TMI Blog1979 (11) TMI 99X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, as it had done earlier, deduction of post-manufacturing expenses including freight and profits attributable to post-manufacturing operations at 9% supported by a certificate from the petitioner's auditors. The petitioner further pointed out that there had been no change in this position even after the coming into force of the new Section 4 on 27th September, 1975, the Assistant Collector, Central Excise, addressed a letter to the petitioner approving the price list without taking into consideration the petitioner's deduction of 9% on the ground that the deductions claimed by the petitioner were not permissible under the new Section 4 of the Act as in that section there was no provision for deduction of post-manufacturing expenses. By its letter dated 30th September, 1975 addressed to the Assistant Collector, the petitioner expressed its inability to accept the latter's decision and stated that the duty would be paid by the petitioner under protest, which between 1st October, 1975 and 30th November, 1975, the petitioner paid in the aggregate sum of Rs. 31,94,680.49. On 18th December, 1975, the petitioner filed the present petition for an appropriate writ to set aside the order d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n shall be allowed except in respect of the trade discount and the amount of duty payable at the time of the removal of the article chargeable with duty from the factory..... .". 5. The new Section 4 which came into force from 1st October, 1975 provides for the valuation of excisable goods for the purpose of charging of duty of excise and reads as under : "(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 - "(a) 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 wholesale 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 :" ***** "(b) where the normal price of such goods is not ascertainable for the reason that such goods are not sold or for any other reason, the nearest ascertainable equivalent whereof determined in such manner as may be prescribed"." ***** The question that arises is whether on an interpretation of the new Section 4, it can be constr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e loaded with post-manufacturing profit arising from post-manufacturing operation and that 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. 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 would also violate the concept of the factory-gate sale which is the basis of determination of value of the goods for the purpose of excise. 8. Nearer home is the decision of the Division Bench of this Court in Indian Tobacco Co. Ltd. v. Union of India and Others, 1979 (4) E.L.T. (J 476), where it was held that Section 3(1) is the charging section which creates the liability to pay the excise duty while the provisions of Section 4 are in the nature of machinery provision, with the result that anything said therein must be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the post-manufacturing profit has got to be ignored for finding out the assessable value for levying the excise duty at the rates laid down in the Schedule...... In other words, the true character of excise duty is the tax on production and manufacture of goods. It would, therefore, follow that a levy of excise duty to be valid must be based on the production or manufacturing cost in addition to the manufacturing profit as the basis of excise duty. The valuation for the purpose of levying excise duty thus solely depends on the production and manufacturing cost and manufacturing profit of the product. This necessarily would exclude in inflation of cost and profit by the weighted average method or otherwise 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......... On reading the provisions of Section 3(1) and 3(2) and Section 4 together, it appears to us that it being a tax on production and manufacture of goods, the outer limit for fixation of the assessable val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acturing costs and expenses. If the price charged by the manufacturer or producer to his first buyer includes post-manufacturing costs or expenses which are unrelated to the manufacture or production, the price must be relieved of such loading arising out of the inclusion of post-manufacturing expenses and costs for the purposes of determining the assessable value. For the purpose of determining the assessable value under Section 4 of the Act, as it stood prior to 1-10-1975, the `wholesale cash price' was to be ascertained. After the amendment from 1-10-1975, the `normal price' is to be ascertained. Section 3 of the Act authorising the levy of excise duty on the manufacture and production of goods, it may be noted, is left intact and has not been amended by the Amending Act of 1973. What is more, the concept of `Factory Gate sale' which was the basis for determination of the assessable value under section 4 of the Act, as it stood prior to the amendments, is re-affirmed in the amended section and in the definition of `normal price' contained in the amended Section 4, the element of sale of goods for delivery at the time and place of the removal has been preserved. The basis of exci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Grover are lesser in value than the wholesale market rate for sales effected at factory gate. On account of all these factors also, the petitioner's challenge about the correctness of the impugned order has to be sustained." 13. The construction of the new Section 4 also came up for determination before the Division Bench of the Kerala High Court in Madras Rubber Factory Ltd. v. Assistant Collector of Central Excise, Kottayam, 1979 (4) E.L.T. 397, where it was held that the post-manufacturing expenses and profits cannot be included in the assessable value because inclusion of post-manufacturing expenses would indicate that the levy is something other than a duty of excise. 14. On the interpretation of the new Section 4, the Delhi High Court held in Madras Rubber Factory Ltd. v. Union of India, 1979 (4) E L.T. 173 that the value of goods for the purpose of excise should take into consideration only the manufacturing cost and the manufacturing profits without being loaded with post-manufacturing cost or profits arising from post-manufacturing operation. In that case also, reliance was placed on the decision of the Supreme Court in the Atic Industries case. 15. The new Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e which arise out of subsequent sales." (The underlining is mine.) It was further held that it was wrong to say that having imposed excise duty under the charging section, unrelated, strange or unconnected measures can be provided to realise it and such measures need not necessarily have any relation whatsoever to the impost levied under the charging section. 17. Mr. Setalvad's contention, there, is supported by not less than six decisions of various High Courts in India, which, briefly recapitulated, have held that under the new Section 4, excise is levied only on the amount representing the manufacturing cost plus the manufacturing profit and excludes post manufacturing costs and profit arising from post-manufacturing operations, namely selling profit. These decisions bring out in bold relief that the normal price for the purpose of levy of duty cannot be burdened with post-manufacturing costs, expenses and profits unrelated to the production of the goods. With these decisions I am in respectful agreement. Thus the ratio laid down under the old Section 4 in Voltas case, Atic Industries case and the Indian Tobacco case, is the same even under the new Section 4. 18. The emp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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