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Godrej and Boyce Manufacturing Co. Pvt. Ltd. and anr. Vs. Union of India (Uoi) and ors. - Court Judgment

LegalCrystal Citation
SubjectExcise
CourtMumbai High Court
Decided On
Case NumberWrit petition No. 1110 of 1983
Judge
Reported in1984(3)ECC263; 1984(18)ELT172(Bom)
ActsCentral Excise Act, 1944 - Sections 4, 4(1), 4(4), 11A, 11A(3), 35, 35(2), 35A and 36; Central Excise Rules - Rules 56A and 173C; Constitution of India - Article 226
AppellantGodrej and Boyce Manufacturing Co. Pvt. Ltd. and anr.
RespondentUnion of India (Uoi) and ors.
Appellant AdvocateA. Hidayatullah, ;J.F. Pochkhanawalla and ;A. Shroff, Advs., i/b., Crawford Bayley and Co.
Respondent AdvocateM.I. Sethna, Adv.
Excerpt:
.....outside bombay packed in a special secondary packing--assessment including secondary packing in value of goods--appeal--appellate collector holding secondary packing not liable to be included in value for levy of excise duty--short levy--issue of show cause notice by superintendent requiring assessee to show cause why value of secondary packing should not be included in assessable value and differential duty and amounts erroneously refunded recovered--notice, whether without jurisdiction--whether superintendent precluded from issuing notice in view of appellate collector's order--notice, whether barred by limitation--writs under constitution--writ petition by assessee against show cause notice--maintainability--existence of alternative remedy--central excises and salt act (1 of 1944),..........on payment of excise duty calculated on their assessable value without adding to it the value of secondary packing in respect of sales made outside bombay.7. the petitioners thereafter received several show cause notices from the superintendent of central excise. three show cause notices were dated 23rd november 1982, two show cause notices were dated 5th april 1983 and one show cause notice was dated 11th january 1983. the show cause notices of 23rd november 1982 and 5th april 1983 required the petitioners to show cause why the value of secondary packing should not be included in the assessable value declared by the petitioner company in its several price lists filed from time to time. they required the petitioners to show cause why excise duty sought to be levied as a.....
Judgment:

Sujata V. Manohar, J.

1. The petitioners manafacture, inter alia refrigerators. These refrigerators are classified under Item 29A of the First Schedule to the Central Excises and Salt Act, 1944 for the purpose of payment of excise duty. The refrigerators manufactured by the petitioners are sold by them to wholesale dealers in Bombay as well as outside Bombay.

2. The refrigerators sold to the wholesale dealers in Bombay are supplied, wrapped in a polythene cover. Refrigerators which are sold and delivered by the petitioners to wholesale dealers outside Bombay, are packed in a special secondary packing in order to protect them against damage through handling and transit. This secondary packing consists of a double-faced corrugated fibre box, its fitments and a wooden base. The petitioners levy a separate charge for this secondary packing, under a separate invoice. At all material times the charge so levied was Rs. 150/- per package for 'N' Model refrigerators and Rs. 115/- per package for 'P-3' and P-4' models. After April 1982, the charges were increased to Rs. 200/- and Rs. 165/-respectively.

3. The practice of levying a separate charge for secondary packing has been in vogue for a long time. The petitioners, during the relevant period, sold approximately 40% of their refrigerators to wholesale dealers in Bombay, wrapped in a polythene cover. The balance 60% of the refrigerators were sold and delivered to wholesale dealers outside Bombay.

4. It is the case of the petitioners that these refrigerators are sold at the factory gate to wholesale dealers in Bombay without the special secondary packing. Such special secondary packing is neither essential nor necessary for the purpose of marketing the refrigerators in the wholesale market. The charge levied for such packing should, therefore, not be added to the wholesale price for the calculation of excise duty payable on the refrigerators.

5. Under Rule 173-C of the Central Excise Rules the petitioners filed a price list dated 20th October 1977. For arriving at the assessable value of the refrigerators Under Section 4 of the Central Excises and Salt Act, 1944, the petitioners did not add to the wholesale price the value of the special secondary packing. In other words, the price list did not cover the charge for secondary packing. By an order dated 12th January 1978 the Assistant Collector of Central Excise rejected the petitioners' claim for exclusion of the value of the secondary packing from the assessable value of the refrigerators Under Section 4. The petitioners filed an appeal dated 11th April 1978 before the Appellate Collector, Central Excise Under Section 35 of the said Act. By his order dated 28th October 1980 the Appellate Collector upheld the submissions made on behalf of the petitioners. He held that the assessable value as determined Under Section 4 of the said Act could not include the value of the secondary packing. Thereafter, no further proceedings were adopted by respondent No. 1 by way of revision and/or review. The order of 28th October, 1980, therefore, became final under the provisions of Section 35(2) of the said Act.

6. Consequent upon the order of 28th October 1980, the Assistant Collector of Customs passed several orders granting refunds of the excess amount collected as excise duty on the value of the secondary packing. The petitioners had paid these amounts under protest. The petitioners were also permitted to take credit in respect of the amounts ordered to be refunded in the R.G. 23 Register maintained under Rule 56A. The total sum so refunded amounted to Rs. 7,27,250.44, for the period from July 1980 to November 1980. Thereafter, the petitioners were allowed to clear their Refrigerators on payment of excise duty calculated on their assessable value without adding to it the value of secondary packing in respect of sales made outside Bombay.

7. The petitioners thereafter received several show cause notices from the Superintendent of Central Excise. Three show cause notices were dated 23rd November 1982, two show cause notices were dated 5th April 1983 and one show cause notice was dated 11th January 1983. The show cause notices of 23rd November 1982 and 5th April 1983 required the petitioners to show cause why the value of secondary packing should not be included in the assessable value declared by the petitioner company in its several price lists filed from time to time. They required the petitioners to show cause why excise duty sought to be levied as a result, should not be recovered Under Section 11A of the said Act.

8. The show cause notice of 11th January 1983 required the petitioners to show cause why the amounts 'erroneously' refunded in cash to the petitioners should not be recovered from them. This notice covered the refunds granted for the period from July 1980 to November 1980.

9. The petitioners have challenged these show cause notices as being without jurisdiction. They have also submitted that the issue is concluded by the order of the Appellate Collector dated 28th October 1980 which is final and binding on the Department. The petitioners have also submitted that the show cause notices amount to an attempt by a subordinate officer to review the order passed by a superior officer and such a review is wholly without jurisdiction. The petitioners have submitted a chart relating to these show cause notices, the period to which they pertain and the amounts claimed under these show cause notices, in order to show that a substantial portion of the claim which is the subject matter of these notices is barred by limitation under the provisions of section 11A of the Central Excises and Salt Act. The chart so submitted by the petitioners is set out as an appendix to this judgment.

10. On merits the petitioners have submitted that the packing in question is secondary packing, specifically supplied at the request of the wholesale dealers outside Bombay. The packing is separately charged for. The charges levied for such packing cannot be added to the price for the purpose of arriving at the value of the goods Under Section 4(4)(d)(i) of the Central Excises and Salt Act.

The petitioners are relying upon the decision of the Supreme Court in the case of Union of India and Ors. v. Bombay Tyre International Ltd., reported in 1983 E.L.T. 1896 (S.C.) in support of their submission.

11. The first challenge is to the show cause notices themselves. These show cause notices were issued long prior to the decision of the Supreme Court in the case of Union of India v. Bombay Tyre International Ltd. The operative part of the order in the above case was delivered in May 1983 and the reasoning and judgment were delivered in October 1983. These notices, however, were issued prior to May 1983 and they pertain to a period which is much prior to May 1983, when the order of the Supreme Court in the case of Union of India and Ors. v. Bombay Tyre International Limited was delivered. The law and its interpretation, therefore had not been affected in any way by the above Supreme Court decision at the time when the show cause notices were issued.

12. The validity of the show cause notices will have to be judged as on the date of issue of these notices. At the date when these notices were issued, the question whether secondary packing supplied by the petitioners should be included in the value of the refrigerators or not, was concluded by an order of the Appellate Collector passed on 28th October, 1980. The Appellate Collector was, in terms, required to consider the very same special secondary packing. The Appellate Collector had held that the value of such special secondary packing should not be included in the value of the refrigerator of the petitioners for the purpose of levy of excise duty. This finding was given in respect of an earlier period. But there was no change, either in the facts or in the law, at the time when the impugned show cause notices were issued. The earlier order of the Appellate Collector was therefore binding on the Department. The department was under an obligation to follow the earlier order.

13. In the case of Mercantile Express Co. Ltd. v. Assistant Collector of Customs and Ors. reported in 1978 E.L.T. 552 the Calcutta High Court held that the Customs authorities were bound by their own decisions in administering taxing statutes. It observed :

'The Custom now say that they are not bound by their previous decisions. Whether the doctrine of precedents applies in its full rigour to Administrative Agencies and Officers, and whether a reasonable latitude should be given to them or administrative tribunals to correct or modify their previous decisions may still remain debatable controversy in the world of law; nevertheless I am clearly of the opinion that neither the Appraiser nor the Collector of Customs can change his mind from time to time in respect of the same articles by assessing them in the case of one importer under one section and then assessing them for another importer under different section. To allow the Customs to do so will lead to utter confusion on the very basis and principles of taxation and grave uncertainty in business and foreign trade of India.'

What is true of Customs authorities is equally true of Excise authorities, and the observations of the Calcutta High Court apply with even greater force in the case of the same assessee who is sought to be taxed differently for the same article.

14. The Delhi High Court in the case of Bharat Carpets Ltd. v. Union of India reported in 1978 E.L.T. 111 was required to consider an order passed in revision Under Section 36. It held that the order in revision for one period is binding on the taxing authorities even for subsequent periods.

15. In the case of I.B.M. World Trade Corporation v. Union of India reported in 1980 E.L.T. 274 Bom. this High Court has also held that once a finding is given by a superior authority on contentions raised before it, it is binding upon the subordinate authorities in subsequent proceedings, unless some other material is brought to their notice, which compels them to take a contrary view. The court was concerned with the levy of countervailing duty in that case. The same principle would apply to the levy of excise also. In the present case no other material was before the subordinate authorities at the time when the show cause notices were issued, which would warrant a different view being taken by the subordinate authority for either the previous or subsequent years or the same years.

16. In the show cause notices it has been stated that on enquiry and verification of the invoices it is found that the assessee has recovered extra charges on packing for upcountry deliveries of refrigerators from their factory at the time of their removal. This fact is not a new fact discovered for the first time when the show cause notices were issued. Recovery of extra charge for packing on upcountry delivery of refrigerators was not merely known to the department, but its inclusion or non-inclusion in the value for the purpose of excise with the subject-matter of departmental adjudication culminating in the order of the Appellate Collector dated 28th October, 1980. The order had become final and binding at the time when the show cause notices were issued. It was therefore not open to the respondents to issue these show cause notices.

17. Mr. M.H. Sethna learned counsel for the respondents has submitted that these show cause notices must be examined in the light of the decision of the Supreme Court in Union of India v. Bombay Tyre International (Supra). According to him, by virtue of the decision of the Supreme Court the position in law has changed. In the light of this fact the show cause notices should be held as justified; and they cannot be said to be without jurisdiction. If these submissions were to be accepted, it would amount to upholding the validity of the show cause notices on the basis of a subsequent change in the law (assuming that there is such a change). There is no warrant for such a position being accepted in law, especially when no retrospective change in the law has taken place.

18. In the case of Jenson and Nicholson {India) Limited and Anr. v. Union of India and Ors. reported in : 1984(17)ELT4(Bom) this High Court was required to consider a case where the petitioners had filed a price list in June 1977 claiming certain deductions. The Assistant Collector of Central Excise by his order of 1st September, 1979 had allowed only some of the deductions claimed by the petitioners and not others. In respect of the deductions which had not been allowed, the petitioners preferred an appeal and thereafter a revision application. In the meantime, the Supreme Court delivered the judgment in the Bombay Tyre International Ltd. case. The court held that in respect of the deductions which were not the subject-matter of appeal and revision, the order allowing the deduction had become final. The reviewing authority had also not issued any notice in respect of those funds. It could not therefore, he contended that the deduction had been wrongfully allowed. In other words, it is not open to the respondents to support the show cause notices on the basis of any subsequent changes in law (assuming that there is such change). At the highest, as a result of any subsequent change in law, the respondents may be entitled to re-open and/or review any orders previously passed if they are so entitled under any of the provisions of law. They would also have to exercise such a right within the time prescribed by law. The present show cause notices are not issued in the exercise of any powers of review and/or revision Under Sections 35A or 36 of the said Act, as then in force. They are without jurisdiction.

19. Under Section 11A of the Central Excises and Salt Act, 1944 'when any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded, a Central Excise Officer may, within six months from the relevant date, serve notice on the person chargeable with the duty which has not been levied or paid or which has been short-levied or short-paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice.'

Sub-section 3(ii) defines the 'relevant date' as follows : '(3)....

(i)...

(ii) 'relevant date' means-

(a) in the case of excisable goods on which duty of excise has not been levied or paid or has been short-levied or short-paid-

(A) Whereunder the rules made under this Act a monthly return showing particulars of the duty paid on the excisable goods removed during the month to which the said return relates, is to be filed by a manufacturer or producer or a licensee of a warehouse, as the case may be, the date on which such return is so filed.

(B)...

(C)...

(b)...

(c) In the case of excisable goods on which duty of excise has been erroneously refunded the date of such refund.

The show cause notices were therefore required to be issued within 6 months of the relevant date as defined in Section 11A. From the chart it is clear that out of the total claim of Rs. 99,10,504.54 claimed by the respondents under these show cause notices, claims (approximately) of Rs. 45,91,871.54 are barred as beyond the time prescribed in Section 11A. The petitioners, therefore are right when they contend that a substantial portion of the amount claimed is barred by time. In any case, since the show cause notices are without jurisdiction, it is not necessary to examine the various claims made in the show cause notices in detail in order to ascertain the exact amount of such claims which are time-barred.

20. The respondents also contend that they should be allowed to proceed with the show cause notices. It is open to the petitioner to go in appeal from the orders that may be passed in respect of the show cause notices The respondents submitted that Article 226 of the Constitution should not be resorted to at the stage of the issue of show cause notices. In the present case however, the show cause notices are wholly without jurisdiction and hence the respon dents can be prevented from proceeding with the show cause notices In the case of Light Roofings Ltd. v. Superintendent of Central Excise, Kanchee-puram and two Ors. reported in 1981 E.L.T. 738 (Mad.), the Madras High Court held that if the show cause notice was void, illegal and barred by limitation the High Court was competent to intervene by way of a writ under Article 226 of the Constitution and it could quash the illegal notice.

21. The Supreme Court in the case of East India Commercial Co Ltd. v. Collector of Customs reported in : 1983(13)ELT1342(SC) has observed at page 1903 that if respondents had no jurisdiction to initiate proceedings, they can certainly be prohibited from proceeding with the same. The respondents therefore can be prevented from proceeding with the impugned show cause notices. In any case, no useful purpose can be served by allowing them to proceed with notices which are without jurisdiction.

22. Even on merits and even in the light of the judgment of the Supreme Court in the Bombay Tyres International case, the petitioners would be entitled to have the value of the refrigerators determined for the purpose of excise duty without the addition of the charge for extra packing.

23. Section 4(1)(a) and (4)(d)(i) of the Central Excises and Salt Act are as follows :

'4. Valuation of excisable goods for purposes of charging of duty of excise : -

(1) Where under this Act, the duty of excise is chargeable on any excisable goods with reference to value, such value shall, subject to the other provisions of this section, be deemed to be-

(a) the normal price thereof, that is to say, the price at which such goods are ordinarily sold by the assessee to a buyer in the course of whole-sale trade for delivery at the time and place of removal, where the buyer is not a related person and the price is the sole consideration for the sale :

Provided that-

(i) where in accordance with the normal practice of the wholesale trade in such goods, such goods are sold by the assessee at different prices to different classes of buyers (not being related persons) each such price shall, subject to the existence of the other circumstances specified in Cl. (a), be deemed to be the normal price of such goods in relation to each such class of buyers :

(4) For the purpose of this section-

(d) 'value', in relation to any excisable goods,-

(i) Where the goods are delivered at the time of removal in a packed condition, includes the cost of such packing except the cost of the packing which is of a durable nature and is returnable by the buyer to the assessee.

Explanation.-In this sub-clause 'packing' means the wrapper, container, bobbin, pirn, spool, reel, or wrap beam or any other thing in which or on which the excisable goods are wrapped, contained or wound ;

In interpreting the section the Supreme Court has observed that the Explanation refers to the packing in which the goods are ordinarily sold in the course of wholesale trade. The Supreme Court goes on to say that the cost of primary packing, that is to say, the packing in which the article is contained and in which it is marketed for the ultimate ordinary consumer, must be regarded as a part of the value of the goods within Section 4(4)(d)(i). It gives the example of a tube of tooth paste or a bottle of tablets in a cardboard carton. A tube of tooth paste or a bottle of tablets is marketed for the ordinary consumer in the cardboard carton. This is the primary packing, the cost of which must be included in the value of the goods for the purpose of excise. The Supreme Court goes on to observe that the secondary packing can be of different grades, e.g. the secondary packing may consist of a larger carton in which a standard number of primary cartons may be packed. The large cartons may be packed in even larger cartons for facilitating easier transport of the goods by the wholesale dealer. It goes on to observe :

'We must remember that while the packing is necessary to make the excisable article marketable, the statutory provision calls for strict construction because the levy is sought to be extended beyond the manufactured article itself. It seems to us that the degree of secondary packing which is necessary for putting the excisable article in the condition in which it is generally sold in the wholesale market at the factory gate is the. degree of packing whose cost can be included in the 'value' of the article for the purpose of the excise levy.'

24. In the present case, therefore, we have to see the degree of secondary packing necessary for putting the refrigerators of the petitioners in the condition in which they are sold in the wholesale market at the factory gate. It is an accepted position that the refrigerators are sold in the wholesale market at the factory gate in Bombay in a packing which consists of a polythene cover. A packing which may be required for. a wholesale market in some remote area is not the secondary packing which is contemplated by the Supreme Court as included in the value of the goods. Thus, for example, if the article has to be transported over rough roads to reach a given wholesale market in a remote area it may have to be packed in a special way to protect it from damage. Similarly, if the goods have to be transported over water, for example, in order to reach a certain wholesale market, they have to be packed in waterproof packaging. The degree of packing may differ depending upon how and where the goods are being transported. Every type of packing is not to be included in the value of the goods. Only such secondary packing which is necessary for the wholesale market at the factory gate is to be included in the value of the goods. In the present case, the goods are required to be packed only in a polythene cover for wholesale market at the factory gate. Hence only the value of this packing is includible in the value of the goods.

25. If the contention of the respondents were to be accepted, it would mean that the petitioners will have to file different price lists in respect of their refrigerators in respect of wholesalers in different areas. Section 4(1)(a)(i) of the said Act contemplates different prices to different classes of buyers e.g. if goods are sold at a special price to a Government Department or to a defence establishment, a separate price list can be filed to show that for a different category of buyers a different normal price is charged. But wholesale dealers in India cannot be considered as belonging to different classes simply because they are located in different towns or cities. Unless there are different classes of buyers, there cannot be different normal prices for excise purposes Under Section 4. The petitioners however, will have to file different price lists qua wholesale dealers in Bombay and in other remoter areas, as the value of packaging will differ. An interpretation of the Supreme Court judgment which requires the petitioners to file such separate price lists is not warranted. Such different price lists for wholesalers in different areas are not contemplated Under Section 4(1)(a)(i). Only the value of the polythene covers is required to be included in the price list of the refrigerators, because this packing, whether you call it primary or secondary, is the packing in which the refrigerators are sold in the wholesale market at the factory gate.

26. Mr. Sethna for the respondents relied upon the following observation of the Supreme Court. The Supreme Court in para 52 has stated :

'If any special secondary packing is provided by the assessee at the instance, of a wholesale buyer which is not generally provided as a normal feature of the wholesale trade, the cost of such packing shall be deducted from the wholesale cash price.'

He submitted that unless a special packing is provided at the instance of the ; wholesale buyer, the cost of such packing cannot be deducted from the wholesale cash price. He submitted that the petitioners had not referred to any material in their petition to establish that the secondary packing in question was provided at the instance of wholesale buyers. In this connection it must be remembered that the petition was filed-long prior to the decision of the Supreme Court. The petitioners cannot be expected to refer in their petition to. the material which would be required in anticipation of the Supreme Court decision. The petitioners did produce in the course of hearing several letters written to them in 1978 and 1979 by their wholesale dealers outside Bombay complaining of the damage caused to the refrigerators in the course of transport because of the packing provided by the petitioners and asking for a special packing to protect the refrigerators in transport. Mr. Sethna objected to any notice being taken of these letters. In view of this objection, I am not relying upon these letters. Mr. Sethna however, is not right in contending that only such special secondary packing can be excluded which is provided at the instance of wholesale buyers. The observation of the Supreme Court in relation to special secondary packing provided by the assessee at the instance of a wholesale buyer is an instance of special secondary packing which is not generally provided as a normal feature of the wholesale trade. The ratio laid down by the Supreme Court is that when secondary packing is such that it is not normally provided in the wholesale trade, its cost has to be excluded. The cost of such secondary packing as is provided when goods are sold in the wholesale market at the factory gate is to be included in the wholesale price of the goods for excise purposes. It is an accepted position that at least 40% of the petitioners' goods are sold in the wholesale market in packing which consists of a polythene cover. This is the packing in which the goods are sold at the factory gate in the wholesale market by the petitioners. The secondary packing, therefore, which is provided by the petitioners when goods are transported and delivered to wholesale dealers outside Bombay and which is separately charged for by the petitioners under a separate invoice, cannot be considered as packing which is a normal feature of the wholesale trade for the petitioners' refrigerators. The special secondary packing in question cannot be included in the wholesale cash price of the petitioners' refrigerators, for excise purposes.

The rule is therefore made absolute in terms of prayers (a) and (b).

The respondents will pay to the petitioners costs of the petition.


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