TMI Blog1979 (10) TMI 83X X X X Extracts X X X X X X X X Extracts X X X X ..... Collectors of Central Excise to "issue written instructions providing for any supplemental matters arising out of these rules". 2. With a view to encourage the production and manufacture of paper, the Central Government issued a Notification under Rule 8, being Notification No. 198/76, dated 16-6-1976 (amended latter under Notification No. 216/76, dated 24-7-1976). Under this Notification, manufacturers of specified commodities and paper is one of the commodities mentioned therein are entitled to 25% reduction in the Central Excise duty leviable on clearances of their manufacture which are in excess of the clearances in the "base period", subject to the prescribed conditions. The relevant portion of the Notification reads as follows :- "In exercise of the powers conferred by sub-rule (1) of rule 8 of the Central Excise Rules, 1944, the Central Government hereby exempts the excisable goods of the description specified in column (3) of the Table herein annexed (hereinafter referred to as the specified goods) and falling under such item number of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944), as are specified in the corresponding Entry in column (2) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessable value of the goods assessed on ad valorem basis (except those for which tariff values have been fixed) sought to be cleared under this scheme will have to be adjusted according to the formula prescribed and the duty computed on the higher assessable value so arrived at.......". Inasmuch as the petitioner, admittedly did not pass on the benefit of exemption to the consumer, the petitioner was held disentitled to claim the benefit of the said notification. Accordingly, he confirmed the demand of Rs. 2,826.76 ps. on the R.T. 12, for March, 1977. 4. The instructions referred to in the order of the Assistant Collector are the instructions issued by the Government of India under Rule 233, communicated to all the officers by the Collector of Central Excise, Guntur, under Trade Notice No. 46/77, dated 5-3-1977. The relevant portion of the instructions can usefully be set out : "In June, 1976, Government had brought into force a scheme under which manufacturers of specified commodities would be entitled to 25% reduction in the Central Excise duty leviable on clearnances of their manufacturers which were in excess of the clearances in the "base period" subject to prescribe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acture of goods alone, and on nothing else. The instructions, according to the counsel, in effect amount to adding a part of the Excise duty to the value of the goods determined under section 4, which is impermissible. 7. On the other hand, it is contended by Shri K. Subrahmanya Reddy, the learned Standing Counsel for the Central Government that the instructions issued by the Central Government are merely explanatory in nature and are not in any manner inconsistent with the provisions of the Act, or the concept of excise duty as such. He laid stress upon the definition of the expression "Value" in clause (d) of sub-section (4) of section 4 (amended) and submitted that while determining the normal price of the goods under the said provision, only the amount of duty of excise actually paid by the petitioner should be deducted, and nothing more. Both the Counsel relied upon certain decisions, which I shall refer to at the proper stage. 8. Entry 45 in the Federal Legislative List, in the Seventh Schedule to the Government of India Act, 1935, which read : "duties of excise on tobacco and other goods manufactured or produced in India ....................................", empowered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olesale cash price", and prescribes the mode in which the normal price of the article is to be determined. Since the definition of the expression " Value" in section 4(4)(d), constitute the sheet-anchor of Mr. K. Subrahmanya Reddy's case, it may well be set out : (d) "Value", in relation to any excisable goods.............................. (i) x x x x (Omitted as not relevant) does not include the amount of the duty of excise, sales-tax and other taxes, if any, payable on such goods and, subject to such rules as may be made~ the trade-discount (such discount not being refundable on any account whatsoever) allowed in accordance with the normal practice of the wholesale trade at the time of removal in respect of such goods sold or contracted for sale.' 10. Before the amendment of section 4 it was unequivocally held by the Supreme Court and other Courts in India that the duty can be levied only on the manufacturing cost and manufacturing profit alone, and on nothing else. It was held that the assessable value cannot be loaded by including other items and that, all post-manufacturing cost and expenses have to be .deducted from out of the 'wholesale cash price' to arrive at the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rers who pass on the benefit of exemption to the buyer/consumers. As pointed out by a Bench of the Delhi High Court in Modi Rubber Limited v. Union of India others, 1978 (2) E.L.T. (J 127), this omission is not insignificant. V.S. Deshpande J., in his opinion has referred to Notification G.S.R. 1089, dated 29-4-1969, which expressly stated that the benefit of exemption was to be available only to those manufacturers who produced proof to the satisfaction of the Collector that such benefit has been passed on by them to the buyers. Indeed H.L. Anand, J., has stated in his opinion that the Counsel for the Government of India did not dispute before them that on a number of earlier occasions, when similar exemptions were given, the frame of the concerned notifications was such that the exemption was subject to the benefit of it being passed on to the consumer by a suitable notification in the pricing policy of the industry. The absence of such a provision in the instant notification was very much deplored by the learned Judge, who expressed himself very strongly on that score. 12. Now, the first contention of Mr. K. Srinivasa Murthy is that the said omission cannot be supplied by wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vied/assessed ad valorem. The definition of the expression 'value' merely says that, where the goods are delivered, at the time of removal, in a packed condition, the cost of such packing shall also be included in the value, unless the packing is of a durable nature and is returnable by the buyer to the assessee. Clause (ii), which is relied upon by the learned Counsel, says further that, from out of the value of the article, the amount of excise duty, sales-tax, other taxes, and the Trade-discount allowed in accordance with the normal practice of the wholesale trade, shall also be deducted. Hereinbefore I have referred to the decisions of the Courts stating that duty is leviable only on the manufacturing cost and manufacturing profit alone and that, the other expenses or costs, including post-manufacturing expenses, cannot be added/loaded to the manufacturing cost and profit, while assessing the value under Section 4. Clause (ii) of the definition, in my opinion, merely reiterates the same principle. though, no doubt, it is not supposed to be exhaustive. It specifically refers to excluding the amount of excise duty, sales-tax, other taxes and the trade-discount the latter in accor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exemption. That decision was dissented from by the Calcutta High Court, which held that for the purpose of exemption notification, the duty cannot be exempted. The following observations of the court are opposite. "The words... in Rule 8 are material and should, in our view, be decisive. What is exempted is the excisable goods". What is exempted is "the whole or any part of duty leviable on such goods". Unless the duty is levied, the exemption cannot be granted. Therefore, I am of the opinion that after the levy of the duty if the value of the goods is below Rs. 5.80 then alone it is exempted. To take the view which the Patna High Court does, "the liability to excise duty is not to be determined upon the wholesale cash price", is to apply the same meaning to the word "value" in the notification, of exemption dated 24th July, 1967, and to the "value" in section 4 of the Act and in the Explanation thereto. As at present advised, I do not see any warrant for it. All that section 4 of the Act does is to lay down the formula or this principle for "determination of value for the purposes of duty". It does not lay down any principle or formula for the determination of the value for an e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It claimed deduction of the same. The department disallowed it on the ground that there were certain sales by the petitioner to persons other than Bawa Agencies in which no discount was allowed. It has however, found that the sale to persons other than Bawa Agencies, aggregated to less than 1% of the total sales, and that they were really to the workmen of the Petitioner and other private parties, and not to dealers. In that situation, the Kerala High Court sent the matter back to the assessing authority, observing that without examining the relevant material, the assessing authority has jumped to the arbitrary conclusion that sales to persons other than Bawa Agencies were wholesale sales. I am unable to see any relevance of the principle of the said judgment, in the present case. 17. Counsel for the Department then relied upon a decision of this court in Coramandal Fertilisers Ltd. v. Union of India and Three Others - 1979 (4) E.L.T. (J 501) (at page 509). This again is a case arising under the un-amended Section 4. One of the contentions of the petitioner therein was that the 3 1/2% commission paid by it to its selling agents should be deducted from out of the assessable val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Explanation, the proper course was to eliminate the element on excise duty from the price of the medicine in the first instance, and then allow discount of 25% on the net price arrived at after the deduction of excise duty. The Court agreed with the departments' contention, observing that if the petitioners' contention were to be accepted, it will mean that in giving 25% discount the excise content will also be included for the purpose of deduction, which certainly could not have been the intention of the Act or the notification, I am of the view that the said decision also is of no relevance. 19. While parting with this case, I cannot but express my surprise at the strange attitude taken by the department. If benefit of exemption only to those manufacturer who passed on the benefit of the buyers/consumers, then nothing could have been easier than providing for the same, in the exemption itself. Indeed, in several such notifications issued earlier, such a provision was specifically made. It is intriguing to know why no such provision was made in the notification concerned herein and why it was sought to be brought in by way of supplementary instructions under Rule 233. It is in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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