TMI Blog1978 (8) TMI 80X X X X Extracts X X X X X X X X Extracts X X X X ..... facturing profit in the price-lists Exhibits P 1, P 1 (a), P 1 (b) and P 1 (c); (d) to stay the collection of excise duty on the goods of the petitioner company other than the manufacturing cost and manufacturing profit till the disposal of the above writ petition; (e) to pass other orders as are necessary in the circumstances of the case and to allow the costs of this Original Petition; and (f) to quash the order Ext. P 9 of the first respondent by a writ of certiorari or any appropriate writ, direction or order calling for the records relating to the same." The last prayer was included by an amendment petition as per C.M.P. 648/76 which was not opposed and hence allowed. 2. The petitioner had come to this Court earlier in O.P. Nos. 1290 [1977 E.L.T. (J 85)] and 1524 of 1973, in which a learned Judge of this Court granted the relief prayed for in favour of the petitioner. The judgments rendered in those O Ps were affirmed by a Division Bench in Writ Appeal Nos. 461 and 462 of 1975. These petitions were under the old Section 4 of Central Excises and Salt Act, 1944, for short "the Act". The present writ petition deals with the new Section 4 of the Act and its impact on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, Section 3, has remained intact. The amended Section 4 is in conflict with Section 3 and is therefore ultra vires. Item 84 in List I of the Seventh Schedule of the Constitution of India, provides for levy of duties of excise on goods manufactured and produced in India. The Central Government is precluded from including in the cost of production any value subsequent to the clearance of the goods from the factory. The amended provision violates both Section 3 and Item 84 of the Union List. In Ground "C" it is stated that `normal price' mentioned in the new Section 4 (1) (a) in the place of the wholesale price in the original Section, "takes in not only the manufacturing costs and manufacturing profits, but also other costs subsequent to the clearance of goods from the factory", which is in conflict with Section 3 of the Act. It is further stated that since the petitioner-company does not deliver the goods in the course of the wholesale trade and at the place and at the time of removal, but despatch them to the sales depots, who in turn send them for delivery to the customers, Section 4(1)(a) is inapplicable to the petitioner-company. The section applicable, if at all, so far as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. The points for consideration in this writ petition are : (i) whether Section 4 is invalid and in excess of the legislative competence of the Parliament ? Is it ultra vires Section 3 of the Act ? (ii) what is the content of the expression "duty of excise"? Does Entry 84 in List I of the Seventh Schedule limit the power of Parliament from legislating on the valuation of goods for the purposes of duty of excise ? and (iii) whether the orders passed by the Department are nullity, or are they liable to be set aside for the reasons mentioned in the petition ? 9. Before examining these questions, I will deal with the earlier judgments dealing with the points at issue and to find out what those decisions have laid down with regard to the scope of the expression "duty of excise". 10. In O.P. Nos. 1290 and 1524 of 1973, two writ petitions by the same petitioner under the old Section 4, Poti J., in his judgment reported in I.L.R. 1975 [21 Kerala 407 = 1977 E.L.T. (J 85)], held that in determining the value for the purpose of duty of excise, post-manufacturing expenses cannot be taken into account. The following passage from the judgment can be usefully read : "Excise duty is l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Book "Legislative, Executive and Judicial Powers in Australia" by W.A. Wynes, Fifth Edition, arrived at by the learned Author after an exhaustive discussion about the import and content of the expression "duty of excise", at pages 374 to 382, at page 382 : "1. For a compulsory payment to be a customs or excise duty it must answer to the description of "taxation". 2. It must be a tax `upon' goods. 3. Although an excise tax is primarily connected with production or manufacture, a tax on a commodity at any point in the course of distribution before it reaches the consumer is a tax upon production or manufacture and therefore an excise duty, 4. A fee for a mere licence to engage in business, even if it be indirectly connected with production or manufacture, is not an excise duty, if it be regulative. 5. Whether duties of excise are limited to duties charged upon or in respect of goods of home production must be considered an open question. 6. Customs duty is a duty on the importation or exportation whether by land or sea. "Importation" means importation into the Common- wealth even though the goods have been delivered for home consumption and consumed before liability to pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision in A.D.M., Jabalpur v. S. Shukla (A.I.R. 1976 S.C. 1207), that observations of the Supreme Court in other cases would be confined to the particular facts of each case. Head note (j) in that case at page 1215 is relevant and the same is therefore extracted : "While considering the observations of a high judicial authority like the Supreme Court, the greatest possible care must be taken to relate the observations of a Judge to the precise issues before him and to confine such observations, even though expressed in broad terms, in the general compass of the question before him, unless he makes it clear that he intended his remarks to have a wider ambit. It is not possible for Judges always to express their judgments so as to exclude entirely the risk that in some subsequent case their language may be misapplied and any attempt at such perfection of expression can only lead to the opposite result of uncertainty and even obscurity as regards the case in hand." It is true, each case has to be considered on its facts. My task is to examine the authorities cited, to find out whether a fresh look at the new Section 4 is barred, and whether the amendment of Section 4 was an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... my opinion the power to make laws with respect to duties of excise given by the Constitution Act to the Federal Legislature is to be construed as a power to impose duties of excise upon the manufacturer or producer of the excisable articles, or at least at the stage of, or in connection with, manufacture or production, and that it extends no further. I think that this is an interpretation reasonable in itself, more consonant then any other within the context and general scheme of the Act, and supported by other considerations to which I shall refer." The above extracts lend support to a possible contention that the duty of excise can be imposed even on the retail sale of an article and the authority can impose it at a stage most lucrative for them. The learned Chief Justice upheld the validity of the provincial tax. 18. In a separate but concurring judgment Sulaiman J., looked at the question from a slightly different angle. The learned Judge observes at page 14, thus : "The validity of the impugned Act therefore depends on the meanings to be given to these two competing entries, and on the question whether they are mutually exclusive or overlap. If the meaning of the words u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubstance not an excise duty, and that therefore the Central Provinces and Berar Sales of Motor Spirit and Lubricants Taxation Act, 1938, and all the provisions thereof are not ultra vires of the legislature of the Central Provinces and Berar." Jayakar J., also agreed with the conclusion and had this to say about the two entries : "On a careful review of the whole question, I am therefore inclined to hold that Parliament intended : (1) That, as regards goods centrally excisable, taxes on their sale within the Province for purposes of consumption, when such taxes are in no way collected with their production, manufacture etc. within the province, but are imposed on their sale, in the Province, merely as existing articles of trade and commerce should be exclusively within the competence of the Provincial Legislature. (2) That, save as aforesaid all duties of excise, on those goods, whether levied and connected at the stage of manufacture, production or any subsequent stage up to consumption (exclusive of sale in the Province, as stated above); should remain exclusively within the competence of the Centre. A corollary of this rule will be that the residuary powers, if any, of l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld ordinarily and naturally convey. In these circumstances, the question at issue in the present appeal appears to us to lie within a very small compass." The Federal Court allowed the appeal and it was held that the tax on first sale cannot be equated with duty of excise. 20. The third case cited is reported in A.I.R. 1945 P.C. 98 = 1978 E.L.T. (J 280). That case arose from a decree made by the Federal Court of India in its original jurisdiction where the question posed was identical to the one reported in A.I.R. 1942 F.C. 33 = 1978 E.L.T. (J 272). Their Lordships held that "the competing Entries No. 45 of the Federal List (excise duty) and No. 48 of the Provincial List (sales tax) may fairly be reconciled without adopting the contention of the appellant, and that the validity of the Madras Act cannot successfully be challenged". It may be useful to refer to the following observations of Lord Simonds, occurring at page 100 : "Its real nature, its `pith and substance', is that it imposes a tax on the sale of goods. No other succinct description could be given of it except that it is a "tax on the sales of goods " It is in fact a tax which according to the ordinary canons of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h is also imposed with reference to goods sold, where the taxable event is the act of sale. Therefore, though both excise duty and sales-tax are levied with reference to goods, the two are very different imposts, in one case the imposition is on the act of manufacture or production while in the other it is on the act of sale. In neither case therefore can it be said that the excise duty or sales tax is a tax directly on the goods for in that event they will really become the same tax. It would thus appear that duties of excise partake of the nature of indirect taxes as known to standard works on economics and are to be distinguished from direct taxes like taxes on property and income." 23. The following observations in A.I.R. 1967 S.C. 1512, at paragraph 20, are also relevant : "These cases establish that in order to be an excise duty (a) the levy must be upon `goods' and (b) the taxable event must be the manufacture or production of goods. Further the levy need not be imposed at the stage of production or manufacture, but may be imposed later." 24. These observations though bring out the dichotomy between tax on sale of goods and tax on goods also indicate that the areas of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore the Supreme Court in the decision reported in A.I.R. 1975 S.C. 960 = 1978 E.L.T. (J 444), otherwise known as 'Atic case'. There also the scope of the term `wholesale cash price', had to be considered. Bhagwati J., spoke in approval of the observations of Mathew J., in Voltas case and held in paragraph 12 as follows : "The value of the goods for the purpose of excise must take into account only the manufacturing cost and the manufacturing profit and it must not be loaded with post-manufacturing cost or profit arising from post-manufacturing operation. The price charged by the manufacturer for sale of the goods in wholesale would, therefore, represent the real value of the goods for the purpose of assessment of excise duty. ***** It is the first immediate contact between the manufacturer and the trade that is made decisive for determining the wholesale cash price which is to be the measure of the value of the goods for the purpose of excise." With this, we come to the close of the discussion about the concept of `duty of excise' prior to the coming into force of the new Section 4. 28. The amendment to Section 4 of the Act was perhaps necessitated because of the Voltas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenses also to be taken into account. I think it is a meaningless exercise to go deep into this argument for two reasons : (1) the Supreme Court had viewed with disfavour the indiscriminate resort to Entry 97 in cases where a party is kept at bay with reference to a particular Entry and secondly because in my view Section 3 does not define `duty of excise' to take in only the manufacturing costs and manufacturing profit. 30. In Union of India v. H.S. Dhillon (A.I.R. 1972 S.C. 1961), the Supreme Court observed that "the object of providing residuary power was to confer power only in respect of a matter which was not foreseen or contemplated then and which by reason of changed circumstances has arisen and which could not therefore be dealt with when the lists are framed". The Supreme Court also noted with approval the following observation of Sulaiman J., in 1939 F.C. 33 at page 212 : "To resort to that residuary power should be the very last refuge. It is only when all the categories in the three lists are absolutely exhausted, that one can think of falling back upon non-descript." I have therefore to repel the contention of the learned Counsel for the Excise that the post-ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ule made pursuant to rule 4 (1) (b) is also questioned in this writ petition. Therefore, on the pleadings, it is not strictly necessary to express myself on the legislative competence of his section. 35. Be that as it may, since arguments were addressed at length on the correct interpretation of the section, may in passing refer to this aspect of the case also. 36. The legislative competence of Section 4 is challenged on the ground that "the amended provision of Section 4 is in conflict with Section 3 of the Central Excises and Salt Act, 1944 and is hence ultra vires". This contention assumes that Section 3 has defined duty of excise' to mean duty on a value consisting of the manufacturing cost and the manufacturing profit alone. It is not so. It is better to extract Section 3(1) itself, which has not been amended Section 3 (1) reads : "3. (1) There shall be levied and collected in such manner as may be prescribed duties of excise on all excisable goods other then salt which are produced or manufactured in India 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." The section starts by saying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce for assessment. The first proviso deals with the sale by the assessee to different classes of buyers. For purpose of levy of excise, each such price shall be deemed to be the normal price. This can obviate the difficulty, which the departmental officers may meet with, where different dealers got excisable goods at different prices. The second proviso deals with the cases where price is fixed under any law for the time being in force or a price the maximum of which is the price fixed under any law. Under those conditions, the normal price will be the price so fixed. The third proviso deals with the price in cases where an assessee sells only through a related person. In such cases, normal price shall be deemed to be the wholesale price at which the related persons sells to dealers not being related persons. In the absence of such dealers, the price that the retailer pays to a related person shall be the normal price. Thus, the three provisos to section 4 (1) (a) clearly bring out the object with which the section was enacted and we get a cleat idea about the manner in which the value has to be fixed for the purpose of the levy of duty of excise. 39. I fail to see how this secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umn (2) of the Schedule appended to these rules. This relates to patent medicines. The second proviso gives further guidelines to the officer in determining the amount of reduction as mentioned in rule 6 (a). Rule 6 (b) relates to captive consumption. Necessary guidelines are given there also for arriving at the value. Proviso to that sub-rule gives guidelines to the appropriate officer. Sub-rule (ii) of rule 6 (b) deals with a separate type of sales value of which cannot be determined under sub-clause (i). Rule 6(c) deals with other forms of sales. It is when the value of the excisable goods cannot be determined by any of the methods provided under rule 6 that their value can be determined under rule 7. In this case, the officer concerned has resorted to rule 7 for determining the value of excisable goods. Whether this is proper or not is a matter which has to be adjudicated by the Departmental authorities concerned. The petitioner's contention as is seen from Ext. P 1(d) is that their goods are sold in retail and the price quoted in their price lists are retail prices as stated in rule 6 (a) and hence entitled to the reduction provided therein. The petitioner states in paragraph ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om where these goods are sold to retail outlets or tyre dealers, fleet owners and Government accounts. There is no sale of their goods at the place of removal as well as at the time of removal of their goods. The petitioner company bears the cost of freights, interest charges on the goods stocked at the sales depots and the expenses in retailing them to their customers. The petitioner's prices for their goods is uniform throughout the country and such price includes besides the cost of manufacture and manufacturing profit all other costs of post-manufacturing portions and sales profits, namely, freight, interest charges etc. The post-manufacturing expenses include selling administrative expenses, for example, salaries and wages paid to selling staff, advertising expenses, godown charges, freight and distribution expenses." It is difficult to find in para 3 of the petition a definite statement that the sales conducted by the petitioner are only retail sales. If the different forms of sale contained in para 3 are compared with Section 4 (4) (a) of the Act, which defines wholesale trade, one gets more or less an idea as to what is the nature of the sale effected by the petitioner. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red by the petitioner-company (in that case, electric lamps and flourescent lamps) for the purpose of levy of excise duty under the Central Excises and Salt Act, 1944. The officer did not accept the price-list submitted by the petitioner-company but directed the petitioner to submit the price-list in Form IV containing the prices at which the five companies to which it sells its entire output. That direction was challenged in the writ petition before the Division Bench. The assessee company took the stand that though Section 4 was altered, the legal position regarding the determination of value has not been altered and the decision of the Supreme Court should govern the determination even after the section has been amended. The crux of the controversy between the parties in that case to borrow the expression used by the learned Judge who decided the case is, "whether the five customer-companies can be regarded as `related persons' as defined in Section 4 (c)". The Court held with reference to the Articles of Association of the Companies, whether the buyer-companies were related persons or not. The matter in controversy before me is not the same as the one that arose in that case. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted that the transfer by the petitioner to the regional sales office is not sale within the definition of that expression given in Section 2 (h) of the Act, and therefore, Section 4 (2) will apply and not Section 4 (1). What was considered there was the applicability of Section 4 (1) (a) and Section 4 (2). None of the contentions raised before me relating to the applicability of the rules or the legislative competence of Section 4 appears to have been discussed, considered or adjudicated in that case. Nor do we find any support for the contention now put forward that in all cases of duty of excise only the manufacturing cost and manufacturing profit can be taken into account. The question centred round the regional sales offices and the refusal to deduct post manufacturing expenses in arriving at the assessable value for the purpose of levy of excise duty. The facts of the instant case are dissimilar to that case. According to me, this case be easily distinguished from the Patra case referred to above. If the Allahabad and Patna cases are authority for the position that even after the amendment of Section 4, the value for purposes of levy of duty to excise should be manufacturi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ense"; Sulaiman J., as " `taxes on sale of goods', is perfectly plain, the ambiguity if any, lies in the interpretation of the words 'duties of excise', which have not been defined under the Act", in AIR 1942 F C. 33, duty of excise "as wide enough to include a tax on sales"; in 1945 P C 98 "duty of excise as a somewhat flexible one; it may, no doubt, cover a tax on first and perhaps on other sales; it may in a proper context have an ever wider meaning"; in 1973 S.C. 1760 Sinha C.J., as "in neither case therefore can it be said that the excise duty or sales-tax is a tax directly on the goods for in that event they will really become the sales-tax. It would thus appear that duties of excise partake of the nature of indirect taxes as known to standard works on economics and are to be distinguished from direct taxes on property and income". From the above observations, it is clear that the expression 'duty of excise' is wide in scope. That being so, the contention that the value for the purposes of excise should be confined only to the value as laid down by the Supreme Court before the amendment of Section 4 does not appear to me to be well founded. Section 4 is of a wider import. Nei ..... X X X X Extracts X X X X X X X X Extracts X X X X
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