TMI Blog2017 (10) TMI 1295X X X X Extracts X X X X X X X X Extracts X X X X ..... in addition to the duties of excise, sales tax and other taxes which may be payable. Though no specific formula is provided for providing such abatement and it may be that in a given case the abatement that the Government may permit under the notification may not entirely neutralize of such costs, the question is would that by itself render the provision unconstitutional? The concept, that the duty of excise is to be charged on manufacturing costs and manufacturing profits is all too well settled and recognized. However, its application to every case may have a different element. In case of Cibatul Limited. P.O. Atul (supra) the Division Bench of this Court considered the constitutionality of an amendment in section 4 of the Act through which the Parliament introduced the concept of a related person for charging of duty of excise. In case the seller and buyer were found to be related persons, as per the definition contained therein, the excise duty would be charged not on the price which the manufacturer charges his buyer but on the price which the buyer would charge from his ultimate customers - The Court referred to large number of judgements of Supreme Court to observe that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We may record the pleadings from Special Civil Application No. 14068 of 2007. The petitioner has challenged the vires of section 4A of the Central Excise Act, 1944 ['the Act' for short]. According to the petitioner, the said provision is beyond the legislative competence of Union Legislature. The petitioners have also challenged an order-in-original dated 21.05.2007. These challenges arise in following background: 2. Petitioner No. 1 is a partnership firm and is engaged in the business of manufacture of patent or proprietary medicaments which are excisable goods falling under Chapter XXX of the Central Excise Tariff Act. Earlier, the petitioners would pay excise duty on such goods on ad valorem basis in terms of section 4 of the Act. The Parliament inserted section 4A to the Act w.e.f. 14.05.1997 enabling the Central Government to collect central exercise duty on valuation of the specified excisable goods with reference to retail sale price. The Central Government, in exercise of powers under section 4A, has been issuing various notifications from time to time notifying the goods to which such assessment on retail sale price would apply. By a notification No. 2 of 2005 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The question of granting deduction on such quantity based discount while calculating duty under section 4A of the Act came up for consideration before the Bangalore Bench of the CESTAT in case of Vinayak Mosquito Coil Manufacturing Company reported in 2004 (174) ELT 107. The Tribunal held that while assessing duty on MRP basis the mosquito coils supplied by the manufacturer at the rate of one coil for every twelve coils, the purchase value of such free supply would not be includible in the assessable value of goods. The petitioners pointed out that the department's appeal against the judgement of the Tribunal in case of Vinayak Mosquito Coil Manufacturing Company was dismissed by the Supreme Court. 5. The petitioners were also following the same practice of allowing discount by way of free goods on specified quantity of purchases. Both are shown separately in the accounts and clearances. The petitioner and other similar manufacturers, under letter dated 17.06.2005 informed the Excise authorities that they would be claiming deduction of quantity discount by way of free goods. The department, however, disputed such position and issued a show-cause notice dated 04.07.2006 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ircumstances therefore, the duty can be levied under section 4A of the Act. This challenge is specifically raised in Special Civil Applications No. 1030 of 2008, 28540 of 2007 and 28490 of 2007. 9. Before recording rival submissions, we may refer to the relevant statutory provisions. Section 3 of the Central Excise Act, 1944 is the charging section for levy of central excise duty. Subsection (1) of section 3 authorizes the Central Government to levy and collect duty of central excise in such manner as may be prescribed on goods which are produced or manufactured in India at the rate set forth in the first schedule to the Central Excise Tariff Act, 1985 and the special duty of excise in addition to basic excise duty as specified under second schedule to the Central Excise Tariff Act, 1985. Section 4 of the Central Excise Act pertains to valuation of excisable goods for the purpose of charging of duty of excise. As per the provision contained prior to its amendment w.e.f 01.07.2000 the duty of excise would be computed on the value of the goods which would be the normal sale price i.e. the price on which such goods are ordinarily sold by the assessee to a buyer in the course of who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r or under any other law for the time being in force, to declare on the package thereof the retail sale price of such goods, to which the provisions of sub-section (2) shall apply. (2) Where the goods specified under sub-section (1) are excisable goods and are chargeable to duty of excise with reference to value, then, notwithstanding anything contained in section 4, such value shall be deemed to be the retail sale price declared on such goods less such amount of abatement, if any, from such retail sale price as the Central Government may allow by notification in the Official Gazette. (3) The Central Government may, for the purpose of allowing any abatement under sub-section (2) take into account the amount of duty of excise, sales tax and other taxes, if any, payable on such goods. [(4) Where any goods specified under sub-section (1) are excisable goods and the manufacturer- (a) removes such goods from the place of manufacture, in without declaring the retail sale price of such goods on the packages or declares a retail sale price which is not the retail sale price as required to be declared under the provisions of the Act, rules or other law as referred to in sub- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ogy Act, 2009 w.e.f. 01.04.2004. Under sub-section (2) of section 4A upon such notification, duty would be charged on such goods on the basis of MRP less the abatement allowed. 13. The Central Government in exercise of powers under section 37 of the Central Excise Act framed Central Excise Valuation (Determination of price of excisable goods) Rules, 2000 ['Valuation Rules of 2000' for short]. Rule 2 of the Rules which contains definitions defines the term value in clause (c) as to mean the value referred to in section 4 of the Act. Chapter 2 of the Rules pertains to determination of value. Rule 4 contained in the said chapter reads as under: RULE 4. The value of the excisable goods shall be based on the value of such goods sold by the assessee for delivery at any other time nearest to the time of the removal of goods under assessment, subject, if necessary, to such adjustment on account of the difference in the dates of delivery of such goods and of the excisable goods under assessment, as may appeal reasonable. RULE 8 further provides as under: [Where whole or part of the excisable goods are not sold by the assessee but are used for consumption by him or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... than Sales Tax Act, 1984, as unconstitutional. The said provision permitted the Government to levy sales tax on the basis of maximum retail price. 18. To highlight his contention that duty of excise can be levied on manufacturing cost and manufacturing profit, counsel relied on the decision of Supreme Court in case of A.K. Roy and anr v. Voltas Limited reported in (1973) 3 SCC 503. 19. With respect to charging duty even on the medicines supplied to the purchasers by way of trade discount, the counsel relied on the following decisions: i. Commissioner of Central Excise, Chennai v. Hindustan Lever Ltd. reported in 2002 (142) ELT 513 Supreme Court; ii. In case of Goodlass Nerolac Paints Ltd. v. Union of India reported in 1993 (65) ELT 186 (Bom); iii. In case of POND's (India) Ltd. v. Commissioner of Central Excise, Chennai reported in 2000 (124) ELT 202 (Tribunal). These judgements however were rendered in the background of section 4 of the Central Exercise Act 1944. 20. After thus arguing the question of collection of duty under section 4A of the Act on the extra medicines provided to the dealers by way of trade-discount, counsel for the petitioners clar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00. If her contention is accepted, the duty on clearances of such free samples would be levied under section 4A of the Act but the valuation would have to be done as provided under the Valuation Rules of 2000. We would advert to this aspect when we deal with this issue. 24. Counsel relied on the following decisions: (i) In case of Jayanti Food Processing (P) Ltd. v. Commissioner of Central Excise, Rajasthan reported in (2007) 8 SCC 34 in which however, the question was when the MRP was voluntarily displayed on the ice-cream packs not meant for retail sale whether duty could be charged under section 4A of the Central Excise Act or under section 4 thereof? In this context, the Supreme Court held that the duty would be appropriately charged under section 4 and not 4A. (ii) In case of Government of India and ors v. Madras Rubber Factory Ltd. and ors reported in: (1995) 4 SCC 349 in which the Supreme Court referring to the decision in case of Bombay Tyre International Ltd. and ors observed that the expression post removal expenses must be understood as a convenient expression rather than a precise expression with a definite connotation. (iii) Reliance was placed on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale, whether payable at any other time including any amount charged for advertising or publicity, marketing and selling, organization expenses, storage, outward handling, servicing, warranty, commission or any other matter, but excluding the amount of duty of excise, sales tax and other taxes, if any, actually paid or payable on such goods. Section 4A was introduced w.e.f. 14.05.1997 to levy duty on excisable goods with reference to retail sale price on the notified goods. As noted, under sub-section (1) of section 4A, the Central Government could specify any goods by a notification in relation to which under the provisions of the Standards of Weights and Measures Act, 1976 or the Rules made thereunder it was necessary to declare on the package, the retail sale price of such goods, to which sub-section (2) would apply. Under sub-section (2) of section 4A where goods specified under sub-section (1) are excisable goods and are chargeable to duty of excise with reference to value, notwithstanding anything contained in section 4, such value would be deemed to be the retail sale price declared on such goods less the amount of abatement, from such retail sale price as the Central Gover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble by the seller and would also include the profit of the successive dealers. However, the abatement that the Government may allow in the retail sale price would also be expected to take into account such factors in addition to the duties of excise, sales tax and other taxes which may be payable. Though no specific formula is provided for providing such abatement and it may be that in a given case the abatement that the Government may permit under the notification may not entirely neutralize of such costs, the question is would that by itself render the provision unconstitutional? 29. The concept, that the duty of excise is to be charged on manufacturing costs and manufacturing profits is all too well settled and recognized. However, its application to every case may have a different element. In case of Cibatul Limited. P.O. Atul (supra) the Division Bench of this Court considered the constitutionality of an amendment in section 4 of the Act through which the Parliament introduced the concept of a related person for charging of duty of excise. In case the seller and buyer were found to be related persons, as per the definition contained therein, the excise duty would be charged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e first time. In other words, the circumstances that the article becomes an object of assessment when it is sold by the manufacturer does not detract from its nature that it is a levy on the fact of manufacture. The Court concluded that while the levy is on the manufacture or production of goods, the stage of collection need not in point of time synchronize with the completion of the manufacturing process. While the levy in India has the status of a constitutional concept, the point of collection is located where the statute declares it will be. The Court then referred to the commentary by Sirvai in the Constitutional law of India stating that the amount (of excise) may be measured in any way there is a clear distinction between the subject-matter of a tax and the standard which amount of tax is measured. The Court then observed as under: It is apparent, therefore, that when enacting a measure to serve as a standard for assessing the levy the Legislature need not contour it along lines which spell out the character of the levy itself. Viewed from this standpoint, it is not possible to accept the contention that because the levy of excise is a levy on goods manufactured or prod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... defined in sub-section (4)(b) of section 4 is the basis for determination of excisable value provided, of course, the buyer is not a related person within the meaning of sub-section (4)(c) of section 4 and the price is the sole consideration for the sale. This proposition is subject to the terms of the three provisos to sub-section (1)(a) of section 4; (ii) Where the price of excisable goods in the course of wholesale trade for delivery at the time and place of removal cannot be ascertained for the reason that such goods are not sold or for any other reason, the nearest ascertainable equivalent thereof determined in the manner prescribed by the Central Excise (Valuation) Rules, 1975 should be taken as representing the excisable value of the goods; (iii) Where wholesale price of any excisable goods for delivery at the place of removal is not known and the value thereof is determined with reference to the wholesale price for delivery at a place other than the place of removal, the cost of transportation from the place of removal to the place of delivery should be excluded from such price; (iv) Of course, these principles cannot apply where the tariff value has been fixed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he value for collection of excise duty in case of notified goods, the base would be the MRP but which would be reduced by the abatement that the Government may permit by issuing a notification. This abatement would take into account not only the taxes but also other charges which may not be related to the manufacturing costs, profits and other expenditure such as the advertisement, transportation and other costs. 35. The purpose for bringing in such legislative changes have not been brought on record. However, an article by Shri Daya Sagar published in Volume 91 ELT A3 produced before us by counsel for the Revenue would give some insight. It is explained that previously, a similar regime was introduced for patent or proprietary medicines through a notification under which the duty was charged at 7 1/2% of the value calculated after the allowing the discount at specified percentage. This continued to be in operation for nearly 30 years. The option was left open to the assessee to avail of such exemption notification or pay duty in terms of section 4 of the Act. With this background, the purpose of introduction of section 4A was explained as under: 11. It is common knowledge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der The Standards of Weights and Measures Act. The main purpose appears to be that in many of these goods, the manufacturing is entrusted to small scale manufacturers and the excise duty is leviable on the value in the hands of the job workers which would not include the element of other post-manufacturing expenses incurred by the buyer or the marketing company such as advertisement expenses, marketing expenses and other expenses like freight etc. and thus, the element of duty brought on such goods would be much less than what it would have been if the marketing company was engaged in the manufacturing activity. While doing so, the legislature consciously provided for neutralizing the element of taxes and other add-ons to the MRP by authorizing the Government to provide for abatement. In the present case, the abatement notified is @ 35%. Under the circumstances, the contention of the counsel for the petitioner that the levy of duty under section 4A of the Act is outside the legislative competence of the union parliament cannot be accepted. The change to the vires must fail. 38. This brings us to the question of levy of duty on free samples provided to the doctors. There is no di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 of the Act. Further Rule 3 provides that the value of any excisable goods shall, for the purposes of clause (b) of sub-section (1) of section 4 of the Act, be determined in accordance with the said Rules. Rule 5 applies to the case where excisable goods are sold in the circumstances specified in clause (a) of sub-section (1) of section 4 the Act except in the circumstances in which excisable goods are sold for delivery at a place other than the place of removal. Rule 6 applies where the excisable goods are sold in the circumstances specified in clause (a) of sub-section (1) of section 4 of the Act except where the price is not the sole consideration for sale. There are other Rules which also refer to the various situations envisaged in section 4 of the Act. From such provisions, it is absolutely clear that the Valuation Rules of 2000 would apply in a case where the duty of excise is levied under section 4 of the Act. The respondents cannot seek to levy duty under section 4A but apply the method of computation of the value of the goods which is devised for the purpose of section 4 of the Act. Clarificatory instructions dated 25.04.2005 do not lay down correct position in law. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
