TMI Blog1978 (11) TMI 70X X X X Extracts X X X X X X X X Extracts X X X X ..... ured by it. 2. In exercise of the powers conferred by sub-section (2) of Section 3 of the Act, the Government of India issued a notification dated November 28, 1970 whereby it fixed for unpurified sulphuric acid falling under Item No. 14G of the First Schedule to the Act the tariff value, (a) if its strength is ninety-three per cent or more but does not exceed ninety-nine per cent at Rs. 260/- per metric tonne; and (b) if its strength is less than ninety-three per cent at an amount bearing to the amount of two hundred sixty rupees, the same proportion as the strength of the acid bears to the minimum strength of ninety-three per cent. This notification was issued in supersession of the earlier notification dated July 26, 1960, fixing the tariff values in respect of the said product of varying strength. In the case of other product manufactured by the Company, viz., chlorine liquid also a similar notification dated July 26, 1971, was issued fixing the tariff value of Rs. 500/- per metric tonne for the purpose of levying of excise. Under sub-section (1) of Section 3, it is provided that there shall be levied and collected in such manner as may be prescribed duties of excise on all e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which should be the sale basis for leving the excess duty under sub-section (1) of Section 3. By the arbitrary manner in which the tariff value is fixed, the petitioner company is in effect made liable to pay excise duty at a rate much higher than 10 per cent prescribed in Entries Nos. 14G and 14H as its manufacturing cost and manufacturing profit is far below the amount mentioned in the two notifications. 3. Since the issuance of the two notifications fixing the tariff value at Rs. 260/- per metric tonne of sulphuric acid and at Rs. 500/- per metric tonne of chlorine, the petitioners were clearing the said two products on the basis of the said tariff values under protest. The difference in excess duty according to the petitioners on the basis of the invoice value which is equivalent to the manufacturing cost and manufacturing profit which should be taken as assessable value, the tariff value comes to about Rs. 1,59,369.75 from December, 1970 to 1st May, 1972 in respect of sulphric acid. Similar calculation have been given by the petitioners in the case of chlorine manufactured by them and the difference in excise duty on the basis of the invoice value being the assessable value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... though the Legislature has empowered the Central Government only to collect duty at the rate of 10 per cent and not at a higher rate. (c) The impugned notifications are arbitrary, pervese, and display a non-application of mind on the part of the authorities as the tariff values are fixed unrelated to the value or price or the manufacturing cost and manufacturing profit of the products. (d) Alternatively, the petitioners also contend in their petitions that in the event of it being held that the Central Government can fix any tariff value of any excisable goods, the provisions of sub-sections (2) and (3) of Section 3 would be ultra vires and violative of the provisions of Article 19(1)(f) and (g) of the Constitution as these provisions so construed would confer power on the Executive Government to fix tariff value without any guide-lines or fetters and at its complete discretion. Such power being unfettered, uncanalised and unlimited would empower the Executive Government to multiply the rate of duty much in excess of 10 per cent provided in the 1st Schedule to the Act. Secondly, it is also submitted in the petition that the said provisions, viz. sub-sections (2) and (3) of Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of sulphuric acid were being issued from time to time since the year - 1962. These tariff values were fixed from time to time on the basis of weighted average value of sulphuric acid based on statistics collected. This weighted average value was based on the data collected on all-India basis. It is also contended in this affidavit that it would be a practicable method to fix tariff values on the basis of weighted average on all-India basis by taking into consideration the assessable values of the different manufacturers and then taking a weighted average thereof which would be a uniform rate of tariff for all the manufacturers. It has been also pointed out that in some of the sales in view of the tariff value so fixed the petitioners have benefited as they were required to pay excise duty at a rate less than that would have been payable under Section 4. It was also pointed out that there is a difference between the method of determining the value under Section 4 and under sub-section (2) of Section 3, and once the tariff value is fixed, the determination of value under Section 4 would be irrelevant. In the affidavit, the fixation of tariff value in respect of these items has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er-company when the manufacturing cost and the manufacturing profit would be higher than the tariff value, although it may be put to a loss when such value is actually less then the tariff value. The respondents deny the petitioners' contention that the impugned notifications issued under sub-section (2) of Section 3 of the Act were arbitrary or unreasonable or that the provisions of sub-section (2) of Section 3 and sub-section (3) of Section 3 were ultra vires or violative of any provisions of the Constitution of India. It is not necessary for us to elaborately mention the other points made out in the affidavits in reply having regard to the arguments advanced by the Counsel on both sides. 6. M/s. Bhat and Cooper, the Counsel appearing for the petitioners, confined their challenge to the impugned notifications as being contrary to the provisions of Section 3(1) which was the charging section. It was urged by the Counsel that the primary charging provision is the sub-section (1) of Section 3 whereunder excise duty is to be levied on the activity of production and manufacture, and for the purpose of calculating the excise duty, only that value which represents the manufacturing co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Ors., AIR 1975 S.C. 960= 1978 E.L.T. (J 444). The Counsel also relied on the decision of a Division Bench of this Court in Miscellaneous Petition No. 293 of 1974 (Indian Tabacco Co. Ltd. v. The Union of India and others) decided on 15th December, 1975, and a recent decision of Andhra Pradesh High Court in the case of Union of India v. Vazir Sultan Tobacco Co., 1978 E.L.T. (J 461) = 1978 Taxing Law Reports 1824. 8. On the other hand, Mr. Paranjpe, the learned Counsel appearing for the respondents, while not disputing the position that the manufacturing cost and manufacturing profit should be the basis for the purpose of arriving at the assessable value for the purpose of levying the excise duty under sub-section (1) of Section 3, contended that the provisions of sub-section (2) of Section 3 and Section 4 lay down two different methods for finding out the manufacturing cost and manufacturing profit. While the method provided in Section 4 would require the fixation of actual manufacturing cost and manufacturing profit, a different method can be devised to fix a uniform rate of fixing a tariff value which would apply to all the manufacturers of the same product. He submitted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the tariff value fixed under Section 3(2) has some reasonable relation or connection with the manufacturing cost and the manufacturing profit. The weighted average method which has been adopted in the present case provides such a nexus because in effect it is based on the manufacturing cost and manufacturing profit of all the manufacturers including the petitioners together. The Counsel sought to distinguish the decision relied on behalf of the petitioner-company by Mr. Bhat by contending that these decisions decided a narrow aspect whether the post-manufacturing cost and post-manufacturing profit could be added for the purposes of arriving at the assessable value and the question of the interpretation of Section 3(2) did not arise in those cases. Section 3 of the Act runs as under : "(1) There shall be levied and collected in such manner as may be prescribed duties of excise on all excisable goods other than salt which are produced or manufactured in India and a duty on salt manufactured in, or imported by land into, and 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interpreted. Therefore, before adverting to the said decisions, we would like to consider the effect of the provisions of Sections 3 and 4 independently and see whether the Government can fix tariff values on the weighted average basis which would have the result of fixing higher assessable values and would require the manufacturer to pay duty at a higher rate although the production cost of particular manufacturer is much less. In view of Entry No. 84 in the Union List in the 7th Schedule, the Parliament has power to Legislate on duties of excise on tobacco and other goods manufactured or produced in India except (a) alcoholic liquors for human consumption; and (b) opium, Indian hemp and other narcotic drugs and narcotics, but including medicinal and toilet preparations containing alcohol or any substance included in sub-paragraph (b) of this entry. Thus the excise duty can be levied on production and manufacture of goods referred to in Entry No. 84. Section 3(1) of the Central Excises and Salt Act, 1944, provides that there shall be levied and collected duties of excise on all excisable goods which are produced or manufactured in India at the rates set forth in the First Schedul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other manufacturer or producer. It appears to us clear that the value for the purposes of the excise duty on a particular product produced or manufactured by a purchaser or a manufacturer must be arrived at on the basis of manufacturing cost and manufacturing profit of that particular purchaser or manufacturer. The weighted average basis necessarily introduces irrelevant considerations, viz., the production or manufacturing cost or manufacturing profit of another manufacturer or producer altogether. This in our view would be foreign to the concept of excise as envisaged by the charging Section 3(1). On a consideration of the scheme of the provisions of sub-sections (2) and (3) of Section 3 and Section 4, it would appear that they are machinery provisions which must conform to the main charging section which is sub-section (1) of Section 3 and cannot go beyond that. The wording of Section 3(2) shows that the Central Government has been vested with the power to fix tariff values "for the purposes of levying the said duty", that is, "the duties as contemplated by sub-section (1) of Section 3". Sub-section (2), therefore, is a provision intended to achieve the object envisaged by sub-s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to accept the connection of Mr. Paranjpe that the construction which we are inclined to put on the provisions of Section 3(2) would render either of the two provisions. viz. Sec. 3(2) and Sec. 4, redundant or nugatory. Both Section 3(2) and Sec. 4 being machinery sections to be operated to achieve the object of levying excise duty under the charging Section 3(1), in any case, the assessable value cannot be fixed in excess of the manufacturing cost and manufacturing profit, In our view, Section 4 provides for a direct method for determining the value for the purposes of duty, and it is the wholesale cash price which determines such a value. It does appear that Section 3(1) read with Section 3(2) enables the Central Government to fix a uniform tariff value for a particular article. The Central Government would be in a position to exercise such power for reasons administration convenience to avoid continuous watch and scrutiny of the manufacturer's accounts or dealings, but that does not mean that Section 3(2) permits a fixation of value which the producer or a manufacturer would demonstrate to be higher than his manufacturing cost and manufacturing profit. 10. On reading the prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levant consideration and would provide no nexus whatsoever for finding out the assessable value of an individual producer or a manufacture. Once it is accepted that for the purposes of Section 3(1) which is the charging section manufacturing cost and manufacturing profit alone should be the basis which position has also not been disputed by Mr. Paranjpe it would logically follow that Section 3(2) which is a machinery provision must not overstep the limits and prescribe a higher rate whatever may be the reason for fixing a uniform tariff value. 11. We may now rerfer to the decisions to which our attention has been drawn by the Counsel for the petitioners. The first case on the point is the case of Voltas Ltd. reported in A.I.R. 1973 Supreme Court 225 = 1978 E.L.T. (J 177) (A.K. Roy v. Voltas Ltd.). While construing the ambit of Section 4 and the true meaning of the expression "wholesale cash price" which question was directly involved in that case, the Supreme Court observed in paragraph 21 - "Excise is a tax on the production and manufacture of goods [see Union of India v. Delhi Cloth and General Mills (1963) Supp. 1 SCR 586 = (AIR 1963 SC 791]. Sec. 4 of the Act therefore prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xcisable goods and thirdly whereas Sec. 3(1) of the Act is the charging section which creates the liability to pay the excise duty as and at the rates set forth in the First Schedule, the other provisions referred to above are in the nature of machinery provision in the sense that they deal with the aspects like how, in what manner and on what basis the duty is to be charged, paid or collected as well as the time when and the place where such duty is to be paid or collected; for instance, sub-sec. (2) of Sec. 3 provides that for the purpose of levying the excise duty the Central Government may fix tariff values of any articles enumerated either specifically or under general headings in the First Schedule as chargeable with duty ad valorem and may alter and tariff values for the time being in force and sub-sec. (3) empowers the Central Government to fix different tariff values for different classes or descriptions of the same article; Sec. 4 provides for determination of assessable value of a dutiable articles on the basis of which the duty is to be calculated when such an article is chargeable with duty at a rate dependent on the value thereof, Rule 49 indicates that duty is charge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... then it is not an excise duty, but something else altogether and therefore it is not within the purview of the excise authorities functioning under the four corners of the Act and the rules made thereunder while levying excise duty. 14. In the view that we have taken, it must be held that the two impugned notifications issued by the Central Government are beyond the power conferred under Section 3(2) read with Section 3(1) of the Act as it is not disputed that the assessable value of the products manufactured by the petitioner-company is much less than the uniform tariff value fixed under the notifications. We are unable to accept the contention of Mr. Paranjpe that on occasions, the petitioner company was sometimes benefited because the tariff value fixed happened to be lower than manufacturing cost and manufacturing profit of the petitioner-company at the particular point of time. Such an argument cannot impress us because the very method adopted by the Government for fixing the tariff value based on weighted average is illegal and improper as the assessable value gets loaded with the manufacturing cost of other manufactures, which would violate the basic concept of excise dut ..... 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