Tax Management India. Com
                        Law and Practice: A Digital eBook ...

Category of Documents

TMI - Tax Management India. Com
Case Laws Acts Notifications Circulars Classification Forms Manuals SMS News Articles
Highlights
D. Forum
What's New

Share:      

        Home        
 

TMI Blog

Home List
← Previous Next →

1982 (10) TMI 216

tiff: J.M. Thakore, Advocate General, S.I. Nanavati, Kamal Trivedi, Rakesh Gupta, K.S. Nanavati, A.C. Gandhi and Kamal Mehta, Advs. For Respondents/Defendant: Haroobhai M. Mehta, K.N. Raval and A.P. Ravani, Advs. JUDGMENT M.P. Thakkar, C.J. 1. 'Heads', the petitioners, manufacturers of textile goods at Ahmedabad (who have recovered the excise duty from the consumers) win - (and make a windfall profit the doctrine of 'unjust enrichment' notwithstanding), 'Tails', the consumers, who have already suffered the burden of the levy, loss. Such are the implications of the problem posed in this group of petitions raising a question which one might be tempted to call as million dollar question but for the fact that it would be a gross understatement. For, the question, if answered the way desired by the petitioners, can cost the Revenue hundreds of millions of rupees (recovered over last several years by way of duty which will have to be refunded to the manufacturers all over India). The Problem 2. For more than 30 years, ever since the enactment of Excise Act in 1944, manufacturers of goods all over India have been paying excise duty at the prescribed rates. Wherever .....

X X X X X X X

Full Text of the Document

X X X X X X X

gment which required any deduction being made from the price at which the goods were sold (or were saleable) to a wholesaler at the factory gate. All that was decided in Voltas Case was that the price at which goods were sold or saleable to a wholesaler at the factory gate alone was relevant. And not the price at which such a wholesale purchaser sold to a subsequent purchaser, for that would take within its sweep the said wholesaler's profits which could not be subjected to duty leviable from the manufacturer under Section 4 of the Excise Act. Shortly thereafter Section 4 was amended. The controversy persisted even after the amendment. A Division Bench of this High Court which was presented with the same problem some time later (Golden Tobacco Co. Ltd. v. Union of India 1980 E.L.T. 437 : referred to as 'second' Gold Tobacco Judgment) took the view that such expenses, which were styled as post-manufacturing expenses, were not includible in making the computation for the purposes of levy. In view of the earlier Division Bench Judgment in First Golden Tobacco Case, the matter might well have been required to be referred to a larger Bench. The Division Bench presumably did .....

X X X X X X X

Full Text of the Document

X X X X X X X

ia and a duty on salt manufactured in, or imported by land into, any part of India as, and at the rates, set forth in the First Schedule. (1A) The provisions of sub-section (1) shall apply in respect of all excisable goods other than salt which are produced or manufactured in India by, or on behalf of, Government, as they apply in respect of goods which are not produced or manufactured by Government. (2) The Central Government may, by Notification in the Official Gazette, fix, for the purpose of levying the said duties, tariff values of any article enumerated, either specifically or under general headings, in the First Schedule as chargeable with duty ad valorem and may alter any tariff values for the time being in force." "Section 4 : After amendment which Before amendment. became effective as and from 1st October, 1975. 4. Determine of value for the 4. Valuation of excisable goods purposes of duty. - Where for purpose of charging of under this Act, any article duty of excise. - (1) Where is chargeable with duty at a under this fact, the duty rate dependent on the value of excise is chargeable on of the article, such value any excisable goods with shall be deemed to be - .....

X X X X X X X

Full Text of the Document

X X X X X X X

On a plain reading the scheme of section 4 becomes evident. For determining the value of the goods, when excise duty is chargeable on the ad valorem basis a fiction has been created by the statute. The value shall be deemed to be the price at which such goods are :- (1) Ordinarily sold by the assessee - (2) to the buyer in wholesale trade (3) at the time and place of removal. Since the value has to be determined (1) at the time of removal and (2) at the place of removal, we may call it the 'factory gate' price. And inasmuch as the price has to be the price charged to the buyer in the wholesale trade, we have to determine the "wholesale price" at the "factory gate". For the purposes of the present discussion and for the moment we are not concerned with a situation where there is no market at the factory gate, it being situated at some distance. Nor are we concerned with a situation where the manufacturer does not sell to a wholesaler but himself sells the product through his own sales organisation. If the wholesale price at the factory gate can be determined, that must be be the value on the basis of which duty must be computed. There can be no doubt or .....

X X X X X X X

Full Text of the Document

X X X X X X X

support from the Voltas' Case in this connection. The petitioners wholly bank on Voltas' Case and they do not have any legs to stand on if Voltas' Case does not support them. Reliance is placed on the observation of the Supreme Court in Voltas' Case to the effect that excise duty is payable on 'manufacturing cost and manufacturing profit' to which we adverted in the earlier part of our judgment. That is why everything in this case turns on (1) the true ratio of Voltas' Case (2) the true meaning, content and implication of the phrase manufacturing costs and manufacturing expenses, and (3) whether Voltas' Case or the aforesaid phrase has anything to do with the real concept of excise duty. We will, therefore, presently proceed to examine the true ratio of Voltas' Case bearing in mind this perspective. But it would not be out of place at this juncture to pause for a while and reflect on the question as to what exactly is the law declared by the Supreme Court and how the decisions of the Supreme Court are required to be interpreted. And fortunately for us, the Supreme Court itself has made it abundantly clear in a number of pronouncements as to what .....

X X X X X X X

Full Text of the Document

X X X X X X X

. Since the Supreme Court itself has administered the warning and has indicated in no uncertain terms that what is binding is an actual ratio decidendi of the decision culled out in the context of the facts of the case and the principles of law applied in the case in question, it is unnecessary to refer to any other authority. Even so we are tempted to refer to Quinn v. Leathan 1901 A.C. 495 in order to stress the point. It has been observed therein that for more than 80 years the doctrine in question has never been disputed that every judgment must be read as applicable to the particular facts proved, or assumed to be proved, since the generality of the expressions which may be found there are not intended to be expositions of the whole law, but governed and qualified by the particular facts of the case in which such expressions are to be found and for the proposition that a case is only an authority for what it actually decides. In fact, the court has gone to the extent of observing in the aforesaid decision that a case cannot be quoted from a proposition that may seem to follow logically from it for to do so would be to assume that the law is necessarily a logical code, "wh .....

X X X X X X X

Full Text of the Document

X X X X X X X

rom the manufacturer sells or can sell is wholly irrelevant be it a sale by the first wholesale purchaser to a second wholesale purchaser or to a retailer. In order to emphasise this aspect the Supreme Court has used the expression "manufacturing cost plus manufacturing profit". The expression is used to clear the mist and make manifest the point. When the wholesale purchaser sells his profit would enter into the sale price. Since section 4 takes into account nothing other than the wholesale price at factory gate which the manufacturer can reasonably expect, for making the computation, the price obtained by the wholesaler in his turn cannot be taken as a measure. To make manifest the rational basis, why of the role) it is observed that this cannot be done because it would take within it embrace the wholesaler's profit (as contra-distinguished from the manufacturer's profit), and in order to bring home the point as regards the concept of reasonably expected wholesale price at factory gate, the telling phrase 'manufacturing cost plus manufacturing profit' has been employed. What a manufacturer would demand from a wholesale purchaser would of necessity be a p .....

X X X X X X X

Full Text of the Document

X X X X X X X

al plus the cost of energy. It means the cost of manufacturing the article. Now, from the stand point of a cost accountant every conceivable item of expenditure - even future expenditure would enter into manufacturing cost such as :- (1) depreciation of machinery; (2) interest on cost of machinery; (3) salary element of its entire staff including wages of workers, dearness allowance and bonus payable to them, pension and gratuity payable to them in future; (4) cost of publicity; (5) remuneration of Directors; (6) commission payable to Managing Agents and settling agents; (7) tax liability. When the manufacturer quotes his price to first wholeseller, he takes into account the overall cost which includes all these elements with a computer or by a quick mental process so that he can add to it the profit he wants to make on the article bearing in mind the price at which other similar articles are marketed by his rivals (who may drive him out if he quotes more). All thus the manufacturing cost and manufacturing profit takes into account every one of conceivable items of expenditure that would enter into the cost structure. We have, therefore, no hesitation in concluding that :- (1) The .....

X X X X X X X

Full Text of the Document

X X X X X X X

s juncture to unveil several weighty considerations which should deter us from falling a prey to the point of view canvassed by the petitioners. We, therefore, proceed to do so. Weighty considerations which require to be taken into account in resolving the controversy at the centre of the stage in the present matter. 8. The following factors were highlighted and stressed by a Division Bench of this court in Prabhat Silk and Cotton Mills Co. Ltd., Surat v. Union of India (Special Civil Application No. 1640 of 1981 with allied matters decided on December 18, 1981 and March 8, 1982 - (unreported) [Since reported in 1982 E.L.T. 203 (Guj.)] in dealing with a problem arising in similar circumstances though in the context of the question whether landing charges are includible in computing the assessable value of the dutiable goods :- "(1) The annual budget of the Central Government has been moulded on the assumption that this duty can be lawfully levied for more than 30 years not to speak of the formulation of the budget by the appropriate Government prior to the enforcement of the Constitution of India upon the attainment of Independence. (2) Income Tax must have been collected from .....

X X X X X X X

Full Text of the Document

X X X X X X X

ragmatism and commonsense approach need not therefore be outlawed in favour of unduly sophisticated, unduly refined, disingenuous approach if new views are possible and what is reasonable, as also accords with reason, prevails ever what is unreasonable, but may also accord with reason. 'Just and unreasonable' when both sides are equally able to call into aid good reasons in support of their respective pleas". The very same considerations will apply in the context of the problem at hand. We do not think that we can shut our eyes to these considerations. What is more, there is one more weighty reason why the view which commanded to a Division Bench of this court in the first Golden Tobacco Case [1977 E.L.T. (J 113)] can be considered to be preferable to the contrary view. It has never been disputed since the time of Adam Smith (1) that the tax must be certain in the sense that the manner of payment and the quantification of the levy ought to be clear and plain not only to the contributor but to every other person lost the tax gatherer can either aggravate the tax upon any obnoxious contributor or extort for his own benefit more amount than is payable and (2) that the man .....

X X X X X X X

Full Text of the Document

X X X X X X X

point of time as to when the goods are cleared and as to what would be the deduction required to be made in the context of several items such as advertising expenditure, marketing and distributing expenditure and similar other items of expenditure characterised as post-manufacturing expenses. To the manufacturer himself the alleged post-manufacturing component of the sale price will not be known at the point of time of the clearance of the goods. It will become known only after the accounting year is closed, accounts are completed, a chartered accountant looks into it and prepares a statement on the basis of his examination of the books of accounts. It means that even to the manufacturer himself the exact component of the post-manufacturing expenses deductible from the market value will be known after about 18 months or more depending upon the efficiency of the chartered accountant. So far as the department is concerned, unless it employs an army of chartered accountants at every manufacture centre who verifies the statements prepared by the Chartered Accountants of the manufacturers, it will not be possible for the department to determine the post-manufacturing element included i .....

X X X X X X X

Full Text of the Document

X X X X X X X

se estimation of the levy at the earliest and with accuracy ? The question has only to be asked to be answered. We, therefore, do not see any logical or rational basis for making an approach which would be counter productive even if two views were possible. This is an additional reason why the view which found favour with a Division Bench of this High Court in the First Golden Tobacco case should be considered preferable to the other view and worthy of acceptance on that account. It is now time to advert to some decisions rendered by other High Courts which see eye to eye with us. The views taken by the other High Courts which have taken the same view as was taken by a Division Bench of this High Court in the first Golden Tobacco Case and which we are inclined to take now. Punjab and Haryana High Court 9. In American Universal Electric (India) Ltd. v. Union of India 1979 E.L.T. (J 125), decided on November 20, 1976 reliance has in terms been placed on the decision rendered by Division Bench of this High Court in the first Golden Tobacco case [1977 E.L.T. (J 130)]. The reasoning which found favour with the learned Judge of the Punjab and Haryana High Court is reflected in paragraph .....

X X X X X X X

Full Text of the Document

X X X X X X X

when a sale was effected in the retail market, it took within its sweep the profit attributable to the wholesalers who having purchased the goods from the manufacturer, sold it to the retailer or to the consumer at a profit. The price paid by the retailer would take into account the profit which would go into the coffers of the wholesale with which the manufacturer had nothing to do. It was in this context that their Lordships have made this observation on which strong reliance has been placed by the learned counsel for the petitioners to contend that section 4(s) provided that the real value should be found out after deducting the selling cost and the selling profits and that the real value could include only the manufacturing cost and the manufacturing profits. In my opinion this decision of their Lordships only gives the rational basis of the measure embodied in section 4, of the wholesale cash price at the factory gate in the context of the controversy whether the retail price realised by the manufacturing concern a large percentage of goods produced in a case where the manufacturer has also the selling organisation for sale directly to the consumers, should be taken as a basi .....

X X X X X X X

Full Text of the Document

X X X X X X X

he wholesale cash price charged by them to the wholesale dealer less trade discount, if any, as envisaged under the Explanation to section 4 of the Act, would represent the real value of the goods for the purpose of assessment of excise irrespective of the quantity of the manufactured goods sold at wholesale cash price". Thereafter the Punjab and Haryana High Court has concurred with the Gujarat view after taking into consideration numerous decisions of the other High Courts cited before the court. Says the learned Judge in paragraph 18 : "I am in respectful agreement with the above-mentioned observations of their Lordships of the Gujarat High Court and, therefore, the decisions relied upon by the learned counsel for the petitioners, which are not of binding nature are of no help to him". It will, thus, be seen that the Punjab and Haryana High Court has culled out the true ratio of Voltas' Case and Atic Case and has based its decision in the context of the ratio of the aforesaid two decisions rendered by the Supreme Court which have introduced the concept of post-manufacturing expenses from the stand point of making a distinction between the first wholesale price .....

X X X X X X X

Full Text of the Document

X X X X X X X

ied that it was in the context of the aforesaid facts and the circumstances that the Supreme Court had concluded that the only deduction that is permissible to be made from the wholesale cash price for the purpose of levy of excise duty is the trade discount and the amount of duty paid at the time of removal of the article. Reference was made to the observation made by the Supreme Court in Voltas' Case that selling profit which is a post-manufacturing operation in excluded from the excise levy. After referring to the aforesaid observation the Calcutta High Court has interpreted the decision in the light of the two ratio of the decision and has clarified as to how it should be understood in the context of the facts of the case which in the view of the Calcutta High Court unmistakably referred to the profit arising from retail sale price of articles charged with excise duty. It was observed that the concept of selling cost and selling profit in the wholesale cash price could not be thought of in Voltas' Case, for there was no scope for so thinking in view of the facts involved in that case. Says the Calcutta High Court : "Indeed, no such argument was advanced before the .....

X X X X X X X

Full Text of the Document

X X X X X X X

Court in paragraph 15 in the following manner :- "It is submitted that such costs are unrelated to the manufacture of the goods and, in any event, the wholesale price at which they are sold at the depots not being the wholesale cash price at the factory gate, such costs and profits should be excluded so as to get the wholesale cash price at the factory gate for the purpose of levy of excise duty. This contention, in our opinion, overlooks the provision of Section 4(a). Under Section 4(a), the wholesale cash price at the factory gate shall be the value of the article, provided a wholesale market exists at the factory gate and, if not, the wholesale cash price at the nearest place where such market exists. Admittedly, the respondent does not sell the goods at the factory gate, but the goods are sent to the different depots of the respondent for sale to the dealers. So, in view of the provision of Section 4(a), there is no market for the goods at the factory gate of the respondent and, therefore, there is no question of wholesale cash price at the factory gate. In the absence of market at the factory gate, the different depots at which the respondent sells the goods in wholesale .....

X X X X X X X

Full Text of the Document

X X X X X X X

he depots of the respondent through its selling organisation for selling them in wholesale to the dealers. There can be no doubt that in taking the goods to the depots, the respondent incurs cost. No doubt the respondent adds this cost to the manufacturing cost, so that the wholesale price at which the respondent sells the goods to the dealers is the aggregate of the manufacturing cost, the subsequent cost and the manufacturing profit. There is, therefore, no scope or any additional profits over and above the manufacturing profit. Now what amount of profit the manufacturer wants to earn depends upon certain factors. If the manufacturer carries on a monopolistic business and there is demand for the goods he manufactures, he may earn any profit. In such a case, the profit is fixed arbitrarily by the manufacturer or producer. In other cases, the producer has to determine the amount of profit to be included within the price of the goods keeping in view the demand for the goods, the competition he has to face in the market and the economic condition of the consumers of such goods. Thus the above analysis reveals that there is no scope for any selling profit or post-manufacturing profit .....

X X X X X X X

Full Text of the Document

X X X X X X X

Calcutta High Court referred the matter to the Full Bench (and possibly the matter is pending before the Full Bench) having regard to the fact that another Bench of the Calcutta High Court has taken a contrary view in East Anglia Plastics (India) v. The Collector of Central Excise, Calcutta (Appeal No. 231 of 1975, decided on 3-10-1980). Allahabad High Court 11. A very recent judgment by a Division Bench of the Allahabad High Court rendered in Civil Misc. Writ Petition No. 370 of 1979, decided on February 4, 1982 takes the same view as was taken by a Division Bench of this High Court in the First Golden Tobacco Case and which we are presently inclined to take. The Allahabad High Court has fallen in line with the Gujarat High Court (as reflected in the First Golden Tobacco Case), the Calcutta High Court and the Punjab & Haryana High Court in regard to the true ratio of Voltas' Case and Atic's Case. The ratio has been stated in clear and simple terms in the following words :- "This case is an authority for the proposition that for purposes of calculating the assessable value, the manufacture impost plus the manufacturing profit have alone to be taken into account an .....

X X X X X X X

Full Text of the Document

X X X X X X X

d in cases where such price is not known the nearest ascertainable price calculated according to rules. Where the price at the place of removal is not known and is determined with reference to the price for delivery at another place, the transport costs is to be excluded. Section 4(4)(d)(1) requires the inclusion of the packing cost and exclusion of certain other taxes while calculating the assessable value. Inasmuch as section 4 provides for the method by which the assessable value has to be calculated and as Section 3 is silent as to how this value has to be calculated for purposes of imposition of excise duty, we are of the view that Sections 3and 4 are composite in character, and Section 3 left by itself does not fulfil completely the requirement of it being a charging provision. We are of the view that as Section 3 and 4 are supplementary to each other, Section 4 cannot be read down as as to give an overriding effect to Section 3. It must be remembered that the decision of the Supreme Court in the Voltas' Case and Atic Industries Case, when they laid down the test that only manufacturing costs and manufacturing profit could be taken into account for purposes of excise duty .....

X X X X X X X

Full Text of the Document

X X X X X X X

would the competence of the Parliament to enact section 4(d)(1) be affected. The impugned orders were thus justified." Kerala High Court 12. In Madras Rubber Factory, Madras v. Assistant Collector of Central Excise 1978 E.L.T. ( 595), the question which arose before the Kerala High Court was in the context of the amended section 4. The Kerala High Court has taken the view that post-manufacturing expenses cannot be excluded. However, this view has been built on the distinction drawn between the section as it was worded prior to the amendment and the wording of the section as it stands after the amendment. The view has been taken that the new section 4 is wider in scope and, therefore, Voltas' Case cannot be said to be the law for the purpose of interpreting the new section 4. If the value for the purpose of excise duty were to be restricted to the manufacturing cost and manufacturing profits, it would have the effect of ignoring the amended section 4 and the valuation rules. While the view has been taken into consideration, the basis of the decision being different, we do not propose to discuss the decision at length. II. Whether expenses of the aforesaid categories (such .....

X X X X X X X

Full Text of the Document

X X X X X X X

larified the position regarding packing charges which is the third dimension of the problem to which we will shortly negotiate. III. Whether charges in relation to primary and secondary packing are includible even if post-manufacturing expenses are includible in the context of amended section 4 ? 14. The amended provision (section 4) has been quoted earlier. We may however have a quick look at the relevant part of the same at this juncture in order to come to grips with the problem. Sub-clause (4) of section 4 provides that "value" for the purpose of computation of duty in relation to excisable goods for the purposes of section 4 would "include the cost of packing" where the goods are delivered at the time of removal from (the factory gate) in a "packed condition". And the Explanation defines the expression 'packing' to mean the wrapper, container, bobbin, pin , spool reel or warp or any other thing "in which" or "on which" the excisable goods are wrapped, contained, or wound. Petitioners contend that notwithstanding section 4(4) and notwithstanding the Explanation which makes it explicit that cost of packing material will b .....

X X X X X X X

Full Text of the Document

X X X X X X X

ble. When the Parliament has in so many words enacted the provision and made it includible, we cannot erase it by giving the exercise the label of "reading down". The doctrine of reading down cannot be invoked in order to paste a blank paper over the provision or scoring it off with ink and pen in the course of interpreting it. When we interpret it the body of the provision must remain intact though its books may be altered. But we cannot obliterate the body of the provision. It amounts to virtual repeal of a legislation by the Court. Now the Court can hold the provision to be unconstitutional. The Court cannot 'repeal' it for the obvious reason that the power of 'enacting' and 'repealing' a legislation is within the exclusive domain of the Legislature. Not that of the Court. We are therefore regretfully unable to agree with the view taken in Alembic Glass Co. Ltd. and Second Golden Tobacco, in the aforesaid two cases. 16. Realizing the difficulty in the context of this aspect, Counsel argued that the provision must be declared to be ultra vires if it cannot be read down. V. Is Section 4(4)(d)(1) ultra vires ? 17. The first contention is that since .....

X X X X X X X

Full Text of the Document

X X X X X X X

t is not for the Court to say how heavy the burden should be - it being within the power sphere of the Legislature. Since neither the Constitution nor the Act prescribes any upper limit of the burden of levy, Parliament can impose levy of such an order as is deemed appropriate by it. An illustration will make the point clear. Say the ad valorem rate is 10% of the value of excisable goods the valuation being made by including cost of packing material. Can the Parliament not levy 20% and exclude the cost of packing ? 10% of cost of article plus packing might be much less than 20% of value sans-cost of packing. In other words the mode of computation in so far as the value of packing material is included serves on to enhance the burden of levy. But the levy in essence retains its nexus with the manufacture of the excisable article only. It is not a levy on the sale of the packing material. The taxing event is 'manufacture' of excisable article but valuation for the purposes of crystalization of the burden includes the value of packing. In other words the levy becomes 10% of value of excisable article loaded with the packing factor. There is nothing illegal, unconstitutional or .....

X X X X X X X

Full Text of the Document

X X X X X X X

e and is returnable by the buyer to the assessee, the provision concerned [section 4(4)(d)(1)] must be so construed that even if the contract does not provide for the return of the durable packing must be excluded. We are unable to agree with the submission in the face of the clear language of the provision. The expression "returnable by the buyer to the seller" places the matter beyond the pale of controversy. 'Returnable' means returnable as per agreement between the buyer and the seller. What else can it mean ? When the cost of such packing is included in the price by the seller, it is obvious that it is so done in order that the durable packing is returned - it is a sort of a security for the return of the packing. The basic idea is that when by the contract of sale, the sale-price of the excisable article is to be unloaded by the packing factor and the packing is to be returned in specie, the cost of packing does not form a part of the sale price and cannot therefore, included in the valuation for the purpose of computation of the levy. 19. We may mention that we do not consider it necessary to refer to and consider the decision in Alembic Glass (supra) and e .....

X X X X X X X

Full Text of the Document

X X X X X X X

 

 

← Previous Next →

 

 

|| Home || About us || Feedback || Contact us || Disclaimer || Terms of Use || Privacy Policy || Database || Members || Refer Us ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.
|| Blog || Site Map - Recent || Site Map ||