of the petitioners, that Rule will have to be interpreted in the light of the settled legal position. The settled position being when the excisable goods are manufactured from any inputs / goods supplied by the principal manufacturer, then alone Rule 10A can be invoked. He relied upon the Blacks' Law Dictionary for the meaning of the term "value". He also relies upon P. Ramanatha Iyer's Advanced Law Lexicon. Thus, this is another .....

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be treated as 'all'. He relies upon Law Lexicon with Legal Maxims and the judgments of the Hon'ble Supreme Court to support this meaning of the word 'any'. Mr. Sridharan reiterates that the principal manufacturer M/s. Tata Motors Limited in this case has only supplied chassis and, therefore, the body which is manufactured by the petitioners cannot be said to be with the aid and assistance of any inputs or raw material from M/s. Tata Motors Limited. 17. The third limb of the .....

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esent case, there is no such deal because petitioners are manufacturing the body which is then fitted on the chassis so as to make it a bus or a truck and this activity is undertaken for various persons. Therefore, it is not the price, which the brand name holders affix on the vehicle, command in the market on which the value should be determined. The Hon'ble Supreme Court, according to Mr. Sridharan, has held that excise duty is payable on the market value fetched by manufacturers and such .....

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Mr. Sridharan also made an attempt to distinguish the expression "on behalf of" "for, and on behalf of". According to Mr. Sridharan "on behalf of" is a narrow expression and different from "for, and or behalf of". In that regard, he invites our attention to sections 65(19)(v) of the Finance Act, 1994. 18. Mr. Sridharan submits that Rule 10A came to be introduced after the report of the Committee called Dutt-Majumder Committee. The report makes several sug .....

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ipartite arrangement emerges or is contemplated. For application of Rule 10A, there should be the principal manufacturer, the job-worker and an outsider. In the circumstances where only two parties are involved, Rule 10A has no application. Mr. Sridharan submits that the interpretation by the respondents on Rule 10A renders the phrase "on behalf of" redundant. If that interpretation is admitted, then, both situations viz. a job-worker manufacturing goods on behalf of the principal and .....

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ker is carried out. That interpretation ignores the expression "on behalf of" and makes it redundant. The respondent / Revenue cannot rewrite or redraft the rule by such an interpretation is the submission. 19. The final submission on interpretation of Rule 10A is that it should be strictly construed. Mr. Sridharan submits that Rule 10A forms part of a taxing statute. It is a provision relating to levy of tax. It is a provision directly affecting the burden or quantum of tax payable by .....

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t the price charged by the manufacturer forms the measure of tax. He relies upon the judgments of the Hon'ble Supreme Court to urge that the assessable value of goods exigible to excise duty in terms of section 4 is the price which the manufacturer has charged to his buyer. As far as the measure of levy in the case of job work transaction is concerned, Mr. Sridharan submits that several judgments of the Hon'ble Supreme Court clarify the position that a provision enacting measure of tax o .....

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thereto to urge that the various items included in the definition of the term "transaction value" in section 4(3)(d) as forming part of the value of excisable goods are in fact the expenses incurred by the manufacturer. They came to be disallowed by the Hon'ble Supreme Court and, therefore, he submits that it is the price actually paid or payable by the buyers by reason of or in connection with sale which could be deemed as the transaction value as per this definition. In the writt .....

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oods. Rule 9 is provided to prevent evasion of tax since it is presumed that relationship may influence the measure i.e., price. The measure has been enhanced by Rule 9 on the theory that power to tax includes power to avoid evasion of tax. Even here, there are case laws holding that where the related person is able to show that price has not been influenced by the relationship, then adopting related persons sale price would be incorrect. 21. Mr. Sridharan submits that the excise duty is leviabl .....

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customer of the job worker sells the goods to its customer (of customer). Hence, Rule 10A is in contravention of Entry 84 of Union List, Section 3(1) and Section 4 of Central Excise Act, 1944. 22. Mr. Sridharan further submitted that the excise duty is leviable on the value of the manufactured goods. However, for administrative convenience, the sale price of the manufactured goods has been adopted as the value of the manufactured goods for the purpose of levy of excise duty though this value wou .....

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le 10A is beyond the subject of the levy, since it ceases to have nexus with the essential character of the levy. 23. The sale price of the finished goods charged by the principal manufacturer would naturally include the selling expenses and profits of the principal manufacturer. A measure which demands duty on the selling expenses and profits of the principal manufacturer would be divorced from the fundamental concept of the subject of the levy. 24. He, therefore, submits that the machinery pro .....

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anufacturer" which would be decisive. The nomenclature "principal manufacturer" is misleading. The correct nomenclature should be "customer" or the "job-worker". The raw material supplier cannot be termed as the manufacturer for the purpose of measuring the excise duty. An excise duty is not concerned with the transaction between the raw material supplier and his customer. The subject matter of levy is concerned with the transaction between the jobworker and th .....

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ial supplier is escaping the levy. Such a notion cannot be entertained nor can the interpretation of Rule 10A be founded on this because the measure of tax cannot be extended to include expenses and profit margin of the raw material supplier. Further, manufacture on job work basis is not an artificial or contrived device. It is the prevalent practice in the world of commerce and industry. A job-worker may have expertise of manufacture but does not possess the financial strength to source the raw .....

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facturer and the price at which the principal manufacturer is selling the goods then Rule 10A is difficult and impossible to implement. It is impractical and imperfect. He, therefore, submits that the Ministry of Law, Government of India, has rightly opined that Rule 10A cannot be sustained and may be vulnerable. It can be ultra vires the Act itself. 26. Mr. Sridharan submits and alternatively that Rule 10A can be saved only if it is applied in the case of agency and not where the transaction is .....

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e Law Times (J 444) (SC) (4) Union of India vs. Bombay Tyre International Limited, 1984 (1) SCC Pg. 467 (SC). (5) Pawan Biscuits Co. Ltd. vs. Commissioner of Central Excise, Patna, 2000 (120) Excise Law Times 24 (SC) (6) Ujagar Prints vs. Union of India 1988 (38) Excise Law Times, 535 (SC) (7) Rajasthan Chemists Association vs. State of Rajasthan, (2006) 147 Sales Tax Cases, Pg. 476 (Raj.) 28. On the other hand, Mr. Bhate and Mr. Mishra appearing on behalf of the respondents submit that there is .....

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on job-work basis. As per Note 5 of Chapter 87 of the Central Excise Tariff, building a body or fabrication or mounting or fitting of structures or equipment on the chassis falling under heading 8706 shall amount to manufacture of motor vehicles. The petitioners have received chassis with accessories supplied by M/s. Tata Motors Limited and other suppliers for the manufacture of dumpers / body built motor vehicles. Thus, the petitioners availed cenvat credit on the chassis supplied and received .....

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ion of Rule 10A. They rely on the fact that the petitioners contested the show cause notice and upto the Tribunal. Having lost in appeals they ought to have paid up the difference duty that is now recoverable. However, the writ petitions have been filed in this Court and for the first time, the above questions and issues have been raised. However, there is nothing illegal or invalid in application of Rule 10A because the petitioners are receiving the chassis from parties like M/s. Tata Motors Li .....

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job-work is manufacture and that is what is done by the petitioners for parties like M/s. Tata Motors Limited, then, they cannot claim that they are only selling the body. It is when the body is mounted on the chassis that it becomes a complete motor vehicle. It is that activity which is carried out and which is deemed as manufacture. The petitioners are not contending that they are supplying the body to M/s. Tata Motors Limited and others and these parties, in turn, get this body fitted on the .....

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s and particularly raised in the Memo of the writ petition and orally are untenable. The rule does not contravene either the parent Act nor does it go beyond the levy contemplated thereunder. It is also not ultra vires Articles 14 and 19(1)(g) of the Constitution of India. The petitioners cannot urge that Rule 10A is not applicable to them and at the same time challenge its validity. Eventually Rule 10A is the regulating rule for purpose of valuation of goods when manufactured by job-workers on .....

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India (2) 2014 (310) E.L.T. Pg.833 (Guj.) Indsur Global Ltd. vs. Union of India 29. For properly appreciating the rival contentions it would be advantageous to refer to The Central Excise Act, 1944. 30. The Act was introduced during British times and it consolidates all the laws relating to central duties of excise and to the tax on salt in a single enactment. The earlier legislation is of pre-independence era. It is not necessary to burden this judgment with the statement of objects and reasons .....

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f Act, 1985, as being subject to a duty of excise and includes salt. The term 'manufacture' is defined in clause (f) of section 2 and it reads as under: "(f) "manufacture" includes any process - (i) incidental or ancillary to the completion of a manufactured product; (ii) which is specified in relation to any goods in the section or Chapter notes of [The First Schedule] to the Central Excise Tariff Act, 1985 (5 of 1986) as amounting to manufacture; or (iii) which in relati .....

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ds, but also any person who engages in their production or manufacture on his own account;" 31. A bare perusal of this definition would indicate as to how the term or word is defined in an inclusive manner so as to include any process incidental or ancillary to the completion of a manufactured product. Sub-clause (iii) to clause (f) of section 2 came to be substituted by Act 32 of 2003 so as to include in relation to the goods specified in the third schedule, packing or re-packing of such g .....

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their production or manufacture on his own account. 32. The term "sale" is defined in clause (h) of section 2. In such circumstances, we must refer to Chapter II which is entitled Levy And Collection of Duty. Section 3 sub-section (1) says that there shall be levied and collected in such manner as may be prescribed, a duty of excise to be called the central value added tax on all excisable duty goods which are produced or manufactured. We need not advert to the rest of the sub-sections .....

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ot related and the price is the sole consideration for the sale, be the transaction value; (b) in any other case, including the case where the goods are not sold, be the value determined in such manner as may be prescribed. Explanation. - For the removal of doubts, it is hereby declared that the price-cum-duty of the excisable goods sold by the assessee shall be the price actually paid to him for the goods sold and the money value of the additional consideration, if any, flowing directly or indi .....

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xcise under this Act and includes his agent; (b) persons shall be deemed to be "related" if - (i) they are inter-connected undertakings; (ii) they are relatives; (iii) amongst them the buyer is a relative and a distributor of the assessee, or a sub-distributor of such distributor; or (iv) they are so associated that they have interest, directly or indirectly, in the business of each other. Explanation. - In this clause - (i) "inter-connected undertakings" means two or more un .....

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te exercises control over the other body corporate in any other manner; (D) where one undertaking is owned by a body corporate and the other is owned by a firm, if one or more partners of the firm, - (I) hold, directly or indirectly, not less than fifty per cent of the shares, whether preference or equity, of the body corporate; or (II) exercise control, directly or indirectly, whether as director or otherwise, over the body corporate; (E) if one is owned by a body corporate and the other is own .....

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management,- (i) if one such body corporate exercises control over the other or both are under the control of the same group or any of the constituents of the same age group; or (ii) if the managing director or manager of one such body corporate is the managing director or manager of the other; or (iii) if one such body corporate holds not less than one-fourth of the equity shares in the other or controls the composition of not less than one fourth of the total membership of the Board of direct .....

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ile holding (whether by themselves or together with their relatives) not less than onefourth of the equity shares in one such body corporate also hold (whether by themselves or together with their relatives) not less than onefourth of the equity shares in the other; or (vi) if the same body corporate or bodies corporate belonging to a group, holding, whether independently or along with its or their subsidiary or subsidiaries, not less than one-fourth of the equity shares in one body corporate, a .....

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rate belonging to a group, or jointly by such individual or individuals and one or more of such bodies corporate; or (ix) if the directors of one such body corporate are accustomed to act in accordance with the directions or instructions of one or more of the directors of the other, or if the directors of both the bodies corporate are accustomed to act in accordance with the directions or instructions of an individual, whether belonging to a group or not. Explanation II.- If a group exercises co .....

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mining whether or not two or more bodies corporate are under the same management, the shares held by financial institutions in such bodies corporate shall not be taken into account. Explanation V.- For the purposes of this clause, "group" means a group of - (i) two or more individuals, associations of individuals, firms, trusts, trustees or bodies corporate (excluding financial institutions), or any combination thereof, which exercises, or is established to be in a position to exercise .....

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porate, means- (i) a relative of such director, and includes a firm in which such director or his relative is a partner; (ii) any trust of which any such director or his relative is a trustee; (iii) any company of which such director, whether independently or together with his relatives, constitutes one-fourth of its Board of directors; (iv) any other body corporate, at any general meeting of which not less than one-fourth of the total number of directors of such other body corporate are appoint .....

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ative" shall have the meaning assigned to it in clause (41) of section (2) of the Companies Act, 1956 (1 of 1956); (c) "place of removal" means - (i) a factory or any other place or premises of production or manufacture of the excisable goods; (ii) a warehouse or any other place or premises wherein the excisable goods have been permitted to be deposited without payment of duty; (iii) a depot, premises of a consignment agent or any other place or premises from where the excisable g .....

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e buyer is liable to pay to, or on behalf of, the assessee, by reason of, or in connection with the sale, whether payable at the time of the sale or at any other time, including, but not limited to, any amount charged for, or to make provision for, advertising or publicity, marketing and selling organization expenses, storage, outward handling, servicing, warranty, commission or any other matter; but does not include the amount of duty of excise, sales tax and other taxes, if any, actually paid .....

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e consideration for the sale, be the transaction value. Clause (b) of sub-section (1) of section 4 deals with a case falling in clause (a) thereof. In such cases and if the goods are not sold the value shall be determined in such manner as may be prescribed. By sub-section (2) it has been clarified that the provisions of section 4 shall not apply in respect of any excisable goods for which a tariff value has been fixed under sub-section (2) of section 3. Mr. Sridharan would submit that for our p .....

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emises wherein the excisable goods have been permitted to be deposited without payment of duty and a depot, premises of a consignment agent or any other place or premises where the excisable goods are to be sold after their clearance from the factory. Thus, place of removal means a place from where goods are removed. The "transaction value" is defined in clause (d) to mean the price actually paid or payable for the goods when sold and includes the amount charged as price, any amount th .....

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e on each removal thereof shall be the value in cases covered by clause (b) of sub-section (1) of section 4, the manner of determination whereof as maybe prescribed. 34. It is in pursuance of this provision that The Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, have been framed. 35. It has not been disputed before us that there is a power to frame such rules. If any reference is required to be made, it would be sufficient if one has a look at section 37 fallin .....

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e circumstances in which and the conditions subject to which such discount is to be so excluded. It is in terms of this power that the Valuation Rules, 2000, have been framed. Sub-clause (b) of Rule 2 of the Valuation Rules, 2000 defines the term "Normal transaction value" to mean the transaction value at which the greatest aggregate quantity of goods are sold. The term "value" is defined in Rule 2(c) to mean the value referred to in section 4 of The Central Excise Act, 1944. .....

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djustment on account of the difference in the dates of delivery of such goods and of the excisable goods under assessment, as may appear reasonable. Rule 5 which has been substituted by the Ministry of Finance Notification No.11/2003 dated 1st March, 2003, deals with the situation where the excisable goods are sold in the circumstances specified in clause (a) of sub-section (1) of section 4 of the Act, except the circumstances in which the excisable goods are sold for delivery at a place other t .....

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aggregate of such transaction value and the amount of money value of any additional consideration flowing directly or indirectly from the buyer to the assessee. There are explanations to Rule 6, but which only indicate as to how the transaction value by a deeming fiction is determined in the circumstances referred by Rule 6. Rule 7 deals with a situation where the excisable goods are not sold by the assessee at the time and place of removal but are transferred to a depot, premises of a consignme .....

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ment. Thus, we find a situation where valuation of excisable goods for purpose of charging a duty of excise is to be determined on each removal of the goods. In cases covered by clause (a) where the goods are sold by the assessee for delivery at the time and place of removal and the assessee and the buyer are not related and the price is the sole consideration for the sale, be the transaction value. The cases which are covered by Rules 5, 6 and 7 of the Valuation Rules are thus referable to clau .....

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ods are sold by the assessee to or through a person who is related in the manner specified in either of sub-clause (ii), (iii) or (iv) of clause (b) of sub-section (3) of section 4 of the Act, then, the value of such goods shall be the normal transaction value at which these are sold by the related person at the time of removal, to buyers who may not be related person or where such goods are not sold to such buyers but to buyers being related person, who sell such goods in retail. The case of sa .....

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ufacturer and the buyer of the goods are not related and the price is the sole consideration for the sale, the value of the excisable goods shall be the transaction value of the said goods sold by the principal manufacturer; (ii) in a case where the goods are not sold by the principal manufacturer at the time of removal of goods from the factory of the job-worker, but are transferred to some other place from where the said goods are to be sold after their clearance from the factory of job-worker .....

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g rules, wherever applicable, shall mutatis mutandis apply for determination of the value of the excisable goods; Provided that the cost of transportation, if any, from the premises, wherefrom the goods are sold, to the place of delivery shall not be included in the value of excisable goods. Explanation. - For the purposes of this rule, job-worker means a person engaged in the manufacture or production of goods on behalf of a principal manufacturer, from any inputs or goods supplied by the said .....

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We do not deem it necessary to enter into the debate and which has been initiated by Mr. Sridharan by relying on the ordinary and normal connotation of the words "on behalf of" and the difference between these words and the words "for, and on behalf of". Suffice it to state that we do not think that when the Legislature employs the words "principal manufacturer" they are either surplusage or a misnomer. The very position of a job-worker as highlighted by Mr. Sridhar .....

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uct or finished product is taken over by such entity who sells it in the market. Apart from division of labour, this arrangement sub-serves the commercial interests of both. A work or a job undertaken by somebody other than who sells it saves time, cost and energy. It also means that the one who manufactures or produces the excisable goods on job-work basis does not have to bother about their sale in the market. That is a function undertaken by either a known entity in the market or the one who .....

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manufacturer for delivery at the time of removal of the goods from the factory of the job-worker and where the principal manufacturer and buyer of the goods are not related and the price is the sole consideration for the sale. Since the goods are sold by the principal manufacturer for delivery at the time of removal of the goods from the factory of the job-worker and the other condition being fulfilled the value of the excisable goods is taken to be the transaction value of the said goods sold b .....

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be the normal transaction value of such goods sold from such other place at or about the same time and where the goods are not sold at or about the same time, at the time nearest to the time of removal of the said goods from the factory of the job-worker. If the goods are not sold by the manufacturer at the time of removal of the goods from the factory of the job-worker then this clause (ii) applies. That also applies when the goods are transferred to some other place from where they were to be .....

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om the inputs or goods supplied by the said principal manufacturer or by any other person authorised by him. 39. We at once clarify that we do not wish to conclude the issue as to in which cases Rule 10A would apply and what could be termed as a job-work. That would depend upon the facts and circumstances of each case. The applicability of the rule would depend upon the position of the person manufacturing or producing excisable goods on behalf of somebody and with the inputs or goods supplied b .....

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o raise this at an appropriate stage in future and before an appropriate forum. 40. However, Mr. Sridharan was fair to point out before us during the course of his detailed and lengthy arguments that the factual averments in the writ petition could be taken as the basis for determining the larger or broader question of legality and validity of Rule 10A. In other words, he submits that the fact that petitioners are challenging the vires of Rule 10A is enough to indicate that their case would fall .....

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dharan submits that we should proceed for the present petition and the dealings and transactions referred therein on the footing that the petitioners are covered by Rule 10A of the Valuation Rules. It is on these premises and foundation that we have proceeded. 41. Before we analyse the rule further, it would be advantageous to refer to the settled principles which have to be applied for determining the larger issue. In the case of Gujarat Ambuja Cements Limited & Anr. vs. Union of India and .....

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of the Taxing Authority a duty can be imposed at the stage which the authority finds to be convenient and the most effective whatever stage it may be. The Central Government is therefore legally competent to evolve a suitable machinery for collection of the service tax subject to the maintenance of a rational connection between the tax and the person on whom it is imposed. By Sections 116 and 117 of the Finance Act, 2000, the tax is sought to be levied from the recipients of the services. They c .....

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the consignee was challenged on the ground that the consignee had nothing to do with the manufacture or production of the coal. Negativing this submission this Court in R.C. Jall v. Union of India, AIR 1962 SC 1281, 1286 said :- "The argument confuses the incidence of taxation with the machinery provided for the collection thereof". 37. In Rai Ramakrishna (supra) the tax under Entry 56 of List II was held to be competently levied on the bus operators or bus owners even though the obje .....

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eme Court reiterated the principles which govern the interpretation of a charging section or provision and the machinery provision. A measure of tax cannot be equated and confused with the charge or levy of tax. The Hon'ble Supreme Court has emphasised that in matters of computation and calculation of tax, there is more flexibility and latitude in the Legislature. In this regard, the following paragraph of this judgment is extremely relevant : "23. Section 9 is not the beginning and end .....

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arging provision and the computation provision, though placed in two parts of the enactment, shall have to be read together as constituting one integrated provision. The charging provision and the computation provision do differ qualitatively. In case of conflict, the computation provision shall give way to the charging provision. In case of doubt or ambiguity the computing provision shall be so interpreted as to act in aid of charging provision. If the two can be read together homogeneously the .....

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rpreting Rule 10A. When we consider the nature of the tax and its character, we cannot forget that excise duty is a duty on manufacture and production of goods. That the comprehensive definition of the term "manufacture" so as to include all processes resulting in production or manufacture of excisable goods would demonstrate as to how even the job-work had to be termed as production or manufacture of goods. Eventually, the petitioners do not dispute that the job or wok carried out by .....

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indicates as to how the duty of excise is charged on any excisable goods with reference to their value. The value on each removal of the goods shall, in cases covered by clause (a) of subsection (1) of section 4 shall be the transaction value. In such case, the goods are sold by the assessee for delivery and at the time and place of the removal. If they are not so sold, then, the cases falling in that category are covered by clause (b) of sub-section (1) of section 4. That category also includes .....

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of such goods. Therefore, the transaction value denotes the value of the goods for purpose of charging of duty of excise and where the goods are not sold and other cases, the value would have to be determined in terms of the rules. We have referred to each rule falling in Chapter II of the Valuation Rules, 2000, together with the definition of the term "normal transaction value" and "value" for the purpose of emphasizing that in all cases, it is the price and that is apparen .....

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anufacturer for delivery at the time of removal of the goods from the factory of the job-worker and the principal manufacturer and the buyer of the goods are not related and the price is the sole consideration then it is the transaction value which should be the value of excisable goods. In cases where the goods are not sold by the principal manufacturer at the time of removal of the goods from the factory of the job-worker, but are transferred to some other place and within the meaning of claus .....

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ted Rule 10A. The object and purpose of introducing or inserting it is apparent if one peruses the proviso and explanation to Rule 10A. The proviso clarifies that the cost of transport, if any, from the premises wherefrom the goods are sold to the place of delivery shall not be included in the value of the excisable goods. The explanation denotes as to how the term "job-worker" has to be understood and throughout this rule by the Legislature. If the job-worker means a person engaged in .....

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petitioners charge for the job-work to M/s. Tata Motors Limited. For the purpose of computation or calculation of the duty liability of the parties like the petitioners there is nothing erroneous if the Legislature takes into consideration and account the price at which the principal manufacturer sells the product or goods to the buyer. That is nothing but a measure of the tax. In other words, that is how the tax has to be computed and measured. Such a provision does not alter or change the char .....

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in the case of Dugar Electronics vs. Collector of Central Excise, Calcutta reported in AIR 2003 SC 716. In that case, in absence of a Rule like 10A, the transaction value as disclosed and declared by a party like the petitioners does not represent "full commercial value". In this behalf, following paragraphs of this judgment are relevant for they indicate why Rule 10A was introduced : "2. The assessee is the manufacturer of tape recorders in the brand name of 'Philips'. M .....

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ssessee resulted in an element of consideration passing from Pieco to the assessee. The Tribunal noticed that the assessee was entitled to certain deductions which were not allowed to it, and, for that purpose, it remanded the case to the adjudicating authority. Having so done, the Tribunal fixed the price of the goods at the rate at which Pieco (Philips) sold it to its dealers. Aggrieved by these two findings of the Tribunal, the assessee has come up in appeal to this Court. 3. Mr. Vikram Nanka .....

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of the Tribunal that the transaction does not represent 'full commercial value'. 4. Learned Counsel further contends that fixation of assessable value by the Tribunal at the rate at which Pieco sold the goods to its dealers, is not justified. Having heard Mr. Ganguli, learned Senior Counsel for the respondent, we are of the view that the complaint made by the appellant is justified. No provision is brought to our notice under which the price charged by the buyer to its dealer can be tak .....

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excisable goods with reference to value, such value shall, subject to the other provisions of this section, be deemed to be (a) the normal price thereof, that is to say, the price at which such goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and place of removal, where the buyer is not a related person and the price is the sole consideration for the sale: Provided that (i) where, in accordance with the normal practice of the wholesa .....

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or at a price, being the maximum, fixed under any such law, then, notwithstanding anything contained in clause (iii) of this proviso, the price or the maximum price, as the case may be, so fixed, shall, in relation to the goods so sold, be deemed to be the normal price thereof; (iii) where the assessee so arranges that the goods are generally not sold by him in the course of wholesale trade except to or through a related person, the normal price of the goods sold by the assessee to or through s .....

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ermined in such manner as may be prescribed. (2) to (4) xxx xxx xxx" 5. In view of the submissions of learned Counsel for the respondent that the appellant itself has stated that clause (a) of sub-section (1) of Section 4 does not apply, the only provision under which the price can be fixed is clause (b) of sub-section (1) of Section 4 of the Act. That could be done in accordance with the Central Excise (Valuation) Rules, 1975. From a perusal of the order under challenge, it does not appear .....

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of law." 45. We do not see how and merely because the Legislature devises a mode which reflects full commercial value that Rule 10A falls foul of the mandate of Articles 14 and 19(1)(g) of the Constitution of India or travels beyond sections 3 and 4 of the parent Act. There is no restriction on the fundamental right to carry on the business of manufacture of goods. Once we understand the nature of the levy and then read all the relevant provisions of the Act together and harmoniously with .....

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) or clause (ii) of Rule 10A, all the provisions of the foregoing rules viz. rules earlier to Rule 10A wherever applicable shall mutatis mutandis apply for determination of the value of excisable goods. Therefore, Rule 10A is a rule enabling determination of the value of excisable goods and hence cannot be read as a stand-alone or isolated provision. It would have to be read together and harmoniously with other rules so also sections 3 and 4 of the Central Excise Act, 1944. So read, there is nei .....

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is Hon'ble Supreme Court. In paragraphs 24 to 29 and in the context of a challenge to the constitutional validity of section 116 and 117 of the Finance Act, 2000, section 158 of the Finance Act, 2003, by which the decision of the Hon'ble Supreme Court in the case of Laghu Udyog Bharati & Anr. vs. Union of India & Ors. (1999) 6 SCC 418, striking down Rule 2(d)(1)(xii) and (xvii) of the Service Tax Rules, 1994 (as amended in 1997) was sought to be overcome, and in dealing with such .....

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pra) that there is a complete and careful demarcation of taxes in the Constitution and there is no overlapping as far as the fields of taxation are concerned. This mutual exclusivity which has been reflected in Article 246(1) means that taxing entries must be construed so as to maintain exclusivity. Although generally speaking a liberal interpretation must be given to taxing entries, this would not bring within its purview a tax on subject-matter which a fair reading of the entry does not cover. .....

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ent by resort to the residuary power, the legislative incompetence of the State legislature must be clearly established. Entry 97 itself is specific in that a matter can be brought under that Entry only if it is not enumerated in List II or List III and in the case of a tax if it is not mentioned in either of those Lists". 26. In that case Section 3(3) of the Punjab Passengers and Goods Taxation Act, 1952 was challenged by transport operators. The Act provided for the levy of the tax on pas .....

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ighways would fall directly and squarely within Entry 56 of List II. It was said that the State played a role in the maintenance of the national highway and there was sufficient nexus between the tax and passengers goods carried on the national highway to justify the imposition. 27. The writ petitioners in this case have, relying on this judgment, argued that the Act falls squarely within Entry 56 of List II and, therefore, could not be referred to Entry 97 of List I. We do not agree. 28. There .....

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of List II, or a tax on animals and boats under Entry 58 List II or on a taxable event such as manufacture of goods under Entry 84 of List-I, import or export of goods under Entry 83 of List-I, entry of goods under Entry 52 of List II or sale of goods under Entry 54 List II to name a few. Theoretically, of course, as we have held in Godfrey Phillips India Ltd. v. State of U.P. and others, 2005 SCALE Page 367, ultimately even a tax on goods will be on the taxable event of ownership or possession .....

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Entry 56 of the Second List refers to taxes on goods and passengers carried by road or on inland waterways. It is clear that the State Legislatures are authorized to levy taxes on goods and passengers by this entry. It is not on all goods and passengers that taxes can be imposed under this entry; it is on goods and passengers carried by road or on inland waterways that taxes can be imposed. The expression "carried by road or on inland waterways" is an adjectival clause qualifying goods .....

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ually, it would be inexpedient, if not impossible, to recover the tax directly from the passengers and so, it would be expedient and convenient to provide for the recovery of the said tax from the owners of the vehicles themselves." (p.908) (See also: Sainik Motor Jodhpur v. The State of Rajasthan 1962 (1) SCR 517). 29. Having determined the parameters of the two legislative entries the principles for determining the constitutionality of a Statute come into play. These principles may briefl .....

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0; Kanan Devan Hills Produce v. State of Kerala (1972) 2 SCC 218). b) Where the encroachment is ostensibly ancillary but in truth beyond the competence of the enacting authority, the statute will be a colourable piece of legislation and constitutionally invalid (A.S. Krishna v. State of Madras (supra); A.B. Abdul Kadir v. State of Kerala (1976) 3 SCC 219, 232; Federation of Hotel and Restaurant v. Union of India (supra at p.651). If the statute is legislatively competent the enquiry into the mot .....

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. The provisions relating to service tax in the Finance Act, 1994 make it clear under Section 64(3) that the Act applies only to taxable services. Taxable services has been defined, as we have already noted, in Section 65(41). Each of the clauses of that sub section refers to the different kinds of services provided. Most of the taxable services cannot be said to be in any way related to goods or passengers carried by road or waterways. For example, Section 65(41)(g) provides for service rendere .....

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s transport operators has been provided under clause (j). (subsequently renumbered as clause (ma). These clauses read respectively as under :- "(j) in relation to service provided by a clearing and forwarding agent to a client, shall be the gross amount charged by such agent from the client for services of clearing and forwarding operations in any manner." "(ma) in relation to service provided by goods transport operator to a customer, shall be the gross amount charged by such ope .....

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)(j) and (ma) Chapter V of the Finance Act, 1994 do not seek to levy tax on goods or passengers. The subject matter of tax under those provisions of the Finance Act, 1994 is not goods and passengers, but the service of transportation itself. It is a levy distinct from the levy envisaged under Entry 56. It may be that both the levies are to be measured on the same basis, but that does not make the levy the same. As was held in Federation of Hotel and Restaurant Association of India etc. v. Union .....

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nsaction may involve two or more taxable events in its different aspects. But the fact that there is an overlapping does not detract from the distinctiveness of the aspects." (pg. 652-653) 33. Since service Tax is not a levy on passengers and goods but on the event of service in connection with the carriage of goods, it is not therefore possible to hold that the Act in pith and substance is within the States exclusive power under Entry 56 of List II. What the Act ostensibly seeks to tax is .....

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ice of Madhya Pradesh High Court, 13th Edition, 2012, the principle governing interpretation of a charging provision and a machinery provision has been explained and with reference to several decisions of the Supreme Court. At page 855, the learned author states the principles as under : "It must also be borne in mind that the rule of strict construction in the sense explained above applies primarily to charging provisions in a taxing statute and has no application to a provision not creati .....

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g. 59 Para 40] 48. It is not disputed before us that the rule which is termed as invalid and ultra vires the parent Act is incorporated and inserted in the Central Excise Valuation (Determination of Price of Excisable Goods) Amendment Rules, 2007. These rules, therefore, would not receive an interpretation and as strict as required to be placed on the charging sections. The learned author has also pointed out that the nature of the tax imposed by a statute has to be determined by examining the p .....

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& Ors., AIR 2005 SC 1646 had an occasion to consider the constitutional validity of the statutes levying cess on coal bearing land. The majority opinion and the minority views are to be found in a lengthy judgment but what is material for us is only the principles which have been summarized in paragraphs 33 and 135 of this judgment. "33. We now proceed to enter a deeper dimension in the field of tax legislation by considering the problem of devising the measure of taxation. This aspect .....

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vations therein. It has been long recognized that the measure employed for assessing a tax must not be confused with the nature of the tax. A tax has two elements; first, the person, thing or activity on which the tax is imposed, and secondly, the amount of tax. The amount may be measured in many ways; but a distinction between the subject-matter of a tax and the standard by which the amount of tax is measured must not be lost sight of. These are described respectively as the subject of a tax an .....

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r:- (1) In the scheme of the Lists in the Seventh Schedule, there exists a clear distinction between the general subjects of legislation and heads of taxation. They are separately enumerated. (2) Power of 'regulation and control' is separate the distinct from the power of taxation and so are the two fields for purposes of legislation. Taxation may be capable of being comprised in the main subject of general legislative head by placing an extended construction, but that is not the rule fo .....

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the distinction between the subject of a tax and the measure of a tax. (3) The nature of tax levied is different from the measure of tax. While the subject of tax is clear and well defined, the amount of tax is capable of being measured in many ways for the purpose of quantification. Defining the subject of tax is a simple task; devising the measure of taxation is a far more complex exercise and therefore the legislature has to be given much more flexibility in the latter field. The mechanism an .....

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for the Union to legislate and impose limitations on State's otherwise plenary power to levy taxes on mineral rights or taxes on lands (including mineral bearing lands) by reference to Entry 50 and 49 in List II and lay down the limitations on State's power, if it chooses to do so, and also to define the extent and sweep of such limitations. (5) The Entries in List I and List II must be so construed as to avoid any conflict. If there is no conflict, an occasion for deriving assistance fr .....

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ne of pith and substance, can an incidental trenching upon another field of legislation be ignored? (6) 'Land', the term as occurring in Entry 49 of List II, has a wide connotation. Land remains land though it may be subjected to different user. The nature of user of the land would not enable a piece of land being taken out of the meaning of land itself. Different uses to which the land is subjected or is capable of being subjected provide basis for classifying land into different identi .....

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land. So long as the tax is a tax on land by bearing such relationship with the land, it is open for the legislature for the purpose of levying tax to adopt any one of the well known modes of determining the value of the land such as annual or capital value of the land or its productivity. The methodology adopted, having an indirect relationship with the land, would not alter the nature of the tax as being one on land. (8) The primary object and the essential purpose of legislation must be disti .....

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intention of regulating and controlling the subject of the levy, cannot be said to have encroached upon the field of 'regulation and control' belonging to the Central Government by reason of the incidence of levy being permissible to be passed on to the buyer or consumer, and thereby affecting the price of the commodity or goods. Entry 23 in List II speaks of regulation of mines and mineral development subject to the provisions of List I with respect to regulation and development under t .....

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e field covered by Entries 52 and 54 would not like a magic touch or a taboo denude the entire field forming subject matter of declaration to the State Legislatures. Denial to the State would extend only to the extent of the declaration so made by Parliament. In spite of declaration made by reference to Entry 52 or 54,the State would be free to act in the field left out from the declaration. The legislative power to tax by reference to Entries in List II is plenary unless the entry itself makes .....

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ly secondary or incidental. (9) The heads of taxation are clearly enumerated in Entries 83 to 92B in List I and Entries 45 to 63 in List II. List III, the Concurrent List, does not provide for any head of taxation. Entry 96 in List I, Entry 66 in List II and Entry 47 in List III deal with fees. The residuary power of legislation in the field of taxation spelled out by Article 248 (2) and Entry 97 in List I can be applied only to such subjects as are not included in Entries 45 to 63 of List II. I .....

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h the States; the power to lay down limitations on exercise of such power, in the interest of regulation, development or control, as the case may be, is with the Union. This is the result achieved by homogeneous reading of Entry 50 in List II and Entries 52 and 54 in List I. So long as a tax or fee on mineral rights remains in pith and substance a tax for augmenting the revenue resources of the State or a fee for rendering services by the State and it does not impinge upon regulation of mines an .....

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cipal contention of the petitioners and do not find any merit in it, then, the petitioners cannot be permitted to argue anything contrary to the factual foundation or basis on which we have proceeded. This foundation or basis is laid in the writ petition itself. None of the factual aspects that we have noted have been taken by us from anywhere else, save and except the Memo of the writ petition and the written submissions. 51. We do not find that any assistance can be derived by Mr. Sridharan fr .....

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the value of an article for the purpose of excise levy must be determined by a reference exclusively to the manufacturing cost and the manufacturing profit of the manufacturer or should be represented by the entire wholesale price charged by the manufacturer. The wholesale price actually charged by the manufacturer consists of not merely his manufacturing costs and his manufacturing profits, but includes, in addition, a whole range of expenses and an element of profit arising between the comple .....

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aragraphs 8 to 14 of the decision in Union of India v. Bombay Tyre (supra) do not lay down any principle contrary to what we have followed and applied. We have always to bear in mind the principle that the measure adopted could not be identified with the nature of the tax. It is this very principle which we have applied and throughout. We follow and apply equally the principle that any standard which maintains a nexus with the essential character of the levy can be regarded as a valid basis for .....

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s manufactured have to be sold then the wholesale cash price is to be taken into consideration. How that wholesale cash price is to be determined is discussed in details and ultimately decided by the Hon'ble Supreme Court. We are, therefore, not referring to the further paragraphs which Mr. Sridharan relied upon, particularly those discussing as to what could be the meaning of the expression "related person". 53. We need not refer to the judgment in the case of M/s. Ujagar Prints v .....

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y 97 of List I of the VII Schedule to the Constitution of India, then, the principle laid down is whether the Union Parliament can legislate in cases where the topic of legislation is not falling in List II. If it is not falling then it is not necessary to go further or search for the field in List I. The above Articles and the Entry would enable the Court to arrive at the conclusion that the tax was within the legislative competence of the Legislature. 54. Then, Mr. Sridharan relied upon the ju .....

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that may take place in future at a price. It is this conclusion of the Supreme Court which is heavily relied upon and which is to be found in earlier cases as well. However, what the Hon'ble Supreme Court was concerned with is the correctness of the view taken by the Division Bench of the Rajasthan High Court, Jodhpur, holding that section 4A of the Rajasthan Sales Tax Act,1994, as introduced by the State Finance Act, 2004, was not legally sustainable to the extent that tax on first point sa .....

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t application was allowed. The Hon'ble Supreme Court concluded that the view taken by the Rajasthan High Court is correct. That was because though the determination of real income was held to be the statutory mandate, that is not fulfilled by taking into consideration the MRP or the method followed. Such is not the position before us inasmuch as the present case concerns the legality and validity of Rule 10A of the Valuation Rules, 2000, which prescribes a mode for determining the valuation .....

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r of grey cloth and he being the job worker, the clarification as sought has been given. This clarification has come in the backdrop of the applicability of the Central Excise Rules. The Civil Miscellaneous Petition for clarification was filed to seek a clarification as noted in the order. The Supreme Court clarified that the assessable value of the processed fabric would be the value of grey-cloth in the hands of the processor plus the value of job-work done plus manufacturing profit and manufa .....

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processing on job-work basis, if he gives a declaration to the processor as to what would be the price at which he would be selling the processed goods in the market then that would be taken by the Excise authorities as the assessable value of the processed fabric and excise duty would be charged to the processor on that basis provided that the declaration as to the price at which the trader would be selling the processed goods in the market only includes the price or deemed price at which the .....

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ncluded. We do not find how this clarification can assist the petitioners. This clarification rather supports our conclusion that the price at which the manufacturer sells the product could be the basis on which the excise duty can be computed. The valuation of excisable goods for purpose of computation of the excise duty, therefore, does not rule out this element. 56. In the above backdrop and in the light of our conclusion we do not think how other judgments which have been relied upon, partic .....

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at is dealt with by section 4(1)(a) is a case not covered by section 4(1)(b). We are really concerned with section 4(1)(b) and the Valuation Rules. 58. We have, therefore, no hesitation in rejecting Mr. Sridharan's argument that measure provided by Rule 10A is beyond the subject since it ceases to have nexus with the essential character of levy. We have established sufficiently in the foregoing paragraphs the nexus that Rule 10A has with the essential character of levy. In these circumstance .....

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ture" is defined in section 2(f) and we have already noted as to how that definition is worded and has been interpreted. Once the levy is on production or manufacture in India on all excisable goods, then, we do not see how this conclusion can be inferred. Similarly, we find that after section 4, section 4A has also been introduced and it is not as if valuation of excisable goods with reference to retail sale price is alien and completely to the nature or character of the levy. Eventually, .....

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ge this obligation and fulfill this duty irrespective of any understanding of the provision by the Government or Revenue officials. As held by the Hon'ble Supreme Court in B.K. Garad vs. Nashik Merchants Co-op. Bank Ltd., reported in AIR 1984 SC 192, that a view of law or a legal provision expressed by a Government Officer cannot afford reliable basis or even guidance in the matter of construction of a legislative measure. It is the function of the Court to construe legislative measures and .....

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the petitioners and M/s. Tata Motors Limited could not be presumed to be genuine. It could be, in a given case, a device to avoid payment of excise duty in terms of the rate set out in the schedule. Therefore, to plug the loopholes and to discourage such arrangements as would be not conducive to the recovery of the duty that a comprehensive and complete mode has been prescribed by the Rules. We cannot find any fault with the Rule if this is also one of the object sought to be achieved. 62. We ar .....

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investigations and enquiries incidental to the valuation, assessment and recovery of taxes can be made and there need not be a specific provision in that behalf. It is only in specific instances and wherein there are clear allegations that such enquiries and investigations would be held. That would not be necessitated on some vague complaint or a general grievance. In such circumstances, we do not see any merit in this grievance as well. 63. Finally, and in the light of the view that we have ta .....

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nd validity of Rule 10A. Insofar as order dated 30th November, 2012 passed by the Tribunal is concerned, that clearly proceeds on the applicability of Rule 10A to the transactions and dealings noted therein. Therefore, it would be open for the petitioner to urge in other and future cases that the relationship being not covered by Rule 10A it has no applicability. In other words, they can urge that Rule 10A cannot be invoked or has been erroneously and incorrectly invoked and applied to a given t .....

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are not on behalf of a person referred to as a principal manufacturer nor could the activity carried out be deemed as job-work also because a person engaged in the manufacture or production of goods has not obtained any inputs or goods from the principal manufacturer or by any person authorised by him. In other words, no inputs or goods being supplied by the said principal manufacturer or any other person authorised by him the activity cannot be termed as job-work within the meaning of the expla .....

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