D.M. Rege J.
1. This is the petition (1) for a writ of certiorari for quashing certain orders of the Assistant Collector of the Central Excise and of the Collector of Excise in appeal therefrom levying excise on the tractors manufactured by the petitioners by including in the assessable value thereof the value of the hour meter and/or wheel weight or front end weights, (2) for a writ of prohibition against the respondents from desisting or for bearing from re-opening the provisional assessment in respect of the tractors manufactured by the petitioners by including in the assessable value of the said tractors the value of the said hour meters and/or the wheel weights or front end weights, and (3) for writ of mandamus against the said officers to withdraw or cancel the said orders.
2. The petitioners have been manufacturing in their factory tractors known as McCormic International B-276 Tractors. The tractors so manufactured were supplied with certain parts and accessories as standard equipment, being a hydraulic lift, a three point linkage, power take off, lighting equipment, a set of tools and electric horn. The Government of India under powers confirmed under the Essential Commodities Act, 1955, promulgated an order known as the Tractors (Price Control) Order, 1967. The said order defined a 'tractor' to mean 'an agricultural machinery known by that name and fitted with the diesel engine of a capacity not exceeding 50 H.P.S.' and defined the sale price 'to mean' the amount payable to a manufacturer as consideration for the sale of a tractor excluding tax. It empowered the Central Government to fix the sale price of tractors manufactured in India and provided that no manufacturer could sell a tractor for a sale price exceeding the sale price fixed by the Government of India and made a sale in contravention thereof criminal offence against the manufacturers.
3. In pursuance of the said order, the Central Government by notifications (Ex. A collectively to the petition) issued from time to time, fixed the price of tractors of different manufacture. The said notification while fixing the price in terms provided in column 5 thereof that 'the sale price, in column 5 thereof includes the price of the following accessories/ attachments which shall be supplied with every tractor :-
'(a) Hyd. lift. (b) 3-pt. linkage (c) power take-off, (d) Lighting equipment, consisting of hd. light, tail, light, (e) A set of tools, and (f) Elec. horn.'
4. By a letter dated 1.12.1973 addressed to the petitioners the Government of India gave an explanation for the break-up of the said price.
5. According to the petitioners they also supplied certain parts and accessories which could be fitted to the tractors at the option of an individual customer. Amongst such parts were (1) a meter known as the 'hour meter' which recorded the number of hours the tractors has been operated and (2) certain wheel and front end weight the former being fixed to the wheels of a tractor known as 'wheel weights' in order to increase the stability of the tractor if it was required to be operated in certain conditions. According to be the petitioners neither the said hour meters nor the wheel weights were essential or necessary components or parts of a tractor manufactured by them and their tractor could be operated without them and none of them were specified in the 2nd notification as a necessary accompaniment of a tractor. The said parts were fitted by the petitioners only at the option of the purchasers by purchasing the same from outside and by making separate invoice for the same. According to them both the said parts were fitted to the tractors manufactured by them in their factory as a matter of convenience only, before the tractors were cleared from their factory.
6. Excise duty on tractors manufactured by the petitioners is leviable under Item 34 of the Schedule to the said Act. Item 34 provides as follows :-
'Motor Vehicles' means all mechanical propelled vehicles adapted for use upon roads and includes a chassis and a trailer; but does not include a vehicle run upon fixed rails :
* * * * *
(3a) Tractors including agricultural tractors.
* * * * *
Explanation - 'For the purpose of this item, where a motor vehicle is mounted, fitted or fixed with any weight lifting, earth moving and similar specialised material handling equipment, other than the chassis shall not be taken into account.'
Item 34A Excisable Parts and Accessories of Motor Vehicles, not otherwise specified.
Explanation - 'The expression 'motor vehicles' has the meaning assigned to it in Item No. 34'.
Under the said Traiff Item 34(3a) excise duty applicable to tractors, including agricultural tractors, was 15% ad valorem. As a result of the subsequent notification tractors manufactured by the petitioners were to bear excise duty of 10% only.
7. By a notification dated 29th May, 1971 issued under sub-rule (1) of Rule 8 of the Central Excise Rules, 1944 the Central Government wholly exempted from excise duty all motor vehicles parts and accessories under the said Item 34A except those specified in the notification they were wholly exempted from excise duty.
8. According to the prevalent procedure, the petitioner had filed with the authorities from time to time for their approval a price list, showing the price of the said tractors, without including therein the value of either hour meters or wheel or front end weights and had effected clearance of the said tractors by paying Central Excise duty calculated on the basis of the price list supplied.
9. By a show cause notice dated 23.6.1972, issued by the Superintendent of Central Excise the petitioners were asked to show cause why a sum of Rs. 3,55,222.40 should not be recovered from them as short levy of Central Excise duty between June 1971 and May 1972 on the ground that the petitioners had not shown in the price list of the tractors submitted by them the value of Rs. 285/- per wheel weight and Rs. 131/- per hour meter and the wheel weight ought to have been included in the value of the said tractors for assessment purposes, as the said value had been recovered from the customers. Thereafter, the petitioners were given hearing by the third respondent and by his order dated 6-2-1973. The 3rd respondent held that the value of the hour meters and wheel weights had to be taken into account in determining the assessable value of the petitioners tractors and confirmed the said show cause notices with modifications viz., that short levy for the period prior to 25.6.1971 was time barred and accordingly reduced the duty payable by the petitioners from Rs. 3,55,222.40 to Rs. 3,52,185.60.
10. Against the said order the petitioners preferred an appeal dated 7th May, 1973 to the 2nd respondent, The petitioners were granted hearing by the 2nd respondent and ultimately by an order dated 31-3-1974, the 2nd respondent dismissed the appeal of the petitioner's holding that in determining the assessable value of the petitioner's tractors the value of hour meters and wheel weights must be taken into account, as the hour meters and wheel weights had been fitted by the petitioners to their tractors left petitioner's factory.
11. The petitioners were further served with a show cause notice dated 8 May 1973, asking them to show cause why Rs. 97,843,20 excise duty allegedly short levied between June, 1972 and September, 1972 should not be recovered from the petitioners. On 20th/21st August, 1973, the petitioners were served with a third show cause notice asking them to show cause why Rs. 3,78,074.20 being the excise duty allegedly short levied between October, 1972 and July, 1973 should not be recovered from them. Hearing was given to the petitioners in respect of the said show cause notices as well, by the Assistant Collector of Excise, who by his order dated 8th April, 1974 confirmed the said demands.
12. The petitioners have therefore filed this petition, challenging the said orders both of the Assistant Collector of the Central Excise and also of the Appellate Authority viz,. the Collector of Central Excise on several grounds mentioned in paragraph 22 of the petition. The main ground of attacks is that (1) under the tariff Item 34(3a) of the Central Excises Act, excise duty could be levied only on 'tractors' and since neither the hour meters nor the wheel weights were essential components of tractors manufactured by the petitioners, orders passed for levying the duty on the petitioner's said tractors after taking the value of the said two parts into consideration was wrong, (2) that 'a tractor' generally known in the trade does not mean a tractor fitted with additional special components or accessories such as hour meters and/or wheel weights and therefore their value should not be taken into consideration while levying excise duty, (3) that under the provisions of section 4 of the said Act assessable value of any excisable article is the price for which the article is capable is capable of being sold and it was not permissible in law to disregard the provisions of the Tractors (Price Control) Order, 1967 and to determine 'the sale price of the petitioners' tractors at a price higher than the price mentioned therein, (4) that on true construction of Item Nos. 34 and 34A of the Central Excise Tariff, a clear and sharp distinction was made between motor vehicles which included tractors on the one hand and parts and accessories of motor vehicles including tractors on the other hand, therefore, it was not permissible for the Excise authorities to include in the value of motor vehicles or tractors the value of parts and accessories which were regarded as distinct and separate and since the said accessories viz., hour meters and wheel meters were exempted from excise duty under Item 34A, in taking into consideration their value for the purpose of excise duty on the tractors, the respondents were indirectly circumventing the exemption granted to the said parts under the said Government notification, and (5) lastly the action of the Assistant Collector as well as the Collector were discriminatory and violative of the fundamental rights of the petitioners guaranteed under Article 14 of the Constitution.
13. In support of their petition, the petitioners have filed 3 more affidavits viz., of one Krishnaswami, employee with the petitioners since 1964, one V. V. Naik, Assistant Manager (Spare Parts) in the petitioners Company since 1970 and one Habibulla, Assistant Manager Import and Exports of the petitioners company and associated with the petitioners since 1963. According to the affidavit of Krishnaswamy the wheel of the front end weights were not required in the normal agriculture operations, that they were accessories useful in certain soil conditions and the alternative method for tractor operation in the aforementioned conditions was adding water in the front or rear tubes as required. Hour meter measured time of the tractor operation and hence did not form an essential part of agricultural tractor, that a tractor as understood in the trade did not include such optional Items as hour meters, wheel weights and front end weights and they came under the category of accessories.
14. The affidavit of Naik is that front and rear wheel weights, front end weights and hour meters were in his opinion, not essential parts of a tractor, that the weights were detachable and require to be used only in abnormal conditions, that wheel weights and front end weights were supplied by manufacturers of tractors separately as and when required by the agriculturists and that they could be bought separable from the market by dealers and agriculturists. Further according to him, hour meter was an aid to an agriculturist who wished to find out the number of hours his tractor had worked in the field, and that, the tractor as understood in the trade did not include accessories such as wheel weights and hour meter.
15. Habibulla in his supporting affidavit has pointed out that he had contracted certain representatives in trade and persons amongst agriculturists to find out according to them whether wheel weights and hour meter formed essential components of the tractors and accordingly he had filed affidavits of 3 persons (1) Sharma, (2) Virendra Mohan Roy, and (3) Dr. R. K. Srivastava Professor of Agricultural Engineering in Punjab Agricultural University. Sharma in his affidavit has stated that in his experience of 15 years of working with tractors, the tractors do not necessarily require wheel weights and hour meters, and that he had run the said tractors without wheel weights and hour meters and found the performance quite satisfactory, that he had also found that fitting of wheel weights and hour meters did not in any way improve the performance of International Tractor in normal soil conditions, that the wheel weights were necessary on the tractors only in certain soil conditions to reduce slippage, and that the hour meter was used for recording hours of operation by those who hire out their tractor. The other depondent Virendra Mohan Roy who is a partner in M/s. Roy Tractor Company, Somania Gate, Patiala, has also stated to the same effect and further pointed out that the tractor as understood in the trade did not include accessories such as hour meters and wheel weights. Dr. Srivastava has pointed out that in his experience a tractor did not require in all cases wheel weights and hour meters, that they did not form part of a tractor and that they were attachments which were required to be used only in certain working condition. He has further pointed out that wheel weights were required on the tractor only in certain soil conditions to avoid slippage and that hour meter served the purpose of recording the hours of use of the tractor and it was normally used by those farmers and operators who intended to hire out their tractor.
16. As against this, respondents in their affidavit in reply have not disputed that a tractor can be operated without wheel weights or hourmeters. But according to them that by itself cannot establish that they are not necessary components of a tractor. According to them the utility of wheel weights and hour meters depended upon the nature of use to which the tractors were put. Their main contention as found in paragraph 22 of their affidavit in reply is that Section 4 of the Central Excises and Salt Act, 1944, inter alia, provided that when an article, such value be deemed to be the wholesale cash price for which an article of the like kind and quality was sold or was capable of being sold. Since, at the time of removal of the tractors manufactured by the petitioners from their licenced premises, they were fitted with hour meters and wheel weights, their assessable value was arrived at by including the value of hour meters and wheel weights in the price of the tractors. According to them rule 49 of the Central Excise Rules, 1944. inter alia provided that payment of duty shall not be required in respect of excisable goods made in a factory until they were about to be issued out of the place or permises specified in Rule 9. The premises mentioned in Rule 9 are those where excisable goods were produced, cured or manufactured. Since the tractors manufactured by the petitioners were cleared from the licensed premises with hour meters and/or wheel weights attached to them, the value of hour meters and/or wheel weights were included for the purpose of determing the assessable value of the tractors. In paragraph 25 of the said affidavit they have admitted that the price fixed by the Government under the Tractors (Price Control) Order, 1967, was without taking into consideration certain accessories which were not normally supplied along with the tractors. According to them, however, if the tractors were fitted with additional accessories and there was an enhancement of value of account of such addition, it could not be contended that the value of such additional accessories should not be taken into account for the purpose of determining the assessable value under Section 4 of the Central Excises and Salt Act, 1944, as the tractors after additional accessories were fitted removed from the licensed premises. In paragraph 26 of the petition they have admitted that if the petitioners were manufacturing wheel weights and/or hour meters and clearing them as such separately, no duty would have been recovered as the said parts were exempted from payment of excise duty. However, they have contended that as hour meters and/or wheel weights were fixed to the tractors prior to their removal from the licensed premises, the value of the said parts was taken into account for determining the assessable value of the tractors, and that the value so determined was the value of the article chargeable to duty, namely, a 'tractor'. Even according to them if the petitioners were to attach hour meters and/or wheel weights to the tractors after they were cleared from the licensed premises, the value of hour meter and/or wheel weights would not have been included for the purpose of determining the assessable value of the tractors under Section 4 of the Central Excises and Salt Act, 1944 but if they had the wheel weights and/or hour removal from the licensees premises, even if they were manufactured by the petitioners themselves or purchased from the open market, the value of the said component parts purchased by the manufacturers cannot be deducted from the value of the finished excisable article.
17. A very narrow question involved in this case is whether, while assessing the value of the 'tractors' manufactured by the petitioners, for determining the excise duty payable thereon, under Tariff Item 34(3a) the excise authorities can include in the value of the tractors the value of certain accessories viz., House Meters and Wheel Weights fitted by the petitioners to their said tractors, at the option of the purchasers, before the tractors left the petitioner's licensed premises.
18. The contention of the petitioners is that under the Excises Act, excise duty was payable on the manufactured goods viz., 'a tractor' under Item 34(3a) and, therefore, the said hour meters and wheel weights admittedly not being essential parts of a tractor, for ascertaining excise duty payable on a 'tractor', the value of the said accessories cannot be taken into consideration.
19. On the other hand, the contention of the Respondents is that 'a tractor' fitted with the said two accessories was still a tractor and since it left the petitioners premises with the said two parts fitted to it, the respondents would be entitled to take into consideration the value thereof while assessing the value of the tractor for ascertaining the excise duty leviable on it under Item 34(3a).
20. The said rival contentions may be considered in the background of certain admitted facts in this case. They are as under (1) Tractors manufactured by the petitioners fall within Item 34(3a) for the purposes of excise duty. (2) The price of the tractors of the type manufactured by the petitioners are fixed by the Central Government under several notifications issued from time to time in pursuance of the powers under clause 4 of the Tractors (Price) Control Order. (The said notifications are annexures 1 to Ex. A to the petition) (3) The sale price of the tractors fixed under the said notifications included the following accessories/attachment which were required to be supplied with every tractor viz -
'(a) Hyd-lift, (b) 3. pt. linkage, (c) Power take-off, (d) Lighting equipment, consisting of hd light, tail light and plough light (e) A set of tools and (f) Elec. horn.'
(4) By a notification dated 29-5-1971 (Ex. C to the petition) the Central Government exempted from excise the duty motor vehicles parts and accessories falling under Item 34A, other than those specifically mentioned therein. Admittedly 'the hour meters' and 'wheel weights' (with which we are concerned not being amongst the accessories specifically mentioned therein, were at the relevant time specifically exempted from duty, (5) 'Hour Meter' and 'wheel weights' were not essential parts of the tractors manufactured by the petitioners and a tractor could be operated as such without fitting them to a tractor, (6) The said two accessories are not fitted to all the tractors manufactured by the petitioners nor do the petitioners manufactures the same, but the petitioners filed the said two accessories or any one of them to the tractors manufactured by them only at the option of their customers after purchasing them from outside and on a separate invoice prepared for the same, and (7) In their affidavit in reply the respondents have also conceded the position that if the petitioners were to manufacture the said parts and to clear them as such no duty would have been recovered on the same as they were exempted from duty. So also if the petitioners were to fit the said part to the tractors manufactured by them after the tractor was cleared from the licensed premises, the value of the said parts also would not have been included for the purposes of determining the assessable value of the tractor.
21. On the said admitted facts it would be convenient now to consider the said rival contentions - Section 3 of the Central Excises and Salt Act, 1944, which is a charging section, provides for the levy of excise duty on excisable goods which are produced or manufactured. Excisable goods are as mentioned in the Tariff schedule, in this case, 'tractors' under Item 34(3a), It is only at the point when the petitioners manufacture 'a tractor' which could be only with all its essential parts or components, that the said goods become excisable. The petitioners had produced sufficient evidence by way of affidavits of traders and purchases to show that the said two parts viz., Hour meters and wheel weights are not essential components of a tractor and in the market a tractor without the said parts is accepted as a tractor. That position is not disputed before me. On the aforementioned admitted facts it is clear that a manufacture of 'a tractor' is complete when it is brought into existence with all its essential components. The said two accessories viz., Hour meters and wheel weights, are not its essential parts, and the manufacture of a tractor would be complete without they or any of them being fitted to a tractor nor would the people in the trade reject the same as a tractor without the said accessories or one of them being fitted to it.
22. The real test would be to find out at what point of time the petitioners could be said to have manufactured a tractor with all its essential parts, it would be at that point of time that it would be excisable to attract excise duty. In this case that could be even without any of the said accessories being fitted on it, for admittedly they are fitted to the tractor at the option of the purchases subsequent to the tractor as such being manufactured by the petitioners. In that event, the excise duty could be ascertained only after assessing the value of the tractor as such excluding the price of the said two accessories, or to do otherwise, it would amount to levying excise duty not only on the tractor as such which is an excisable article, but on a tractor plus the said accessories. Further, it would also amount to indirectly levying excise duty on the said accessories which are exempted from duty which again would not be permissible.
23. This view is supported by the decision of the court, relied upon by the learned Counsel for the petitioners, in the case of Union of India vs. Mansingka Industries Private Limited reported in 67 Bom. L.R. 663. In that case, the excisable goods were 'hydrogenated vegetable oil' under Item 13 of the Tariff. While levying excise, the excise authorities assessed the value thereof inclusive of the price of the containers, in which it left the licensed premises. The court held that the product, which is made subject to excise duty under Item No. 13 of the First Schedule to the Central Excises and Salt Act, 1944, is 'hydrogenated vegetable oil itself; and that the said item did not contemplate the container in which the hydrogenated vegetable oil may be put as being part of the product.'
24. It also happened in that case that the container was by itself exempted from excise, and so the court held that the Central Excises and Salt Act, 1944, only provided for the imposition of duty on excisable goods and when an attempt was made to levy duty of excise on goods which were not excisable, then such a levy would fall outside the law and would be illegal.
25. According to the learned Counsel for the respondents and that seems to be the respondent's stand in their affidavit in reply, although duty is leviable on 'Tractor' as an excisable article, the form in which it is cleared from the manufacturing premises was to be taken into account and therefore it was permissible to take into account the value of additional special components of accessories fitted to it, in determining the assessable value of the tractors, if they were fitted to the tractors at the time of its removal from the petitioners premises. For the reason which I have already mentioned above this does not appear to be correct approach to the problem. Although it may be correct to say that the assessable value of a manufactured article is to be ascertained at the time of the article leaving the licensed premises, the excise duty could be levied only on the excisable goods, in this case a 'tractor'. However, when it is admitted in this case that the said two accessories were not essential for the purpose of the manufacture of 'a tractor' as such, the price of the said parts, though fitted to the tractor before leaving the petitioners' licensed premises, cannot be included in the assessable value of the tractor. This would be more so in this case because the price of the tractors manufactured by the petitioners, along with the specified accessories supplied or to be supplied by them along with the tractor, is fixed by the Government from time to time and the said two accessories fitted by the petitioners to their tractors at the option of the purchasers are exempt from excise duty. The said contention of the learned counsel for the respondents therefore cannot be accepted.
26. In my view, therefore, on the aforementioned admitted facts and other circumstances of this case the said impugned orders both of the Assistant Collector and the Collector of Central Excise cannot be sustained.
27. In the view that I am taking it is not necessary to consider the other contentions of the petitioners.
28. The result, therefore, is that the petition is allowed. The rule is made absolute in terms of prayers (a), (b) and (c) including therein the order dated 6-2-1973. Respondents to pay to the petitioners the costs of the petition.
29. Petitioners not to revoke bank guarantee which was given at the time of interim order for a period of six weeks from today.