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Modi Vanaspati Mfg. Co. Vs. Collector of Customs and Central - Court Judgment

LegalCrystal Citation
CourtCustoms Excise and Service Tax Appellate Tribunal CESTAT Delhi
Decided On
Reported in(1985)(22)ELT615TriDel
AppellantModi Vanaspati Mfg. Co.
RespondentCollector of Customs and Central
Excerpt:
1. these are two revison applications (hereinafter called appeals) filed before the central government which under section 35p of the central excises and salt act, j944, stand transferred to this tribunal to be disposed of as if they were appeals presented before the tribunal.2. these appeals related to the valuation to be adopted for levy of central excise duty on vegetable product which was eligible for partial exemption from duty in terms of notification no. 23/75-c.e., dated 1-3-1975 (and earlier, for a short period, in terms of notification no.230/72, dated 15-12-72, as amended by notification no. 111/73, dated 28-4-1973). under that notification vegetable product in the manufacture of which indigenous cotton seed oil was used was exempt from so much of the duty of excise leviable.....
Judgment:
1. These are two revison applications (hereinafter called appeals) filed before the Central Government which under Section 35P of the Central Excises and Salt Act, J944, stand transferred to this Tribunal to be disposed of as if they were appeals presented before the Tribunal.

2. These appeals related to the valuation to be adopted for levy of Central Excise duty on vegetable product which was eligible for partial exemption from duty in terms of Notification No. 23/75-C.E., dated 1-3-1975 (and earlier, for a short period, in terms of Notification No.230/72, dated 15-12-72, as amended by Notification No. 111/73, dated 28-4-1973). Under that Notification vegetable product in the manufacture of which indigenous cotton seed oil was used was exempt from so much of the duty of excise leviable thereon as was equivalent to the amount calculated at the rate specified in the Table annexed to the Notification. Column 3 of the Table set out different rates per tonne depending on the proportion of indigenous cotton seed oil used to the total weight of the vegetable product manufactured. Thus, where the cotton seed oil used was in excess of 30% but not in excess of 40% of the total weight of the vegetable product manufactured, the extent of exemption was at the rate of Rs. 200/- per tonne on the cotton seed oil which was in excess of 30% of the total weight of the vegetable product manufactured. On cotton seed oil in excess of 40% but not in excess of 50% of the total weight of the vegetable product, the rate of exemption was Rs. 250/- per tonne. On cotton seed oil in excess of 50% of the total weight of the vegetable product manufactured, the exemption was again at the rate of Rs. 200/-per tonne. As is implicit in the slab rates given above, no exemption was admissible where the cotton seed oil did not exceed 30% of the total weight of the vegetable product manufactured. Further, under the Notification the exemption was to be calculated on the basis of specified periods, generally half years.

Notification No. 230/72, dated 15-12-1972, was on the same pattern, though some of the details differed.

3. Appeal No. ED (SB) (T) 92/77A relates to assessments for the period 5-1-1975 to 30-6-1975. Appeal No. ED (SB) (T) 93/77A relates to the period 1-7-1975 to 31-12-1975.

4. Appearing before us for the appellants, Shri Ravinder Narain, Advocate, pointed out that the periods covered fell into two categories, namely, prior to 1-10-1975 and on or after 1-10-1975. The significance of this date is that by virtue of Section 47 of the Finance Act, 1982, an Explanation was inserted under Sub-clause (ii) of clause (d) of Section 4 (4) of the Central Excises and Salt Act, 1944, denning "value" in relation to any excisable goods. This Explanation reads as follows : "For the purposes of this Sub-clause, the amount of the duty of excise payable on any excisable goods shall be the sum total of: (a) the effective duty of excise payable on such goods under this Act ; and (b) the aggregate of the effective duties of excise payable under other Central Acts, if any, providing for the levy of duties of excise on such goods, and the effective duty of excise on such goods under each Act referred to in clause (a) or clause (b) shall be,- (i) in a case where a notification or order providing for any exemption (not being an exemption for giving credit with respect to or reduction of duty of excise on such goods equal to, any duty of excise already paid on the raw material or component parts used in the production or manufacture of such goods) from the duty of excise under such Act is for the time being in force, the duty of excise computed with reference to the rate specified in such Act in respect of such goods as reduced so as to give full and complete effect to such exemption ; and (ii) in any other case, they duty of excise computed with reference to the rate specified in such Act in respect of such goods." [Sub-clause (i) above was further amended through the Finance Act, 1984, but that amendment has not been incorporated above, since it is not relevant in connection with the present appeals] Section 47 ibid made a further provision which, briefly stated, had the effect of giving the above Explanation retrospective effect for the period from 1-10-1975 to 27-2-1982.

5. It is commonly accepted that the above amendment was in consequence of the view taken by the Delhi High Court in the case of Modi Rubber Ltd., Modinagar v. Union of India and Ors., 127. Since the amendment was specifically made retrospective for the period from 1.10.1975 onwards, the position in law for the two periods would have to be considered separately.

6. For the period prior to 1-10-1975, Shri Ravinder Narain relied strongly on the above mentioned judgment of the Delhi High Court in Modi Rubber Ltd. He specifically referered to paragraph 21 to 23 of that judgment, which are reproduced below :- "21. Mr. Dewan further pointed out that in order to determine the excise duty leviable on the items produced by the petitioner, it is necessary first to determine the assessable value under Section 4 of the Act. It is only after the assessable value is determined that the excise duty leviable thereon is ascertained. It is erroneous to suggest, as is done by the Government, that assessable value will have to be again determined after taking into consideration the relief and exemption granted under the notification, dated 16th June, 1976. It is neither intended by the notification nor is it practicable that the assessable value should be determined, after giving effect to the relief and the exemption contemplated under the said notification. This in effect would be the stand of the Government by its insistence that it is only when the benefit of the rebate in duty is passed on by the manufacturer to the consumers that the manufacturer becomes entitled to the benefit of exemption from duty. In other words, if the price to the customer inclusive of duty remains the same and the duty leviable thereon is calculated and thereafter the relief permissible under the notification is reduced, as the Government intends to do, then according to the suggestion in the show cause notices, the assessable value would thereafter have to be recalculated and it would be higher than the assessable value in which the excise duty leviable was calculated in the first instance. Having arrived at this assessable value, if the duty is then to be calculated it would not be the same as before and in this manner the calculation would keep on changing. Such a procedure would lead to an absurd situation.

22. That this could not be the intention underlying the notification would also be clear from the fact that in cases where duty is calculated on the basis of fixed tariff values or weight or number, the benefit of the rebate of duty is not required to be passed on to the customer. If so, it is not understandable why the benefit of the rebate of the duty is required to be passed on to the consumers only in cases where the duty is to be calculated on the basis of the assessable value determined under Section 4 of the Act.

23. Giving different interpretations to the said notification in respect of goods subjected, on the one hand, to ad valorem duty and, on the other hand, duty on the basis of tariff values or weight or number, would lead to discrimination which cannot be justified on the basis of any reasonable classification between the two and would be contrary to Article 14 of the Constitution. We are in agreement with this contention of the petitioner." Shri Ravinder Narain submitted that there were a number of other judgments of the Delhi High Court to the same effect. It was pointed out to him by the Bench that he should specify the judgments that he was relying upon, so that the other side could have an opportunity of commenting on their applicability to these appeals. Thereupon Shri Ravinder Narain cited the judgment in the case of Indian Aluminium Co. Ltd. and Anr. v. Union of India and Ors. (1983 E.L.T. 349).

7. Shri Ravinder Narain submitted that the above mentioned judgments of the Delhi High Court were clearly applicable for the period prior to 1-10-1975 and in terms of those judgments the duty to be deducted would be the duty without taking into account the relief given in terms of the exemption notification.

8. As regards the period from 1-10-1975 onwards, to which the Explanation as inserted by the 1982 Finance Act is applicable, Shri Ravinder Narain's first argument was that the amendment itself was bad in law and therefore ineffective. He stated that this ground had been advanced in writ petitions filed and pending before the Delhi High Court. He however appreciated that the Tribunal could not go into the question of the validity or otherwise of an enactment and did not argue this aspect in detail.

9. Shri Ravinder Narain, however, advanced an argument which in some respects was similar to his first argument that the amendment was bad in law. His submission was that even a retrospective amendment made to counteract the effect of a judgment must do away with the reasoning contained in that judgment. According to him the amendment in this case did not have that effect and even after the amendment the position in law was not materially altered. In support of this argument, Shri Ravinder Narain submitted that the exemption notification referred to "the duty of excise leviable thereon". The Explanation did not define the term "leviable", but referred to "the effective duty of excise payable" (emphasis added). He argued that the excise duty leviable on the goods could not be determined without first determining the assessable value. Having once determined the assessable value and then arrived at the quantum of exemption, it was not permissible to redetermine the assessable value by including in it the benefit of the exemption, which was what the excise authorities sought to do.

10. Shri Ravinder Narain referred to certain previous orders of the Tribunal in which the view had been taken that the duty to be deducted from the cum-duty price of the goods was the actual effective duty after taking into account any exemption available to the goods. He cited the following orders :-Union Carbide of India Ltd. v. Collector of Central Excise, Hyderabad (2) Dr. Beck and Co. (India) Limited, Pune v. Collector of Central Excise, Bombay [1983 (1) E.T.R. 433.]Associated Pulp and Paper Mills, Ahmedabad v. Collector of Central Excise, Ahmedabad [Order No. 213/83A, dated 21-7-1983 in Appeal No. ED (SB) (T) 17/77A-Not reported].

He contended that despite these orders the position remained the same after 1-10-1975 as it was before that date, and that the assessees were entitled to the benefit as set out in the Delhi High Court judgment in the Modi Rubber case.

11. Shri Ravinder Narain also referred to the argument advanced in the Modi Rubber Ltd. judgment, that in the view taken by Government the assessable value would have to be recalculated in the light of the exemption and that this would lead to an endless cycle of calculations.

12. The judgment in the case of Indian Aluminium Co. was to the same effect. Paragraph 10 of the judgment showed that the Hon'ble single Judge in that case had followed the Modi Rubber judgment.

13. Shri Ravinder Narain further submitted that the duty on vanaspati at the relevant time was 5% ad valorem. The appellants were showing in their invoices the value and the excise duty separately, and not a composite price. Accordingly, the price or value was not susceptible to adjustment in consequence of the exemption being allowed.

14. Finally, Shri Ravinder Narain submitted that in terms of the Notification the "rebate" had to be calculated on the basis of the cotton seed oil used over a period of time (as mentioned above, the Notification is on the basis generally of half years). Thus, at the time a particular consignment was cleared, the assessees could not know definitely the quantum of exemption which they would ultimately be entitled to get under the Notification. If the assessable value were to be made dependent on the quantum of exemption to be determined after a period of some months, it would follow that there was no definiteness about the assessable value at the time of clearance. It could not be the intention of Government in granting the exemption that the assessable value and consequently the quantum of duty should be incapable of an exact determination at the time of clearance.

15. Replying on behalf of the Department, Shri A.K. Jain stated that he was relying on two decisions. One was that of the Bombay High Court in the case of Tata Oil Mills v. Union of India (1980 E.L.T. 768). That decision was very relevant to the present case, as it related to the same commodity and the same type of exemption, the only difference being that it related to an earlier period when Notification No.6/62-CE, dated 10-2-62 was in force. Shri Jain referred to paragraph 12 of that judgment in which it was observed as follows :- "To sum up rebate of 6 paise in duty under Rule 8 has to be deducted from 5 per cent ad valorem duty. As indicated above, the exemption was not by way of windfall for the manufacturer but on account of the use of cotton seed oil, and if that be so, then the manufacturer could not retain 6 paise but the same had to be deducted from 49 paise in order to arrive at the actual amount of duty payable, viz.

43 paise." Shri Jain submitted that this was a direct authority for the proposition that it was the effective rate of duty which had to be deducted and not the duty in the absence of the exemption. He further submitted that the case related to the period prior to 1-10-1975. Among the decisions relied upon by the petitioners was that of the Delhi High Court in the Modi Rubber case, but the Bombay High Court had nevertheless taken a different decision.

16. Shri Jain also referred to a decision of the Tribunal in the case of Southern Engineering Works, Madras v. Collector of Central Excise, Madras [1984 (4) E.T.R. 216]. In that case it was held that if any money is recovered from a customer, ostensibly as excise duty, but is not in reality paid, for whatever reasons, into the Central Excise Revenue, that money will not qualify to be classed as excise duty and will not be entitled to deduction from the price for the purpose of arriving at the assessable value.

17. Shri Jain thereafter referred to the judgment of the Supreme Court in the case of Union of India and Ors. v. Bombay Tyre International Ltd. [1983 E.L.T. 1896 (SC)]. He relied on paragraph 31 of that judgment in which it has been observed that it was not the intention of Parliament when enacting the new Section 4, to create a scheme materially different from that embodied in the superseded Section 4.

According to Shri Jain, for the period from 1-10-1975 the Explanation added by Section 47 of the Finance Act, 1982 made it very clear that the duty to be deducted was the effective duty. Since this was the position after 1-10-1975, it should also be the position prior to that date, in view of the observations of the Supreme Court referred to above.

18. Shri Jain submitted that in respect of the period after 1-10-1975 there had been a number of decisions by different benches of the Tribunal on the same lines as the three decisions referred to by Shri Ravinder Narain. In the result, he submitted that the orders of the lower authorities were correct both as regards the period prior to 1-10-1975 and as regards the period from 1-10-1975 and that the appeals should be rejected.

19. A question was put to Shri Jain whether an assessment once made on a particular basis could be reopened by the excise authorities. Shri Jain submitted that such reassessment was permissible. He referred to a judgment of the Delhi High Court in the case of Star Paper Mills Ltd. v. Union of India and Ors. (1981 E.L.T. 577). In that case it had been held that Rule 10 of the Central Excise Rules provides for reopening of an assessment already completed, provided there was material on the basis of which it could be held that there was short levy for any of the reasons set out in that Rule and not on the basis of assumptions and presumptions. Again, in the case of International Computers Indian Manufacturers Ltd. and Anr. v. Union of India and Ors. (1981 E.L.T.632) it had been held that Section 28 Customs Act was analogous to Section 11A of the Central Excises and Salt Act and that the former section would not apply to provisional assessments but only to cases of completed assessments in which duty was not levied or was short levied.

It was Shri Jain's submission that these authorities showed that assessment once made could be reopened under the appropriate provisions of law.

20. Replying to Shri Jain, Shri Ravinder Narain submitted that the Tribunal's decision in the case of Southern Engineering Works only dealt with the question of duty "payable". It was not relevant to the present issue. Similarly, paragraph 31 of the Supreme Court judgment in the case of Bombay Tyre International was not concerned with the impact of the Explanation under consideration here and it could be not read out of context to mean that the Explanation should be deemed to be applicable even prior to 1-10-1975.

21. Before proceeding to discuss the arguments advanced on both sides, we find it necessary to refer to a communication which was received from the advocates of the appellants after the hearing was over. With that letter have been enclosed copies of the relevant notifications.

The letter also contains a list of citations of eight reported judgments and a copy of one unreported judgment, with a request that the enclosures might be placed on the file of the Members. It is stated that this has been done as directed by the Bench.

22. The copies of the enclosed notifications, namely, Notification No.230/72, dated 15-12-1972, No. 111/73, dated 28-4-1973 and 23/75, dated 1-3-1975 are no doubt relevant and in fact we were somewhat handicapped during the hearing because these were not readily available.

23. As regards the judgments, our observations are contained in paragraph 6 above. Two judgments of the Delhi High Court were specifically referred to by the learned counsel for the appellants, Shri Ravinder Narain. Shri Revinder Narain had also stated that there were a number of other judgments of the Delhi High Court to the same effect, but he could not furnish the specific citations. He offered to send a list of these citations after the hearing was over. It was pointed out to him by the Bench that this would not be fair to the respondent. It would not be proper for the Bench to take into account judgments which had not been specifically cited, and on which the other side had no opportunity to make any submissions. Notwithstanding these observations of the Bench, the above-mentioned letter has been received, which refers to six reported and one unreported judgment, in addition to the judgments in the case of Modi Rubber Ltd. and Indian Aluminium Co. Ltd., which were specifically cited. We have again to observe that it would not be proper or fair for us to take into account judgments which were not cited during the hearing and on which the other side had no opportunity to comment. We further observe that these citations are sought to be given, not in reply to a point made by the other side, but as part of the case of the appellants themselves and could well have been kept ready for reliance during the hearing. In these circumstances we do not propose to take into account the seven judgments which have been cited for the first time in the letter of the advocates for the appellants.

24. Without departing from the principle mentioned above, we may state that we have seen the various judgments under reference (out of which four are of the Delhi High Court, one of the Andhra Pradesh High Court, one of the Madras High Court and one of the Orissa High Court). We find that most of them follow the judgment of the Delhi High Court in Modi Rubber Ltd. None of them has specific reference to the notifications No. 23Q/72-CE, dated 15-12-1972 or No. 23/75, dated 1-3-1975 which are under our consideration in these appeals, or its predecessor notifications granting partial exemption from excise duty on vegetable product in the manufacture of which indigenous cotton seed oil is used.

Had we found among these judgments any which related to the notification under consideration or its predecessor notifications, we would have had to consider holding a further hearing when these judgments could have been specifically cited and the other side given an opportunity to comment on them. As it is, since they were not cited at the appropriate time and none of them is directly on the exemption which is the subject matter of the present proceedings, we are, as already stated, not taking them into consideration but confining ourselves to those judgments which were specifically cited at the hearing.

25. We have already observed in paragraph 4 above that the periods covered by these appeals fall into two categories, namely prior to 1-10-1975, that is before the insertion through Section 47 of the Finance Act, 1982, of the Explanation under Section 4(4) (d)(ii) of the Central Excises and Salt Act, and on or from 1-10-1975, after the Explanation had been inserted. We shall first consider the position for the period from 1-10-1975. We have produced the relevant Explanation in paragraph 4 above. In view of what has been stated in paragraph 8 above, we are not going into Shri Ravinder Narain's argument that the amendment itself was bad in law and therefore ineffective.

26. The second argument of Shri Ravinder Narain was that even after the amendment the position remained the same as before. In other words, the expression "duty of excise leviable thereon" should be interpreted to mean the rate without taking into account the exemption in terms of Notification No. 230/72. Shri Ravinder Narain laid stress on the fact that the newly inserted Explanation did not define the term "leviable", but referred to "the effective duty of excise payable".

27. With all respect to the learned counsel for the appellants, we are unable to find force in this argument. We find that the Explanation defines what shall be the "effective duty of excise". Where any exemption is admissible, it is the duty as laid down in the Act as reduced so as to give full and complete effect to such exemption. In other words, this is what is even in common parlance referred to as the "effective duty" or "effective rate of duty". Employing this definition of "effective duty", the Explanation states that the duty of excise payable on any excisable goods shall be the sum total of the effective duty under the Central Excises and Salt Act and the aggregate of the effective duties under other Central Acts, if any. The term "payable" is brought in only for the purpose of indicating that where there are duties under more than one Act, the amount of duty payable shall be the total of the effective duty under each such Act. The term "payable" has no relevance to the question how the expression "effective duty of excise" under any particular Act is to be interpreted.

28. Reading the Explanation it is abundantly clear that it sought to explain beyond possibility of doubt, and did so explain, what was the rate of duty to be actually paid, viz. "payable", on goods to which an exemption was applicable. This it did while carefully avoiding the term "leviable", which had led to controversy. (It may be noted that the terms used in Rules 52 and 172F with reference to the net amount of duty are 'payment' and 'paid')- As we have already stated, the amendment of the Central Excises and Salt Act to insert this Explanation could be directly traced to the judgment of the Delhi High Court in the case of Modi Rubber Ltd. If at all there is any doubt regarding the intention behind the amendment, it would be dispelled by the note on the relevant Clause 47 of the Finance Bill, 1982, which reads as follows :- "Clause 47 seeks to insert an Explanation to Sub-section 4(4) (d)(ii) of the Central Excises Act, to make it clear that in computing the amount of duty of excise deductible from the cum-duty price, the effective amount of duty of excise payable on the goods under assessment shall alone be taken into account. This Explanation is being given effect to retrospectively from 1st October, 1975." Taking into account the above Explanation in the context of the present proceedings, it is clear that from 1-10-1975 the expression "duty of excise leviable thereon" should be taken as referring to the effective duty of excise, as held by the lower authorities in these cases. We, therefore, hold that for the period from 1-10-1975 the appeals must fail.

29. We now come to the period prior to 1-10-1975. Shri A.K. Jain, representing the Department, had argued that even as regards the position before 1-10-1975, when the old Section 4 of the Central Excises and Salt Act was in force, the old Section should also be read as if it contained the Explanation added by Section 47 of the Finance Act, 1982. In this connection he had relied on paragraph 31 of the judgment of the Supreme Court in the Bombay Tyre International Ltd., and their observation that it was not the intention of Parliament, when enacting the new Section 4, to create a scheme materially different from that embodied in the superseded Section 4. We find it difficult to accept this argument. The above-mentioned observation of the Supreme Court is certainly a very important one, as indicating that the object and purpose as well as the central principle at the heart of the scheme remained the same. It would not, however, be correct to extend this principle so as to equate the old and the new Sections even where there is a clear difference in the wording. This is much more so when we consider the Explanation which was inserted through the Finance Act, 1982 and made retrospective from 1-10-1975. Shri Jain argued that 'this was because the new Section 4 came into effect only from 1-10-1975 and before that the old Section 4 was in force. It appears to us that if the Legislature had so desired, a corresponding retrospective amendment could have been made in the old Section 4. Since that has not been done, and the amendment made has been speciflcally made retrospective only from 1-10-1975, it cannot be read into the old Section 4 which was in force prior to 1-10-1975. Therefore, for considering the position prior to 1-10-1975 we have to take into account the wording of old Section 4. that is Section 4 prior to its supersession, without reading into it the Explanation inserted by the Finance Act of 1982.

30. With reference to the period prior to 1-10-1975, Shri Ravinder Narain strongly relied on the judgment of the Delhi High Court in Modi Rubber Ltd. In paragraph 6 above, we have reproduced paragraphs 21 to 23 of that judgment, on which Shri Ravinder Narain specifically relied.

According to him, the issue was conclusively decided by these observations of the Delhi High Court (it was mentioned that the Revenue had filed a Special Leave Petition to the Supreme Court against the judgment of the Delhi High Court, but since that is yet to be decided the High Court judgment still holds the field). Shri Ravinder Narain also relied on the judgment of the Delhi High Court in the case of Indian Aluminium Co. Ltd. and Anr. v. Union of India and Ors. (1983 E.L.T. 349). In that judgment the earlier judgment in Modi Rubber Ltd., which was referred to as having considered identical questions, was followed (there was another issue in the Indian Aluminium case which is not relevant to the present proceedings, namely, whether the expression "duty of excise" would include an auxiliary duty of excise). It is to be noted that both the above judgments of the Delhi High Court were with reference to exemption Notification No. 198/76-CE, dated 16-6-1976. This notification provided for what was popularly called the "excess production rebate", namely, a 25% partial exemption from excise duty on clearances in excess .of the "base clearance". The exemption was admissible on a large number of commodities which were listed in the Table annexed to the notification. Some of these commodities were liable to ad valorem rates of duty, while others such as coffee (Item 2), tea (Item 3), carbon dioxide (Item 14H), cement [Item 23(1)], copper [Item 26A(1)] and zinc (Item 26B) were liable to specific rates of duty. Commodities liable to specific rates of duty were not affected by the interpretation adopted by the Department of the expression "duty leviable", and manufacturers of such commodities were able to derive the full benefit of the 25% exemption, irrespective of whether or not they reduced the cum-duty price.

31. As against the judgments cited by Shri Ravinder Narain, Shri A.K.Jain relied on the judgment of the Bombay High Court in the case of Tata Oil Mills Company Ltd. v. Union of India (1980 E.L.T. 768). In paragraph 15 above, we have reproduced the relevant paragraph from that judgment. In that judgment the High Court upheld the decision of the Central Government acting as the revisional authority, wherein it was held as follows :- "The Government observe that the duty actually payable is alone eligible for abatement under Section 4 ibid and the petitioners' contention, that the abatement should be allowed without taking into consideration the abatement from duty in respect of cotton seed oil, is not correct." dated the 10th above mentioned case had reference to Notification No.6/62-CE, dated the 10th February, 1962 as amended from time to time.

Although the notification itself is not reproduced in the judgment, it is clear that it was a predecessor to Notifications No. 230/72-CE, dated 15-12-1972 and 23/75-CE, dated 1-3-1975, which are under our consideration. It is also seen from the judgment that the provisions of Notification No. 6/62 were materially similar to those of Notifications No. 230/72 and 23/75, as seen from the following sentence in paragraph 3 of the judgment :- "The petitioners' case is that on the use of cotton seed oil in the manufacture of vegetable products, they were entitled to claim rebate of Central Excise duty on the basis of certain percentage of cotton seed oil used by virtue of the provisions of Notification No. 6/62-Central Excises, dated 10th February, 1962 as amended from time to time (Ex. A to the Petition)." 33. We thus have before us two judgments of the Delhi High Court with reference to Notification No. 198/76 (relating to "excess production rebate") and one judgment of the Bombay High Court with reference to Notification No. 6/62 (with reference to "rebate" related to the use of cotton seed oil in the manufacture of vegetable product). The judgment of the Delhi High Court in the Modi Rubber case is of a Division Bench.

The Delhi High Court Judgment in the Indian Aluminium case and the Bombay High Court judgment in the Tata Oil Mills case are of single Judges. Had the issues before them been identical, we would normally have followed the judgments of the Division Benches. We find however that the judgment of the Bombay High Court has a direct bearing on the question before us, because the notification which that High Court had to construe was in material respects similar to the notification now before us, and related to the same situation, viz., manufacture of vegetable product, using cotton seed oil. On the other hand, Notification No. 198/76, which was before the Delhi High Court, had a different objective, namely, that of giving an incentive for increased production of a large variety of commodities. We also find that in the judgment in the case of Modi Rubber Ltd., a great part of the controversy was on the question as to what constituted 'base period' and 'base clearances'. There was also a controversy on the question whether the manufacturers were required to pass on to their buyers the benefit of the "rebate". The Delhi High Court decisively held that there was no such obligation. With reference to the question now before us, on the interpretation of the expression "duty of excise leviable thereon", the decision is contained in paragraphs 21 to 23 of the judgment, which have been reproduced in paragraph 6 above. It will be seen that in paragraph 21 reference is made to the argument of the petitioners that under the procedure proposed by Government, the calculation of duty would keep on changing and this would lead to an absurd situation. In paragraphs 22 and 23 a further argument has been set out, namely, that such an interpretation would lead to discrimination between a manufacturer of goods liable to ad valorem duty and a manufacturer of goods liable to specific duty {or ad valorem duty combined with a tariff value). This is followed by the observation, "We are in agreement with this contention of the petitioner".

34. From the above, it can be seen that the Delhi High Court accepted the argument that the adoption of the Government view would lead to discrimination between different assessees (as already observed, Notification No. 198/76 covered a large number of commodities, of which some were liable to ad valorem duty and some to specific duty). No specific observation has been made on the earlier argument that adoption of the Government view would not be practicable, as it would lead to a situation where the duty keeps on changing. We shall separately refer to this argument (which was also advanced by Shri Ravinder Narain before us). What is important to note is that the argument which was specifically accepted by the Delhi High Court was the one based on discrimination. We find that where the affect of Notification No. 230/72 is concerned, no such question arises because that notification is concerned only with a single situation, namely, that of manufacturers of vegetable product who used indigenous cotton seed oil in the process of manufacture. Therefore, all manufacturers of vegetable product who wished to avail themselves of the benefit of this notification were on equal terms and there was no discrimination as between them, resulting from the view adopted by the Central Excise authorities.

35. We thus find that the only judgment cited which correctly covers the issue before us is that of the Bombay High Court in the case of Tata Oil Mills, where the view taken by the Central Excise authorities was confirmed. We, therefore, respectfully propose to follow that judgment. Although it is not strictly necessary for us to add any observations on the arguments of the learned counsel for the appellants to the contrary, we propose to deal briefly with these arguments. In paragraph 11 above reference has been made to the argument that in the view taken by Government the assessable value would have to be re-calculated in the light of the exemption and that this would lead to an endless cycle of re-calculations. So far as the exemption notification under our consideration is concerned, we do not find that this argument is correct. It is true that the duty payable after application of the exemption is related to the assessable value, and that the assessable value in turn is related to the duty payable. This does not, however, mean that in the present case there has to be an endless cycle of calculations. Any confusion or difficulty in this regard would be avoided if one understands the expression "duty leviable" in this notification to mean (as we think it should) "the duty which would have been leviable, but for this exemption". Such a view would also avoid the anomalous situation of the same notification being invoked time and again in connection with a single assessment to duty. If the matter is approached from this angle, it will be found that the calculation is quite a simple one.

36. In paragraph 13 a reference has been made to the argument that the appellants showed in their invoices the price of the goods and the excise duty separately. We do not find that this makes any material difference, so long as what the purchaser had to pay was the total amount made up of "price" and "duty".

37. We now come to the last argument of Shri Ravinder Narain that in terms of the Notification the "rebate" had to be calculated on the basis of the cotton seed oil used over a period of time, such as a half year, and that consequently the appellants could not know at the time of clearance of a consignment the exact quantum of duty payable, and that (if the view of the Central Excise authorities were to be accepted) they would not also know the assessable value at the time of clearance. According to him, this was a situation which could not have been intended and therefore the interpretation of the Central Excise authorities was not sustainable.

38. We are unable to accept the above argument. It is not as if the Central Excise Act and Rules contemplate that the assessable value of any goods must be definitely and finally determined at the time of clearance. In fact, there are specific provisions to the contrary, to cover a case where the value of any goods cannot be definitely ascertained at the time of clearance. Rule 9B of the Central Excise Rules, relating to provisional assessment to duty, deals with precisely such a situation. It fact, Sub-rule (3) at the above Rule provides for a general bond to cover assessment of goods provisionally from time to time. These provisions make it abundantly clear that a situation where the value of goods is not definitely ascertainable at the time of clearance is not only contemplated but there is even a provision to cover cases where such a situation may occur regularly or repeatedly.

It cans not, therefore, be said that merely because the view taken by the Central Excise authorities may result in some uncertainty in the assessable value at the time of clearance, that view is necessarily wrong.

39. We may go even further and point out that the apprehended uncertainty in the assessable value at the time of clearance need not arise at all. It is quite apparent from the terms of the Notification that its object was to encourage manufacturers of vegetable product to use a larger proportion of indigenous cotton seed oil in its manufacture. Such an exemption would serve its purpose only if manufacturers were aware of what they were required to do and what would be the extent of their reward for doing it. The purpose would not be served if the operation of the exemption Notification were erratic and uncertain. We find that the Notification states very clearly what would be the extent of exemption for each percentage of cotton seed oil used. As pointed out in the judgment of the Bombay High Court in the Tata Oil Mill case (vide para 15 above) ; the exemption was not by way of a windfall for the manufacturer but on account of the cotton seed oil used by him. Every efficient manufacturer has to plan his operations sufficiently carefully to, know what raw materials he will use and in what proportion. If he wishes to get the benefit of the exemption, he would also be able to calculate how much of cotton seed oil he would need to use in a particular batch or in a particular series of batches, to get the optimum benefit from the Notification.

Therefore, a manufacturer who is sufficiently careful in his planning and operation can calculate quite accurately what extent of exemption would be available to him over a half year. A manufacturer who is even ordinarily careful and prudent would be able at least approximately to work out the extent of exemption which he is likely to get. Therefore, the uncertainty to which reference has been made would in fact hardly arise.

40. For the reasons given above, it was felt by the two Members, who have signed the majority judgment, that the view taken by the lower authorities in this case, namely, that the expression "duty of excise leviable thereon" refers to the duty of excise after giving full effect to the exemption notification, deserved to be upheld as regards the period prior to 1-10-1975 as well as the period on or after 1-10-1975.

We were accordingly of the view that the two impugned orders of the Appellate Collector of Central Excise and Customs, New Delhi, should be confirmed and the two appeals rejected. An order to this effect was dictated by one of us, for concurrence of the other Members. However, after going through the proposed order, our learned brother Shri M.Gouri Shankar Murthy has indicated his intention of recording a dissenting order. He was also good enough to show us a copy of the proposed dissent. We are availing ourselves of the opportunity of adding some further observations with reference to the proposed dissent.

41. In the proposed order, Shri Murthy had listed five orders of the Tribunal which held that the assessable value can be recomputed with the addition of the refund in duty. He had pointed out that all the five decisions were governed by the Explanation inserted by Section 47 of the Finance Act, 1982. For completeness of the record, we would like to mention that there is also a decision of the Tribunal where the same view was taken, although the matter pertained to the period prior to 1-10-1975. This is the Tribunal's order dated 14-9-1983 in the case of Adoni Vanaspati Manufacturers, Adoni v. Collector of Central Excise, Hyderabad 42. We would like to comment very briefly on two grounds for the proposed dissent. One is that in the circumstances of the case the Department was not competent to reopen an assessment already ordered.

As would be seen from the earlier part of this order, this point was not argued before us. We consider that it would not be right in principle to base our decision on a ground which was not argued by one party and could not be rebutted by the other party. (The difficulties to which this could lead were seen from the fact that with reference to these two grounds our learned brother had referred to some questions of fact to which answers were not available, though they might have been if the points had been argued). We are not, therefore, commenting further on this ground.

43. The other ground which has been discussed at length in the proposed dissent, is that the amount of duty refunded cannot be considered as part of the price. This ground also was not argued before us in that form, though Shri Ravindcr Narain did mention that the invoices showed the value and the excise duty separately. With reference to this ground, we would like to point out that the authority for the refund is a notification under Rule 8(1) of the Central Excise Rules, and what that notification effects is an exemption from duty. By means of the provisos to the notification, this has been made a conditional exemption, that is, an exemption which is admissible subject to the fulfilment of certain conditions which could be fulfilled (or verified) only subsequent to the date of clearance. This fact, however, does not convert the refund into anything else than an adjustment of the duty paid in the first instance, notwithstanding that the repayment was popularly known as a "rebate". It is well-settled that the nature of the administrative arrangements adopted with reference to the charging of excise duty does not change the nature of the duty. Of the many authorities in support of the above proposition, we shall cite only one, namely, the observations of the Supreme Court in the case of R.C.Jail Parsi and Ors. v. Union of India and Ors. (AIR 1962 SC 1281). We reproduce below these observations :- "With great respect, we accept the principles laid down by the said three decisions in the matter of levy of an excise duty and the machinery for collection thereof. Excise duty is primarily a duty on the production or manufacture of goods produced or manufactured within the country. It is an indirect duty which the manufacturer or producer passes on to the ultimate consumer, that is, its ultimate incidence will always be on the consumer. Therefore, subject always to the legislative competence of the taxing authority, the said tax can be levied at a convenient stage so long as the character of the impost, that is, it is a duty on the manufacture or production, is not lost. The method of collection does not affect the essence of the duty, but only relates to the machinery of collection for administrative convenience".

44. We, therefore, continue to adhere to the views already expressed by us and we would accordingly confirm the two impugned orders and reject these two appeals.

45. I regret my inability to agree to the order proposed by the learned Senior Vice-President. My reasons for so doing are, in a brief compass, the following :- (a) The assessable value of manufactured goods requires to be ascertained for enabling a computation or assessment of total quantum of duty leviable in cases where ad valorem duty is prescribed.

(b) The determination of the assessable value has, necessarily, to be only in terms of Section 4 (unamended for the aforesaid period) of the Central Excises and Salt Act, 1944 (hereinafter, the Act, for short), There is do other provision in the Act for such determination. Nor can such determination be contrary to its terms, tenor or import.

"Determination of value for the purpose of duty : Where under this Act, any article is chargeable with duty at a rate dependent on the value of the article, such value shall be deemed to be :- (a) the wholesale cash price for which an article of the like kind and quality is sold or is capable of being sold at the time of removal of the article chargeable with duty from the factory or any other premises 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 (b) where such price is not ascertainable, the price at which an article of the like kind and quality is sold or is capable of being sold by the manufacturer or producer, or his agent, at the time of the removal of the article chargeable with duty from such factory or other premises for delivery at the place of manufacture or production, or if such article is not sold or is not capable of being sold at such place, at any other place nearest thereto.

Explanation. :-In determining the price of any article under this section, no abatement or deduction 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 or other premises aforesaid." (d) (i) What exactly is the "price" in "wholesale cash price" [occurring in clause (a) of Section 4] or "the price" [in clause (b) thereof] 7 (ii) "Price" is not denned in the Act itself. It is, however, the money consideration for a sale of goods in terms of Section 2(10) of the Sale of Goods Act, 1930. The determination of the price payable is always in terms of the agreement of sale between the buyer and the seller (i.e., the manufacturer or the assessee in the context of Section 4 of the Act). Such agreement may be either express or implied in the facts and circumstances of each case.

(iii) Whether "the price" or money consideration for sale of goods includes reimbursement of duties and taxes leviable on the manufacturer/assessee/seller depends on the terms and conditions of the agreement to sell-implied or express. In the case of a tax on sale of goods, the incidence of the tax is on the seller and not on the buyer. The payment by the buyer of the tax upon a sale of goods in addition to "the price" is in the nature of reimbursement of the quantum of such tax by virtue of the terms and conditions, either express or implied, of the agreement to sell. [AIR 1958 SC 452-Tata Iron and Steel Co. Limited v. State of Bihar-Para 17-"The buyer is under no liability to pay sales tax in addition to the agreed price unless the contract specifically provides 'otherwise-See Love v. Norman Wright (Builders) Limited-1944(1) KB 484"]. Likewise, the liability for the payment of duty of excise is, primarily, that of the manufacturer/assessee and not the buyer, since it is a tax on manufacture and not sale/purchase. Reimbursement thereof by the buyer is in consequence of an agreement, either implied or express, between the parties, providing for such reimbursement. De hors the agreement, the law does not provide for such reimbursement except in terms of Section 64(A) of the Sale of Goods Act, 1940. Such reimbursement, in terms of the agreement for sale may also be part of the consideration for the agreement. In terms of the agreement, the reimbursement may be full or partial, included in the price itself or separately added to it. Reimbursement of any variation in the quantum of tax or duty may be at actuals in terms of the agreement or only to the extent of statutory variation in the rate in terms of Section 64(A) of the Sale of Goods Act-for, as is well known, Section 64(A) comprehends statutory variation in the rate of duty/tax to the extent of such variation only and not variation in the quantum of duty/tax on account of tariff evaluation. [52-IA 196=AIR 1925 PC 157-Prabhudas v. Ganaidada-construing Section 10 of the Tariff Act (1894), in pari materia with Section 64(A) of the Sale of Goods Act].

(iv) But then, while the price payable may be actual price plus the reimbursement of duty-in what is called the cum-duty price-the assessable value cannot include the duty reimbursed by virtue of the agreement between the parties. In terms of the Explanation to Section 4, the amount of duty payable at the time of removal of the goods has, necessarily, to be deducted from the consideration or cum-duty price paid to determine the assessable value. It is not the scheme of the section to equate assessable value with the entirety of the consideration for the agreement of sale or cum-duty price and inflate the assessable value by the inclusion of duty as well. The assessable value of the goods is not the price for the goods plus reimbursed duty. It is only the price shorn of the element of duty that is the assessable value-unlike certain other statutes like, for example the Cement Control Order under which price, necessarily, includes freight and accordingly freight also becomes liable to sales tax. [(1979) 1 SCR 276=AIR 1978 SC 1496; AIR 1980 S.C. 346; AIR 1980 S.C. 952]. The Explanation makes a clear distinction between "price" which may include reimbursement of excise duty and excise duty itself.

[Trade discount also adverted to in the Explanation is not referred to as not material in the facts of the case].

(e) (i) Once this were so-it becomes altogether incomprehensible how the assessable value at the time of removal-namely the actual price for the goods or the consideration, without the element of duty-can be varied to the extent of diminution in the quantum of duty that may ultimately be found payable in consequence of a rebate to which the manufacturer may became entitled-not at the time of removal-but on the expiry of the quarter of the financial year. A rebate in excise duty at the end of the quarter may reduce the quantum of excise duty already reimbursed as duty by the buyer and, as part of the consideration for the agreement of sale, but does not touch the price for the goods without duty or the assessable value delermined in terms of the Explanation to Section 4 at the date of removal.

That price remains immutable. If the element of excise duty is to be excluded in the determination of the assessable value, how is it to be taken into account or added up to the actual price in case it is reduced so as to justify a re-computation of assessable value The actual price without duty which is to be the assessable value has not changed. Nevertheless, if part of the duty already realised became refundable, can it change its character of duty refunded and become an addition to the actual price, so as to inflate the assessable value and justify a reassessment of the duty payable (ii) But it is said that the refunded duty is not made over to the buyer, not passed on to him-but had gone into the pocket of the assessee/manufacturer/seller. This does not mean and imply that the amount refunded had changed its character of duty reimbursed to one of price shorn of excise duty or assessable value. It was not as if it were paid by the buyer as an additional price. It came from the Revenue as a refund of duty and can, in no sense, be price which is payable by the buyer. May be, the buyer is entitled to the refund in terms of the agreement between him and the assessee/manufacturer.

Even if he were, it was for him to enforce the payment thereof to him by the assessee/ manufacturer. If he fails to enforce his entitlement, and the assessee gets away with it, the refund of revenue does not become part of the actual price shorn of duty in a cum duty price and hence the assessable value, de novo. Such transformation in its character, if inferred, transgresses the legislative intendment as well as the intent of the parties to the agreement for sale. In a cum duty price, the element of excise duty is not intended to be anything other than reimbursement of excise duty primarily payable by the assessee/manufacturer-by the buyer and, in terms of the Explanation has to be Excluded in a determination of the assessable value.

(f) The legislative scheme in the control orders under the Essential Commodities Act for reimbursement from an Equalisation Fund of the difference between the controlled price and the actual cost of manufacture plus a reasonable margin of profit where both together are higher than the controlled price is a case in point. In terms of the control orders like, e.g., the Aluminium Control Order, where the controlled price is higher than the cost of manufacture plus a reasonable margin of profit for a manufacturer, he is required to deposit the amount of the difference into an Equalisation Fund.

Reimbursement is made from such Fund to the manufacturer whose cost of manufacture and reasonable profit works opt to more than the controlled price so that the one does not mike an unintended profit and the other suffer loss in the fixation of the controlled price, When such reimbursement from the Equalisation Fund is made, it is an addition to the controlled price. So it stands on a better footing than a case where duty reimbursed to a manufacturer is refunded by the Revenue. Was any such reimbursement from the Equalisation Fund ever considered to necessitate a re-computation of the assessable value If not, a refund of excise duty by the Revenue of a part of the duty paid by the buyer to the assessee/manufacturer cannot, with greater reason, be the basis for a reassessment of the assessable value.

(g) (i) Again if an assessment, as it could be reasonably presumed, has already been carried out of the Appellant's goods, it can be reopened and a reassessment made only if certain conditions specified in the relevant statutory provisions are satisfied. At the material time (i.e. prior to 1-10-1975), it was Rules 10 and 10A that were applicable. It was not as if a short levy occurred through inadvertence, error or collusion or misconstruction on the part of an officer or through mis-statement as to the quantity, description, or value by the manufacturer. In fact, there was no short levy at all in the facts and circumstances of the case. The duty leviable had, if an assessment had already taken place, been properly assessed and paid. All that happened was, some part of the duty had been refunded in terms of the notification and this was alleged to be an erroneous refund in the notice to show cause notwithstanding that the refund in terms of the notification can, in no sense, be erroneous. If it were really an erroneous refund, one would expect the recall of the refund, rather than a re-computation of assessable value as was insisted upon in the notice. Nor did it justify in terms of Rule 10, a reopening of the assessment and re-computation of the assessable value by the addition of the refunded duty to the original assessable value reckoned in terms of the Explanation after exclusion of the duty.

(ii) Nor does it appear that Rule 10A applied. It was not a case where, for the original assessment, the Rules did not provide or any deficiency in duty resulted from a short levy in the first instance.

Any other sum of money payable to the Central Government is not duty.Revenue (Star Paper Mills Ltd. v. Union of India and Ors.-1981 ELT 577), the question of applicability of either Rule 10 or Rule 10A to justify the reopening of a completed assessment, when there was indeed no short levy whatsoever at the time of the original assessment for any of the reasons specified in the said Rules, did not actually arise for consideration. In the facts of that case, the short levy was due to a mis-statement and Rule 10 was indisputably attracted in such a case. Even so, it was laid down in the said decision that "Rule 10 makes a provision for reopening an assessment already completed. The condition precedent for the reopening of the assessment is that there should be material on the basis on which it could be held that there was a short levy for any of the reasons set out in that Rule".

As already observed, this is not a case of short levy nor does such short levy result from any of the reasons set forth in Rule 10.

Similarly, in the other case cited (International Computers Indian Manufacturers Ltd. v. Union of India- 1981 ELT 632), their Lordships had occasion to observe even more categorically that if the conditions for re-assessment laid down in Section 28 of the Customs Act, 1962 are not satisfied, there could be no reopening of an earlier assessment or a re-assessment.

(iv) The decisions cited for the Revenue, in the premises, do not support the case for the Revenue and justify the reopening of a completed assessment in the facts of this case. On the contrary, they are authorities for holding against the right of reopening such assessments when the conditions specified are not fulfilled.

(v) It is not, however, on record if the assessments during the relevant period had been already completed by the time the right and entitlement to the rebate accrued. This could have been easily enquired into by a remand or otherwise and it could have been ascertained if it was sought to reopen completed assessments.

(h) In the Tribunal, however, there have been at least five decisions that have been cited to us, holding that the assessable value can be recomputed with the addition of the refund in duty.

They are- (iv) Order No. 213/83 in Appeal No. 17/77-A dated 21-7-1983 in the case of Associated Pulp & Paper Mills ; (v) Order No. 684/83-A in Appeal No. 74/80-A in the case of Precision Bearing (India).

These are all decisions that are governed by provisions of the Explanation inserted in Sub-clause (ii) of clause (d) of the amended Section 4(4) of the Act by Section 47 of the Finance Act, 1982, for periods subsequent to 1-10-1975. The distinction between these cases and those governed by the old Section 4 was, in fact, drawn in the case at Section No. 4 supra, in para 7 of the judgment. The decisions do not, in the circumstances, apply to periods prior to 1-10-1975, if admittedly, the aforesaid Explanation cannot apply.

Indeed, the necessity for a retrospective enactment of the Explanation by Finance Act, 1982, itself, goes to show that but for such enactment, assessable value cannot include the duty refunded.

Nor can the Explanation be read into the old Section 4.

46. For the period prior to 1-10-1975, therefore, the Appeal has to be allowed.


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