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TMI Blog1979 (2) TMI 108X X X X Extracts X X X X X X X X Extracts X X X X ..... is held by the buyer. So far as the buyer is concerned, 65% of its capital is held by the Swiss Company. The Swiss Company has registered trade marks in respect of which licence has been granted by it to buyer to use them. Two agreements dated 24th March, 1971 and 7th December, 1971 were entered into between the manufacturer and the buyer. Agreement dated 24th March, 1971 provided for the sale of certain manufactured goods to the buyer. Agreement dated 7th March 1971 is a tripartite agreement between the manufacturer, the buyer and the Swiss Company. Under this agreement, the manufacturer is permitted to affix a certain trade mark of the Swiss Company on goods manufactured by the manufacturer and sold to the buyer under the agreement dated 24th March, 1971. Two more agreements, similar in character, dated 1st June, 1973 and 1st December, 1973, in respect of certain other goods manufactured by the manufacturer were entered into. 2. The manufacturer is required by the Central Excise authorities to pay excise duty not on the price which the manufacturer charges the buyer but which the buyer charges his buyer on the ground that the manufacturer and the buyer are "related person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter of several decisions of the highest Court of this country. They are binding on us. 4. In the matter of the Central Provinces and Berar Sales of Motor Spirit and Lubricants Taxation Act, 1938 A.I.R. 1939 F.C. 1 = 1978 E.L.T. (J 269), the Federal Court has laid down certain principles which may be noted. So far as the interpretation of legislative powers of the Federal Legislature and Provincial Legislatures was concerned, the Federal Court observed that no narrow and technical construction should be placed upon them. Taking into account the magnitude of subjects dealt with by the Government of India, Act 1935, in a few words, a large and liberal interpretation should be given to them so that the Central Government, within certain fixed limits, may be mistress in her own house and the Provinces, to a great extent but again within certain fixed limits, are mistresses in their houses. So far as the width and amplitude of the duties of excise was concerned, Sir Maurice Gwyer C.J. stated that the power to make laws with respect to duties of excise given to the Federal Legislature was power to impose duties of excise upon the manufacturer or producer of the excisable article ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... approaching a question of this kind, the Court must try to find out the pith and substance of the levy and not its form. Mr. Vakil has made this attempt to show that under the scheme of Section 4 (as amended), there is no overlapping of excise duty and sales tax and that if there is any, on a liberal construction of the relevant entries, it is constitutionally permissible. 6. In The Province of Madras v. Messrs Boddu Paidanna & Sons, AIR 1942 F.C. 33 - 1978 E.L.T. (J 272), the Federal Court observed in the context of Entry 45 of the Federal Legislative List that the duties of excise which the Government of India Act, 1935, assigned exclusively to the Central Legislature were duties leviable upon the manufacturer or producer. Where power to levy duties of excise and sales tax has been given to two independent authorities. the expression "duty of excise" must be given a more restricted meaning than it might otherwise bear even though that expression is wide enough to include a tax on sales. The principles laid down in the earlier decision in Central Provinces case (supra) were affirmed by the Federal Court in this decision. Mr. Vakil has in his turn relied upon this decision a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for discovering the scope and content of the expression "duty of excise" used in Entry 84 in the Union List. On behalf of the Central Government, it was contended in that case that an excise duty is a duty which may be imposed upon home-produced goods at any stage from production to consumption and that, therefore, the central legislative power extended to imposing excise duty at any stage. It was observed by the Supreme Court that there was no reason in theory why an excise duty should not be imposed even on a retail sale of an article if the taxing Act so provided subject always to the legislative competence of the taxing authority. It has also been laid down by the Supreme Court in that case that the taxable event in case of an excise duty is manufacture or production of goods and that it is immaterial what happens to the goods afterwards, whether they are sold, destroyed or given away. The Supreme Court has referred with approval to the following paragraph in the decision of the Privy Council in the Province of Madras case (supra) :- "Consistently with this decision their Lordships are of the opinion that a duty of excise is primarily a duty levied on a manufacturer or produce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the observations made by the Supreme Court have no relation to the measure of tax, to any component thereof or to any considerations relevant to the measure of tax. He has also tried to argue that this decision merely relates to the rational connection between the tax and the persons on whom it is imposed. It is true that this decision does not deal with the measure of tax. But can it, therefore, be said that this decision authorizes the collection in the name of excise duty of something else which clearly falls within the State List or can it be said that it is totally irrelevant and inapplicable to the question which we are called upon to answer ? We think not. 11. In Union of India and another v. Delhi Cloth and General Mills Co .Ltd., AIR 1963 S. C. 791 = 1977 E.L.T. (J 199), the Supreme Court has laid down that the excise duty is a tax on the manufacture of goods and not on their sale. Mr. Vakil has tried to distinguish this decision by arguing that it deals with the taxable event in case of a duty of excise and does not deal with the measure of tax. This is no reply at all because if manufacture or production is the taxable event for levying an excise duty, the latter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... form in its incidence. Secondly, it must be closely related to production or manufacture of goods. Thirdly, if a levy is made not at the moment of manufacture or production but at later stage, it does not matter. Fourthly, if a duty has been levied on an excisable article but is collected from a dealer, it does not necessarily cease to be an excise duty. Fifthly, if the levy is made for the privilege of selling an excisable article and if the excisable article has already borne the duty and the duty has been paid, there must be clear terms in the charging section to indicate that what is being levied for the purpose of privilege of sale is, in fact, a duty of excise. This question arose in the context of the Mysore Health Case Act (28 of 1962). In reply, Mr. Vakil has only stated that this decision deals with the levy and not the measure. He did not amplify his reply and left us to guess what he was driving at. If he could not show his desideratum, we would not, on our own, venture to discover one for him. 14. In South Bihar Sugar Mills Ltd. and another etc. v. Union of India and another etc. - AIR 1968 S.C. 922=1978 E.L.T. (J 336), in the context of kiln gas produced by lim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g profits arising from post-manufacturing operations, viz. the sale ought to be excluded. Next, while determining the assessable value of goods for the purpose of excise duty, manufacturing costs and manufacturing profits alone should be taken into account and they must not be loaded with post-manufacturing profits arising from post-manufacturing operations. In this context, it has been observed that the price charged by the manufacturer on the wholesale goods would represent the real value of the goods for the purpose of assessment of excise duty. Adverting to the attempt to assess excise duty on the price charged by the wholesaler and not by the manufacturer from whom the wholesaler has purchased the excisable goods, this is what the Supreme Court has observed : "If the price charged by the wholesale dealer who purchases the goods from the manufacturer and sells them in wholesale to another dealer were taken as the value of the goods, it would include not only the manufacturing cost and the manufacturing profit of the manufacturer but also the wholesale dealer's selling cost and selling profit and that would be wholly incompatible with the nature of excise. It may be noted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce if it holds it valid. Therefore, it is erroneous to say that the interpretation placed by the Supreme Court upon repealed Section 4 has no connection whatsoever with Entry 84 in the Union List. For the purpose of determining the legislative competence of Parliament and for the purpose of finding out the mischief which the Parliament has tried to cure, we are bound to take into account the binding principles laid down by the Supreme Court. What the Parliament has now done by amending Section 4 is not what was done by the Central Excise authorities earlier. The executive action of the Central Excise authorities was called in question in the earlier decisions. In order to get over the decisions of the Supreme Court in this behalf, the Parliament has amended section 4. But, amended Section 4 cannot enjoy greater sanctity if the Parliament does not have the legislative competence to enact it. In this behalf, it will be appropriate to note the STATEMENT OF OBJECTS AND REASONS published when Section 4 was amended. This is what is stated in that Statement : "With the increase in the ad valorem levies in the Central Excise Tariff, the operation of that section has presented certain pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cise duty should be essentially linked with production or manufacture of an excisable article, though it may be recovered in the form of a licence fee (paragraph 10 of the report). Where, however, the levy or tax has no nexus with the manufacture or production of an article, the impost or tax cannot be regarded to be one in the nature of excise duty. 19. It is clear from all these decisions rendered during a period of 37 years from 1939 to 1976 that a duty of excise within the meaning of Entry 84 in the Union List is a tax on manufacture or production. In other words, it must be linked with manufacture or production of an excisable article. It can be levied on the assessable value of excisable goods which consists of manufacturing costs and manufacturing profits and which cannot be loaded with post-manufacturing costs and post-manufacturing profits such as those which arise out of subsequent sales. Once the link of the levy with the manufacture or production of an excisable commodity has been established, it does not matter at what stage it is recovered. 20. The learned Counsel appearing on both the sides have invited our attention to certain unreported decisions of o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Our attention has also been invited to certain decisions which have a bearing upon the principles of construction. In Chaturbhai M. Patel v. Union of India and others, AIR 1960 S.C. 424, the principle which has been laid down is : "In every case where the legislative competence of a legislature in regard to a particular enactment is challenged with reference to the entries in the various Lists it is necessary to examine the pith and substance of the Act and if the matter comes substantially within an item in the Central List it is not deemed to come within an entry in the Provincial List even though the classes of subjects looked at singly overlap in many respects. It is within the competence of the Central Legislature to provide for matters which may otherwise fall within the competence of the Provincial Legislature if they are necessarily incidental to effective legislation by the Central Legislature on a subject of legislation expressly within its power. Moreover, it is a fundamental principle of constitutional law that everything necessary to the exercise of a power is included in the grant of the power." 24. In Patel Gordhan Das Hargovinddas and others v. The Municipal Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mises of manufacture or production for delivery at the place of manufacture or production or if a wholesale market does not exist for such article at such place, at the nearest place where such market exists, or ...". We are not concerned with clause (b) of Section 4 in the instant case. Section 4 after its amendment, inter alia, provides as follows :- "4(1) Where under this Act, the duty of excise is chargeable on any excisable goods with reference to value, such value shall, subject to the other provisions of this section, be deemed to be- (i) 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 whole-sale 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) ... (ii) ... (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 such related person shall be deemed to be the price at which they are ordinarily sold by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the manufacturer charges "a related person" a fully commercial price representing the manufacturing costs and manufacturing profits, can it be ignored ? Section 4 wants it to be done. Parliament, under Entry 84 in the Union List, cannot levy excise duty upon anything other than manufacturing costs and manufacturing profits. However, Section 4 wants the fully commercial price a manufacturer charges his "related person" to be ignored. If it is ignored, which is the price which should be taken into account ? 30. Proviso (iii) to clause (a) of sub-section (1) of Section 4 if read in light of the principal part of sub-section (1) of Section 4, makes it very clear to us that in case of a sale to a "related person", the price which that related person charges his buyer is the assessable value for the purpose of assessing excise duty even though the buyer, in his turn, must have paid the manufacturer the commercial price fully reflecting the manufacturing costs and the manufacturing profits. Therefore, even though the "related person" pays the manufacturer a fully commercial price, the manufacturer is required to pay the excise duty on the price which the "related person" charges his b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tween the two has been at arm's length. Now, this fully commercial price, in terms of sub-section (1) of Section 4, must be ignored and the second or subsequent price which the manufacturer's buyer charges his buyer must be taken into account as the assessable value of the excisable goods. The second price will consist of four elements: (i) manufacturing cost and (ii) manufacturing profits which the manufacturer's buyer (related person) has paid the manufacturer; (iii) selling cost and (iv) selling profits of the manufacturer's buyer (the related person). It cannot be gainsaid that selling costs and selling profits of the "related person" has nothing to do with the manufacturing activity. It is a pure transaction of sale totally unrelated to manufacturing activity of the manufacturer. In fact, it is a post-manufacturing activity. In our opinion, any tax on selling costs and selling profits will be a sales tax and will entrench upon Entry 54 in the State List. 32. We have no doubts in our minds that the central excise authorities are entitled to ignore all the first or subsequent prices which do not reflect the manufacturing costs and manufacturing profits but are reflected b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lated person", it does not mean that the price which he pays even though it is a fully commercial price should be ignored and that the second price should be taken into account. Therefore, "related person" or no 'related person' as long as the manufacturer charges his buyer a fully commercial price, reflecting manufacturing costs and manufacturing profits, it ought to be taken into account for the purpose of determining the assessable value for excise duty. 35. Again, "related person" or no "related person" if a manufacturer charges his buyer a concessional price which is deflected by extra-commercial considerations and which does not fully reflect the manufacturing costs and manufacturing profits, the central excise authorities are entitled to ignore it. In other words, the test of "transaction at an arm's length" which the Supreme Court has evolved in several decisions to which we have referred is the only test by which an assessable value for the purpose of excise duty can be determined. If a transaction is at an arm's length, the price paid by the manufacturer's buyer determines the assessable value. If the transaction is not at an arm's length, then, whoever is the buye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat this was not an Emergency legislation. The amending legislation was enacted on 19th May, 1973. It received the Presidential assent on 21st May, 1973. Except Section 2, which amended Section 4 of the Excise Act, all provisions came into force at once on 21st May, 1975. Section 2 which amended Section 4 was brought into force on 1st October, 1975 by a notification issued on 8th August, 1975. According to Mr. Bhatt, these facts show that the material section of the amending Act-Section 2,- which amended Section 4 was enacted before the second Emergency was proclaimed. We are not expressing any opinion on this aspect because the petitioners did not have a reasonable opportunity to meet it on account of the fact that the respondents did not raise it in their affidavits-in-reply. 39. Mr. S.B. Vakil has next argued that constitutional validity Section 4 or a part thereof which is a machinery section cannot be challenged unless the constitutional validity of Section 3 which is the charging section is challenged. We do not find any substance in this argument of his. It is true that when Parliament levies a tax, it also provides machinery for collecting it. Ordinarily, if the levy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere is any encroachment which Section 4 makes on the legislative field earmarked for a State Legislature under Entry 54 in the State List, it is incidental and that such an impost, in pith and substance, falls under Entry 84 in the Union List. In the first instance, what the Parliament has done by amending Section 4 is not an incidental encroachment upon the State List, because the Parliament has classified manufacturers and producers into two categories: (i) those who sell their products to or through "related persons" and (ii) the rest. In case of the first mentioned class of manufacturers or producers, Parliament wants the second price to be taken into account and not the first price even though the first price fully reflects manufacturing costs and manufacturing profits. Under these circumstances, it is difficult to bring into play the doctrine of incidental encroachment or the doctrine of pith and substance to cure the constitutional vice. Next, since the machinery section enacted by Parliament directly encroaches upon the State List, the doctrine of incidental encroachment or the doctrine of pith and substance cannot be brought into play. 43. He has also tried to show ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is "in pith and substance" apart from the mere machinery by which it is assessed. He has also relied upon the next observation that the measure of tax is not the test. This observation was borrowed from a reference to the Government of Ireland Act, 1920 (1936 A.C. 352) 46. The next decision upon which he has relied is Ralla Ram v. The Province of East Punjab, AIR 1949 F.C. 81. In that case, tax on buildings payable by the owner was levied under Punjab Urban Immovable Property Tax Act, 1940. The question which arose was whether it was a tax within the legislative competence of the Provincial Legislature under Entry 42, List II, Seventh Schedule, Government of India Act, 1935 or whether it was an income-tax falling under the federal legislative list in the Government of India Act, 1935. Therein, the Federal Court has referred with approval to the observations of Lord Atkin in Gallagher v. Lynn, 1937 A.C. 863 to the effect that the Court has to look at the "turn nature and character of the legislation" and "the pith and substance of the legislation". If, on the view of the statute as a whole, the Court finds that the substance of the legislation is within its express powers, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer, Calcutta and others, AIR 1969 S.C. 59, a similar question arose in the context of Wealth tax Act under which assets were adopted as the basis of valuation. That basis was challenged on the ground that it fell under Entry 49 in the State List and not under Entry 86 in the Union List. That argument was negatived by the Supreme Court with an observation that, assuming that there was some overlapping between the two Entries, tax on the capital value of assets bears no definable relation to lands and buildings which may form a component of the total assets of the assessee. 50. In The Second Gift Tax Officer, Mangalore, etc. v. D.H. Haxareth etc., AIR 1970 S.C. 999, the question of overlapping entries arose in the context of Gift Tax Act, 1959. It was held that it fell under Entry 97 in the Union List, the residuary entry and not under Entry 49 in the State List. The doctrine of "pith and substance" was applied in this case. 51. These decisions which Mr. Vakil has cited bring out two doctrines to which we have already referred: (i) the doctrine of incidental encroachment on the forbidden field and (ii) the doctrine of pith and substance. It also brings out the principle t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n A.B. Abdulkadir and others v. The State of Kerala and another, AIR 1962 S.C. 922. It has been laid down in that decision that while a duty of excise is a tax on goods produced or manufactured in the taxing country, the levy of sale-tax pre-supposes levy thereof on each sale and that it is the essence of sales-tax. 56. In Deputy Commercial Tax Officer, Saidapet (in all the appeals), Madras and another v. Enfield India Ltd. Cooperative Canteen Ltd. (in all the appeals), AIR 1968 S.C. 838, the question as to what was the meaning of the expression 'sale of goods' within the meaning of the relevant legislative entries in the Constitution and in the Government of India Act, 1935 in the context of the said expression used in the Sale of Goods Act, 193O,' arose before the Supreme Court. In that context it has been observed that the expression 'sale of goods' used in Entry 54 in the State List bears the same meaning which has been given to it in the Sale of Goods Act, 1930, and that, therefore, the State Legislature may legislate in respect of a series of acts beginning with an agreement of sale between parties competent to contract and resulting in transfer of property from one of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le value or even at 200% of the assessable value. This argument has been pressed into service in order to show that so far as the rates of taxes are concerned, the Parliament does not suffer from any fetters. It may be so. Assuming that Parliament has unlimited power to levy excise duty at any rate, it may do so but whatever rate it prescribes must be in relation to the manufacturing cost and manufacturing profits of an excisable commodity. However, it cannot prescribe a lower rate and provide machinery under which tax is realized in a larger quantity and under some other head which is not within its legislative competence. 62. In this context, we were surprised to hear the argument raised by Mr. Vakil that if what the petitioner's learned Counsel has contended is true, excise duty can be levied only on the exact assessable value representing the manufacturing costs and manufacturing profits and not on less than that assessable value. This argument proceeded on a thorough misconception and total confusion. If a Legislature has the constitutional competence to do a particular thing, it may do the whole of it or a part of it but it cannot do more. Therefore, if the Legislature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the legislative competence of a Legislature in the context of a particular enactment, it is open to the Court to take all reasons into account and to find out the source of power under which it has enacted a particular legislation. If the Court finds that the Legislature which has enacted a particular legislation has entrenched upon the forbidden field, the Court is bound to strike it down. Date 21-2-1979 65. In a possible attempt to escape the rigour of the principles laid down by the Supreme Court in its several decisions, Mr. Vakil would not call Section 4 the machinery section or the assessment section but he would call it a valuation section. We do not propose to quarrel with mere nomenclature even where it departs from settled expressions. We are required to test it on the anvil of Parliament's legislative competence. We are of the view that, in a given case, it can be tested on the anvil of constitutional competence if it entrenches upon the constitutionally forbidden field. A federal Constitution which provides for distribution of powers between the Centre and the States eschews unlimited power for the Centre and sets limits to the powers of the Centre as well as St ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ried to justify the constitutionality of Section 4 by relying upon Entry 92A in the Union List. This argument has been advanced because, Mr. J.C. Bhatt, learned Counsel for the petitioner, has argued that, under amended Section 4, the Parliament has been directing the Central Excise authorities to collect, in the name of excise duty, a sales-tax. Indeed, a part of the excise duty assessed under Section 4 is in our opinion a sales-tax. Mr. Vakil has tried to argue that if it is a sales-tax, it is saved under Entry 92A. Entry 92A of the Union List reads thus: "Taxes on the sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce." Mr. Vakil has tried to inject force in his argument by stating that the sales to "related persons" may take place at the factory gate and that the Parliament may provide a measure which not only brings in the excise duty levied under Section 3 but also a sales-tax leviable under Entry 92A. We are not impressed by this argument because the Central Sales-tax Act, 1956 is on the statute book. If we accept the argument raised by Mr. Vakil, we will be imputing to Parliament an inten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of taxes on sales of goods in the course of inter-State trade or commerce and to declare certain goods to be of special importance in inter-State trade or commerce and specify the restrictions and conditions to which State laws imposing taxes on the sale or purchase of such goods of special importance shall be subject." It is, therefore, clear that whereas one of the objects of the Central Sales-tax Act is to distribute at least a part of the collection amongst the States there is no intention to distribute amongst the States the tax assessed and collected under Section 4 of the Excise Act. It is clear, therefore, that, by amending Section 4, the Parliament was not expending the scope of levy under Section 3. Parliament was not thinking in terms of levying sales-tax under this Act. Parliament was thinking of strengthening the assessment machinery in order to make it effective. Therefore, though the Parliament could have provided any machinery for realizing the impost levied under Section 3, while doing so, it could not have entrenched upon the State List which is the forbidden field for it. The character of central sales-tax is very much different from the character of the exci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te, not exceeding fifty naya paise per kilogram of rubber so produced, as the Central Government may fix." The contentions which were raised were as follows: The duty sought to be imposed under Section 12 of the Rubber Act as amended was outside the ambit of Entry 84 in the Union List and, therefore, beyond the legislative competence of the Parliament. Section 12 (2) suffered from the vice of excessive delegation. We are concerned in this case with the answer which the Supreme Court gave to the first contention raised in that case. The Supreme Court referred with approval to the observations of Gwyer, C.J. in the Central Provinces case (supra) and held that the said impost did not fall within Entry 84 in the Union List. That position was not challenged by counsel who appeared for the appellant in that case. Therefore, the Supreme Court upheld the levy under Entry 97 because it was a kind of non-descript tax which was given the nomenclature of the duty of excise. Firstly, it was not a case of levy partly of excise duty and partly of something else. Secondly, it was conceded in that case that it was not an excise duty. Thirdly, the question whether the impost levied by Section 12 (1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court has never held earlier that the original Wealth Tax Act fell under Entry 86 in the Union List and that it only assumed that the original Wealth Tax Act fell within Entry 86 in the Union List. It has been further observed that on that assumption Entry 86 was analysed and contrasted with Entry 48 in the State List. Therefore, the final conclusion which the Supreme Court recorded in that behalf was that no part of the impugned legislation fell within Entry 86 in the Union List (vide paragraph 77 of the report). Therefore, that decision is not an authority for the proposition that the constitutionality of an impugned legislation can be defended both under a specific Entry and under the residuary Entry. It appears that the controversy has been set at rest by the Supreme Court in His Holiness Kesavananda Bharati Sripadagalvaru and others v. State of Kerala and another, AIR 1973 S.C. 1461. It appears that seven learned Judges out of thirteen who constituted the Bench have taken the view that if the subject of legislation was prominently present to the minds of the framers of the Constitution, they would not have left it to be found by recourse to the residuary power. Therefore, wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter dicta. Mr. Vakil who appears for the Union of India ought not to have advanced this shocking argument and ought not to have taken a lot of one time by citing decisions after decisions before us to show what is ratio decidendi, what is obiter dictum and what is a loose observation. At the High Court bar, such an attempt ought not to be made by the Central Government counsel before senior Judge of the Court. He could have safely assumed that we know the distinction between ratio decidendi, obiter dictum and a loose observation. It is not necessary for us to deal with each of those decisions again in order to find out whether they lay down ratio decidendi, obiter dictum or are merely loose observation. All of them lay down, in our opinion, ratio decidendi, much less obiter dicta or loose observations. The decisions showing the distinction between ratio decidendi, obiter dictum and a loose observation to which he has referred are as follows and are merely noted in this judgment out or sheer respect for him and for no other reason. (1) Mohandas Issardas v. A.N. Sattanathan, 56 Bom. L.R. 1156, (2) M/s. Ranchhoddas Atmaram and another v. The Union of India and others, AIR 1961 S.C. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Wealth-tax, Gujarat v. Raipur Manufacturing Company Limited, (1964) 52 lTR 482. It appears that there are three machinery sections in the Excise Act, Section 3(2), 4(1) and 4(2). 78. Mr. Vakil has argued in the context of amended Section 4 that the plea that a particular section is ultra vires another section of the same legislation cannot be raised. In other words, according to him, if the machinery section goes beyond the ambit of the charging section, it must be held that the machinery section modifies the charging section pro tanto but it cannot be held that the machinery section is ultra vires the charging section. He has in that context invited our attention to the decision of the Supreme Court in The Commissioner of Income-tax, Bombay City v. Godavari Sugar Mills Ltd., AIR 1967 S. C. 556, where the doctrine of partial implied repeal was brought into play. The question of partial implied repeal, or modification of Section 3 does not arise in the instant case. Our attention has been invited to two decisions of the Bombay High Court in State v. Ardeshir Hormusji Phiwandiwala, AIR 1956, Bom. 219 and in Special Civil Application No. 1066 of 1972 decided by Mr. Justice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indiscriminate resort to Entry 97 in cases where a party is kept at bay with reference to a particular Entry and secondly because, in his view, Section 3 did not define 'duty of excise' to take in only the manufacturing costs and manufacturing profits. While making this observation, the learned judge appears to have overlooked that the width and amplitude of the expression `duty of excise' was laid down by the Supreme Court in the context of Entry 84 in the Union List. Therefore, it is applicable both to Section 3 and to Section 4. Next, the observations which we have underlined in the extract reproduced above show that the learned Judge has summarily brushed aside the principles laid down by the Supreme Court in its several decisions-albeit in the context of Entry 84 in the Union List and Section 4 as it was prior to its amendment. We are of the opinion that it could not have been done. Basic principles bearing upon constitutional interpretation laid down by the highest Court of the country cannot, we say with respect, be so summarily brushed aside and shelved. They do not become irrelevant and inapplicable with the amendments which may be made to the statutes. On the contrary, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penses are so grossly exaggerated only to benefit the manufacturers so that they can make undue profits." With respect, this is an erroneous approach. What the mischief-mongers were doing and what difficulties the department was facing under the old law and what remedies have been provided by Parliament by amending the legislation to overcome such a situation are not so much relevant considerations as the constitutional competence of the Parliament to do so when vires of the amended legislation are challenged. We, therefore, do not subscribe to the approach made by the learned Judge. 81. The last contention which has been raised before us is that the manufacturer and the buyer are not "related persons". We have already quoted in the foregoing parts of this judgment the definition of "related person" given in Section 4. There are two ingredients in the definition. If any one of them is satisfied, the buyer can be said to be a "related person". Firstly, the manufacturer and the buyer must "have interest, directly or indirectly, in the business of each other. " Mr. Bhatt has argued that the words in quotation unfailingly show that there must be mutuality of interest or mutuali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the buyer, this element is lacking. The agreements which were examined by this Court in the case above referred to are still in force. In the affidavits filed on behalf of the department, nothing has been alleged against the agreements between the buyer and the manufacturer or between the buyer, the manufacturer and the Swiss company. 82. Let us now examine the second part of the definition of "related person". The question which arises in this context is this: Is the buyer a holding company, a subsidiary company or a relative of the manufacturer? Now, Explanation appended to the definition of "related person" expressly states that the expressions "holding company", "subsidiary company" and "relative" bear the same meanings as are assigned to them under the Companies Act, 1956. "Holding company" has been defined by Section 2 (19) of the Companies Act, 1956 as follows. "Holding Company" means a holding company within the meaning of Section 4. "Subsidiary company" has been defined by Section 2(47) as follows :- "Subsidiary company" or "subsidiary" means a subsidiary company within the meaning of Section 4. Both these definitions take us to Section 4 which provides as fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of clauses (c) and (d), any shares held or power exercisable- (i) by any person as a nominee for that other company (except where that other is concerned only in a fiduciary capacity); or (ii) by, or by a nominee for, a subsidiary of that other company, not being a subsidiary which is concerned only in a fiduciary capacity; shall be treated as held or exercisable by that other company; (c) any shares held or power exercisable by any person by virtue of the provisions of any debentures of the first mentioned company or of a trust deed for securing any issue of such debentures shall be disregarded; (d) any shares held or power exercisable by, or by a nominee for, that other or its subsidiary not being held or exercisable as mentioned in clause (c) shall be treated as not held or exercisable by that other, if the ordinary, business of that other or its subsidiary, as the case may be, includes the lending of money and the shares are held or the power is exercisable as aforesaid by way of security only for the purposes of a transaction entered into in the ordinary course of that business. (4) For the purposes of this Act, a company shall be deemed to be the holding comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the buyer is concerned, 65% of its shares are held by the Swiss company. The manufacturer holds no shares of the buyer. Therefore, requirements of clause (b) of sub-section (1) of Section 4 are not satisfied. So far as the requirement of clause (c) is concerned, it is also not satisfied because there is no evidence to show that the buyer is a subsidiary of any other company-in this case, Swiss company of which the manufacturer is also a subsidiary. Therefore, such a three-cornered relationship is also absent in this case. Section 2(41) of the Companies Act, 1956 defines "relative" as follows: "'relative' means, with reference to any person, any one who is related to such person in any of the ways specified in Section 6 and no others." Section 6 provides as follows : "A person shall be deemed to be a relative of another if, and only if, - (a) they are members of a Hindu undivided family; or (b) they are husband and wife; or (c) the one is related to the other in the manner indicated in Schedule 1A". Schedule 1A gives the list of relatives. Section 6 read with Section 1A clearly shows that it applies to human beings and not to impersonal legal entities such as companies. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said to have interest in the business of the assessee company. But, since the converse was not established, there was no mutuality of business interest between them. We are in respectful agreement with the principle laid down in that decision. In supports the view which we have taken. So far as holding of shares was concerned, only Bajaj Electricals Ltd,. Bombay,held shares of the assessee company. The remaining four customer companies did not hold any shares of the assessee company. In other words, they were different companies though their names were similar of the assessees companies. lt was also contended on behalf of the Union of India in that case that four customer companies were respectively associated companies of the four foreign companies which held shares of the assessee company and that, therefore, the said four customer companies must be held to have interest indirectly, if not directly, in the business of the assessee company. That argument was turned down. 85. The department has treated the manufacturer and the buyer as "related persons" because of the declaration made under the Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act) stating that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iding the case under the Excise Act. 90. The next proposition which Mr. Bhatt has tried to make out is that the impugned orders could not have been supported on the grounds other than those which were stated in the orders themselves. The two orders Annexures "J" and "J/1" state certain ground for holding that the manufacturer and the buyer are "related persons". Those grounds are sought to be reinforced by certain facts in the affidavits filed on behalf of the department. The orders made by the central excise authorities in the proceedings under the Excise Act are proceedings of a quasi-judicial character. Therefore, the support for what has been stated in the impugned order must be found from the order itself. It cannot later on be found from outside the impugned orders to cloak them with the garb of validity, Mr. Bhatt has, in this context, invited our attention to the observations made by the Supreme Court in Mohinder Singh Gill and another v. The Chief Election Commissioner, New Delhi and others, AIR 1978 S.C. 851. They were made In the context of the Representation of the People Act, 1951 and are as follows :- "When a statutory functionary makes an order based on certa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assuming that it is so though we have decided otherwise, the central excise authorities have no jurisdiction to assess excise duty on the second price and to ignore the first price. It, therefore, raises a jurisdictional question. We have, therefore, decided the second contention. 92. In the result, we hold that the expression "where the buyer is not a related person" used in Section 4 (1) (a) of the Excise Act is ultra vires to Article 246 read with Entry 84 in the Union List and that the manufacturer and the buyer are on facts also not "related persons". Therefore, the petitioner is liable to pay excise duty in respect of its products on the first price which it charges the buyer. In that view of the matter, we allow the petition and issue a writ of mandamus directing the respondents to cancel their orders at Annexures "J" and "J/1" and refund to the petitioner the sum of Rs. 28,79,093-35 P. which they have collected on the basis that excise duty is leviable on second price which the buyer charges his buyer. It will be open to the respondents to refund this amount to the petitioner within six month from to-day. This amount shall be refunded with interest at the rate of 6% ..... X X X X Extracts X X X X X X X X Extracts X X X X
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