K.S. Puttaswamy, J.
1. On a reference made by one of us (Puttaswamy, J.) these cases were posted before a Division Bench for disposal.
2. As the questions of law that arise for determination in these cases are either common or interconnected, we propose to dispose them by a common order.
3. M/s. Mangalore Chemicals and Fertilisers Limited, a public limited company incorporated under the Companies Act of 1956, which is the petitioner in W.P. 3548 of 1978 is engaged in the manufacture of chemicals and fertilisers, at its factory situated near Mangalore. M/s. Ballapir Industries Limited, also a public limited company incorporated under the Companies Act, which is the petitioner in W.P. No. 4766 of 1981, is engaged in the manufacture of caustic soda, liquid chlorine, Hydrochloric Acid and Sodium Tripoly-phosphate at its factory situated near Karwar. The goods manufactured by the petitioners are exigible to payment of excise duty under and in accordance with the Central Excises and Salt Act of 1944 (Central Act 1 of 1944) ('the Act').
4. In order to appreciate properly one of the principal questions that is common in these cases, we consider it useful to set out the facts and contentions urged in W.P. No. 4766 of 1981 in some detail.
5. W.P. No. 4766 of 1981. - The petitioner is engaged in the manufacture of caustic soda at its factory situated at Karwar. Prior to 16-6-1976, caustic soda and caustic potash was dutiable to excise duty under Tariff Item No. 14B of the Act at the rate provided therein.
6. In exercise of the powers conferred by Rule 8 of the Central Excise Rules of 1944 ('the Rules') framed under the Act, Government of India by its Notification No. 198/76, dated 16-6-1976 (published in the Gazette Extraordinary of the same date - Exhibit-A) partially exempted 'caustic soda' and 'caustic potash' dutiable under Tariff Item No. 14B subject to the terms and conditions stipulated in that notification for the period from 1-7-1976 to 31-3-1979 (vide Clause 6 of the notification). The material portions of the said notification reads :-
GOVERNMENT OF INDIA
Department of Revenue and Banking
New Delhi, the 16th June, 1976/26th Jyaistha, 1898 (Saka)
In exercise of the powers conferred by the sub-rule (1) of Rule 8 of the Central Excise Rules, 1944, the Central Government hereby exempts the excisable goods of the description specified in column (3) of the Table hereto annexed (hereinafter referred to as the specific goods) and falling under such Item Number of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944), as are specified in the corresponding entry in column (2) of the said Table and cleared from one or more factories in excess of the base clearances by or on behalf of a manufacturer, from so much of the duty of excise leviable thereon under the said sub-rule (1) of the Rule 8 and in force for the time being), as is in excess of seventy-five per cent of such duty, subject to the following conditions, namely :-
* * * *
(2) After comparing the clearances of specified goods under sub-paragraph (1) the base period and base clearances, in relation to a factory, shall be determined as under :-
* * * *
(3) Notwithstanding the exemption granted by this notification, in respect of the excisable goods of the description specified against the Serial Numbers 23, 25 and 26 of the said Table and falling respectively under Items Nos. 26A(1) and 26B(1) 27(a)(i) of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944) and subject to concessional rate of duty under this notification, the liability, in relation to such goods, for payment of duty in full at the rate applicable for this notification shall, for the purpose of Rule 56A of the Central Excise Rules, 1944 or adjustment of duty, be deemed to have been discharged and the manufacturer shall indicate separately in the gate pass prescribed under the Rule 52A, read with sub-rule (2) of Rule 173G of the said rules -
(i)(a) the duty which he would have otherwise paid but for this notification, and
(b) the duty actually paid by him under this notification; and
(ii)(a) the auxiliary duty which he would have otherwise paid but for this notification, and
(b) the auxiliary duty actually paid by him under the relevant notification and relating to auxiliary duty read with this notification.
Explanation. - In this clause, 'auxiliary duty' means the duty leviable under Section 36 of the Finance Act, 1976 (66 of 1976).
6. This notification shall come into force on the 1st day of July, 1976 and remain in force upto and inclusive of 31st day of March, 1979.
-----------------------------------------------------------------------S. No. Item number of Description of Unit for calculationthe First goodsSchedule toCentral Excisesand SaltAct, 1944------------------------------------------------------------------------1 * * * * * *2 * * * * * *3 * * * * * *4 * * * * * *5 * * * * * *6 14B Caustic Soda Weightand CausticPotash.* * * * * ** * * * * *13 14HH Fertilizers Weight------------------------------------------------------------------------On the basis of this notification, the petitioner filed its price lists and produced necessary proof to sustain its claim for exemption on the exempted goods before the authorised officer, who on an examination of the said claim, provisionally accepted them and permitted the clearance of those goods on payment of appropriate excise duty. With this, the matter should have normally ended. But that was not to be.
7. The Collector of Central Excise, Bangalore (Collector) issued Trade Notice No. 56/77, dated 21st March, 1977 (Exhibit B) purporting to clarify, has really regulated the levy of excise duty on goods manufactured and detailed in the aforesaid notification in particular and others in general and that Trade Notice which has given rise to these case reads thus :-
'OFFICE OF THE COLLECTOR OF CENTRAL EXCISE, CENTRAL REVENUE BUILDINGS, POST BAG NO. 5400, QUEEN'S ROAD, BANGALORE-560 001 : PHONE : 75016.
Central Excise Trade Notice No. 58/77, dated 21-3-1977 (15/ General)
Subject : Central Excise - Scheme of Excise duty - Relief to encourage higher production - Reg.
Attention of the trade is invited to Government of India Notification No. 198/76-C.E., dated 16-6-1976, communicated in this Office Trade Notice No. 173/76, dated 21-5-1976, wherein the Government of India had brought into force a scheme in June, 1976 under which manufacturers of specified commodities would be entitled to 25% reduction in the Central Excise duty leviable on clearance of their manufactures which were in excess of the clearances in the 'Base Period' subject to prescribed conditions. A question has arisen whether the duty relief can be retained by the manufacturer and Government wish to clarify that it is for the manufacturer to decide whether the benefit of the duty exemption earned by him should be retained by him or not. However, it may be noted that in the event of the manufacturer not passing on the benefit in whole or in part to the buyer, the assessable value of the goods will have to be adjusted accordingly and the duty computed on the assessable value so adjusted. The assessable value will be worked out by the following formula.
100Assessable value = Sale price (cum duty X -------------------------100 + reduced rate of duty)The duty thereon will be worked as follows :reduced rateSale price (cum duty X ---------------------------------100 + reduced rate of duty)The aforesaid considerations are applicable only in the case of goods subject to ad valorem rates of duty in respect of which no tariff value has been fixed.
2. The contents of this trade notice may please be brought to the notice of all constituent members.
(K. MOHAN RANGA RAO)
On the basis of the said trade notice, the Superintendent of Central Excise understandably gave effect to the same and collected excise duty from it thereafter. On making payments under protest, the petitioner made three applications before the Assistant Collector, I.D.O. Hubli (Assistant Collector) for refund of duty of excise paid by it for different periods, who by his Order No. C. No. V/14H/18/26-80 B5, dated 22-5-1980 (Exhibit C) rejected the same.
8.1. The Finance Act, 1982, (Central Act No. 14 of 1982) by Section 47 has inserted an Explanation to Section 4(4)(d)(ii) of the Act with retrospective effect from 1-10-1975 the validity of which is challenged by the petitioner.
8.2. The petitioner has also challenged the Trade Notice, dated 21-3-1977 issued by the Collector (Exhibit B) the order made by the Assistant Collector on 25-5-1960 (Exhibit G) and has sought a mandamus to the respondents for the refund of the difference of duty collected from it on the basis of the said trade notice.
8.3. The petitioner has urged that the Explanation added to Section 4(4)(d)(ii) of the Act is beyond the legislative competence of the Union Parliament and even if it was within its legislative competence in such an event also, it was not open to it to enact the same retrospectively.
8.4. The petitioner has urged that the trade notice issues by the Collector was without the authority of law and was in derogation of the exemption notification issued by Government. On these grounds, the petitioner has urged that difference of excise duty collected was without authority of law.
9.1. In their return, the respondents have urged that the amending provision was within the legislative competence of the Union Parliament and that it was open to it to legislate retrospectively.
9.2 The respondents have urged that the trade notice issued by the Collector did no more than to clarify the true effect of Section 4 of the Act vis-a-vis the exemption notification and thus help in the proper assessments and the enhanced levy was authorised by the Explanation added to Section 4(4)(d)(ii) of the Act from 1-10-1975 by Section 47 of the Finance Act.
10. W.P. No 3548/1978. - 'Urea' manufactured by the petitioner was dutiable to duty under Tariff Item No. 14HH of the First Schedule to the Act and in the Notification dated 16-6-1976 noticed in W.P. 4766 of 1981, Government granted exemption on the said article on the terms and conditions set out therein. On the basis of the very trade notice of the Collector challenged by the other petitioner, the concerned Assistant Collector by his Order dated 31-12-1977 (Exhibit H) over-ruling the objections of the petitioner has redetermined the assessable value, the difference of excise duty payable and has called upon the petitioner to pay a sum of Rs. 6,00,554.48P as additional duty which is challenged by the petitioner on the very grounds urged by the other petitioner. In a separate return, the respondents have justified their action.
11. Sriyuths S. G. Sunderaswamy and S. Ramaswamy Iyengar learned advocates have appeared for the petitioners in these cases. Sriyuths J. Jesthmul and A. J. Shetty, learned Advocates appearing in other cases were also heard. Sri K. Shivashankar Bhat, learned Senior Standing Counsel for the Central Government, has appeared for the respondents in these cases. Both sides in support of their respective cases, have relied on a number of rulings.
12. Sri Sunderaswamy urged that the explanation added to Section 4(4)(d)(ii) of the Act by Section 47 of the Finance Act, was beyond the legislative competence of the Union Parliament. Shri Bhat urged that the amending provision was within the legislative competence of the Union Parliament.
13. Article 246 of the Constitution read with Entry 84 of Union List - List 1 of 7th Schedule to the Constitution, empowers Parliament to legislate on the topic of duties of excise on tobacco and other goods manufactured in the country except those that are excepted in that very article. The power to legislate on excise duty comprehends in itself the power to legislate in respect of all matters/incidental to the levy of duty. The explanation added to Section 4(4)(d)(ii) of the Act is really on the topic of 'excise duty'. We are of the view that on the ratio of the rulings of the Supreme Court in Bombay Tyre International v. Union of India : 1983ECR653D(SC) and Empire Industries Ltd. v. Union of India [1985 E.L.T. 179 (SC)] and Khandelwal Metal and Engineering Works v. Union of India : 1985(20)ELT222(SC) , the Union Parliament without doubt was competent to legislate the explanation. We see no merit in this contention of Sri Sundaraswamy.
14. Sri Sundaraswamy has next urged that it was not open to legislate the impugned provision retrospectively and impair the existing rights.
15. The power of the Central and State legislatures to legislate retrospectively is now well settled and recognised and does not call for a detailed examination (vide Rai Ramkrishna v. State of Bihar - : 50ITR171(SC) ). We see no merit in this contention of Sri Sunderaswamy either.
16. Sri Sundaraswamy has urged that the 'Trade Notice' issued by the Collector adding to the terms and conditions of the exemption notification and interfering with the exercise of quasi-judicial powers by his subordinates was unauthorised and illegal.
17. Sri Bhat has urged that the trade notice does no more than to restate or clarify the law and that in any event the action of the authorities was in conformity with the explanation added to Section 4(4)(d)(ii) of the Act with retrospective effect for which reason it was wholly unnecessary to examine the validity of the same.
18. In the trade notice, the Collector had stated that Government was clarifying the question which is not an accurate statement. He had used that term somewhat loosely.
19. We have earlier set out the material parts of the exemption notification and the trade notice issued by the Collector in its entirety. Even placing the most charitable construction suggested by Sri Bhat, we cannot say that the trade notice only restates or clarifies the law for the benefit of the officers working the Act. Without any doubt the trade notice adds to the terms and conditions of the exemption notifications issued by Government and put its own gloss on their true scope and ambit. The Act or the Central Boards of Revenue Act of 1963 (Central Act No. 54 of 1963) does not empower the Collector to interfere with the exercise of Judicial or quasi-judicial powers of his subordinates.
20. The power to exempt and the terms and conditions subject to which such exemption can be granted is exclusively conferred on Government and the Board only. Any amendment or a modification of that notification can only be done by Government and not by any other authority. The original, appellate and Revisional authorities under the Act are free to examine the terms and conditions of the exemption notifications and reach their own conclusion on their true scope and ambit. But even that does not clothe the Collector with power to add to the terms and conditions stipulated by Government.
21. An examination of the trade notice discloses that the Collector by inaptly describing that Government had decided, was in effect usurping the powers of Government by adding to the terms and conditions stipulated in the exemption notification. We are clearly of the view that the power exercise by the Collector was clearly unauthorised, illegal and the same therefore calls for our interference. But this conclusion by itself does not conclude the controversies as it is now necessary to examine the serious contention pressed before us for the respondents viz., that the explanation added to Section 4(4)(d)(ii) of the Act with retrospective effect really supplies what the Collector had sough to do in his trade notice and the orders impugned in these cases are in conformity with the same.
22. Sri Sundaraswamy has urged that the explanation added to Section 4(4)(d)(ii) with retrospective effect does not in any way alter the assessable value of manufactured goods under Section 4 of the Act and does not undo the benefit of exemptions granted to help the industry is regulating the reductions in excise duty for its own benefit. In support of his contention, Sri Sundaraswamy has strongly relied on the ruling of High Court of Delhi in Modi Rubber Ltd., Modinagar v. Union of India and others (1978 E.L.T. 127); Madras Rubber Factory Limited v. Union of India [1979 E.L.T. (J 173)] and the High Courts of Andhra Pradesh, Madras and Orissa in Andhra Pradesh Paper Mills Ltd., Rajahmundry v. Assistant Collector of Central Excise, Rajahmundry [1980 E.L.T. 210 (A.P.)]; Government of India v. Madras Aluminium Co. Ltd., Coimbatore - [1981 E.L.T. 892 (Mad)]; M/s. Bizi Industries v. Superintendent of Central Excise, Cuttack and Others [1982 E.L.T. 109 (Ori.)] respectively.
23. Sri Bhat in refuting the contention of Sri Sundaraswamy has urged that the difference of excise duty in terms of the exemption notification which was not and is not passed on to customers, had to be added to the price or the assessable value of manufactured goods as stipulated in explanation of Section 4(4)(d) of the Act. In support of his contention, Sri Bhat has strongly relied on the ruling rendered by Smt. Sujata V. Manohar, J. of the High Court of Bombay in B. K. Paper Mills Pvt. Ltd. v. Union of India [1984 (10) E.L.T. 701 (Bom.)] and the High Court of Calcutta in Bata Shoe Company Pvt. Limited v. Collector of Central Excise, Calcutta and Orissa and others [1979 E.L.T. (J 464)].
24. The true scope and ambit of Section 4 of the Act substituted by Act No. 22 of 1973 which came into force from 1-10-1975 has been explained and set at rest by the Supreme Court in Bombay Tyre International's and Empire Industry Ltd.'s cases, the latter being the very latest case on the point. But in these cases or any other case brought to our notice, the true scope and ambit of the explanation, had not so far been examined by the Supreme Court. We have, therefore, necessarily to ascertain its true scope and ambit bearing in mind the well settled rules of construction of statutes that are no longer in doubt. But, before doing so, we consider it useful to notice the relevant passages from the aforesaid rulings touching on the construction of Section 4 of the Act. In the Bombay Tyre International, the Court speaking through Pathak, J. expressed thus :
'This Court then summarised the law as follows : 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 to 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 essence of duty, but not only relates to the machinery of collection for administrative convenience...'
*** *** ***
13. We think we have shown sufficiently that while the levy is on the manufacture or production of goods, the stage of collection need not in point of time synchronize with the completion of the manufacturing process. While the levy in our country has the status of a constitutional concept, the point of collection is located where the statute declares it will be.'
15. Section 4 envisages a method of collection tax at the point of the first sale effect by the manufacturer.'
16. As we have said, it was open to the Legislature to specify the measure for assessing the levy. The Legislature has done so. In both the old Section 4 and the new Section 4, the price charged by the manufacturer on a sale by him represents the measure. Price and sale are related concepts and price has a definite connotation. The 'value' of the excisable article has to be computed with reference to the price charged by the manufacturer, the computation being made in accordance with the terms of Section 4.'
29. In every case the fundamental criterion for computing the value of an excisable article is the price at which the excisable article or an article of the like kind and quality is sold or is capable of being sold by the manufacturer, and it is not the bare manufacturing cost and manufacturing profit which constitutes the basis for determining such value.'
32. It will be noticed that the basic scheme for determination of the price in the new Section 4 is characterised by the same dichotomy as that observable in the old Section 4. 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. The object and purpose remained the same, and so did the central principle at the heart of the scheme. The new scheme was merely more comprehensive and the language employed more precise and definite. As in the old Section 4, the terms in which the value was defined remained the price charged by the assessee in the course of wholesale trade for delivery at the time and place of removal. Under the new Section 4 the phrase 'place of removal' was defined by Section 4(b) not merely as 'the factory or any other place or premises of production or manufacture of the excisable goods' from where such goods are removed but was extended to 'a warehouse or any place or premises wherein the excisable goods have been permitted to be deposited without payment of duty' and from where such goods are removed.'
47. From what has gone before, we consider that the true position under the Central Excises and Salt Act, 1944 as amended by Act XXII of 1973 can be set forth as follows :
(i) The price at which the excisable goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and place of removal as defined in sub-section (4)(b) of Section 4 is the basis for determination of excisable value provided, of course, the buyer is not a related person within the meaning of sub-section (4)(c) of Section 4 and the price is the sole consideration for the sale. This proposition is subject to the terms of the three provisions to sub-section (1)(a) of Section 4;
(ii) Where the price of excisable goods in the course of wholesale trade for delivery at the time and place of removal cannot be ascertained for the reason that such goods are not sold or for any other reason, the nearest ascertainable equivalent thereof determined in the manner prescribed by the Central Excise (Valuation) Rules, 1975 should be taken as representing the excisable value of the goods;
(iii) Where wholesale price of any excisable goods for delivery at the place of removal is not known and the value thereof is determined with reference to the wholesale price for delivery at a place other than the place of removal, the cost of transportation from the place of removal to the place of delivery should be excluded from such price;
(iv) Of course, these principles cannot apply where the tariff value has been fixed in respect of any excisable goods under sub-section (2) of Section 3;
(v) On a proper interpretation of the definition of 'related person' in sub-section (4)(c) of Section 4, the words 'a relative and a distributor of the assessee' do not refer to any distributor but they are limited only to a distributor who is a relative of the assessee within the meaning of the Companies Act, 1956. So read, the definition of 'related person' is not unduly wide and does not suffer from any constitutional infirmity. It is within the legislative competence of Parliament. It is only when an assessee so arranges that the goods are generally not sold by him in the course of wholesale trade except to or through such a related persona that the price at which the goods are ordinarily sold by the related person in the course of wholesale trade at the time of removal to dealers (not being related persons) or where such goods are not sold to such dealers, to dealers (being related persons) who sell such goods in retail is liable to be taken as the excisable value of the goods under proviso (iii) to sub-section (1)(a) of Section 4.'
In Empire Industries Ltd.'s case, the court speaking through Sabyasachi Mukharji, J. expressed thus :-
'Section 4 of the Act is the section which deals with the valuation of excise goods for the purpose of charging duty of the same would be applicable. Where for the purpose of calculating assessable profits, a notional and conventional sum is laid down by the legislature to be arrived at on a certain basis, it is not permissible for the courts to engraft into it any other deduction or allowance or addition or read it down on the score that the said deduction or allowance or addition was authorised elsewhere in the Act or in the Rules. A conventional charge should be measured by its own computation and not by facts relating to other method of computation. The circumstances that thereby the benefit of any exemption granted by the legislature may be lost and that in some cases hardship might result are not matters which would influence courts on the construction of the statute. A tax payer subject is entitled only to such benefit as is granted by the legislature. Taxation under the Act is the rule and benefit and exemption, the exception. And in this case there is no hardship.'
What has been enunciated herein concludes the scope and ambit of Section 4 of the Act for ascertaining the 'value' or 'assessable value' a conceptual value defined in clause (d) of that section.
25. With the above analysis, it is first useful to ascertain the legislative history of the explanation and then ascertain its scope and ambit.
26. The annual Finance Bill for the year 1982 called 'The Finance Bill' 1982 (Bill No. 14 of 1982) to give effect to the financial proposals of Central Government for the financial year 1982-83 introduced in the Lok Sabha on 27-2-1982, inter alia, contained proposals to amend various provisions of the Act. Clause No. 47 of that Bill proposed to introduce an explanation to Section 4(4)(d)(ii) of the Act with effect from 1-10-1975 and validate the actions earlier taken to the extent indicated therein. The Statement of Objects and Reasons of the Bill did not state the objects of the proposed amendment. But in the notes on clauses of Clause 47 appended to the Bill, Government stated the object of the proposed amendment thus :
'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.'
On this topic, the Budget speech of Hon'ble Finance Minister introducing the Bill elaborated the same thus :
'There have been some disputes in the recent past regarding the determination of assessable values of excisable goods from a given cum-duty price, resulting in considerable litigation. This has resulted in locking up substantial amounts of revenue. It is proposed to suitably amend Section 4 of the Central Excises and Salt Act to make it clear that in computing the amount of duty of excise deductible from the cum-duty prices, the effective amount of duty of excise payable on the goods under assessment shall alone be taken into account. This amendment is being given effect to retrospectively from 1st October, 1975.
It has been the long-standing practice to charge excise duty on goods used for captive consumption within the factory where they are produced. Some doubt had, however, been cast on this position as a result of judgments of some High Courts, which interpreted certain provisions of the Central Excise Rules to hold that duty could not be collected on such goods as they had not been 'removed' from the factory. A number of manufacturers have also obtained stay orders from courts based on the same grounds. The matter has been taken up in appeal. Nevertheless, in order to place the position beyond doubt, the relevant Central Excise Rules have been suitably amended. A provision has also been included in the Finance Bill so that these amendments will have retrospective effect and the collections of duty made in accordance with the existing practice will also be validate.'
This Bill ultimately enacted by the Parliament and assented to by the President of India on 11-3-1982 as Central Act No. 14 of 1982 did not make any changes of Clause No. 47 of the Bill. Section 47 of the Finance Act that introduced the Explanation with effect from 1-10-1975 with a validation provision thereto, which is material reads thus :
'47. Amendment of Section 4 And validation. - (1) In Section 4 of the Central Excises Act, in clause (d) of sub-section (4), in sub-clause (ii), the following Explanation shall be inserted and shall be deemed to have been inserted with effect from the 1st day of October, 1975, namely :-
'Explanation. - For the purpose 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 complete effect to such exemption; and
(ii) in any other case, the duty of excise computed with reference to the rate specified in such Act in respect of such goods.'
(2) Any action or thing taken or done or purporting to have been taken or done at any time during the period commencing on the 1st day of October, 1975, and ending with the 27th day of February, 1982 (hereafter in this sub-section referred to as the said period) under the Central Excises Act, shall be deemed to be and to have always been for all purposes, as validly and effectively taken or done as if the amendment made by sub-section (1) had been in force at all material times, and, accordingly, notwithstanding anything contained in any judgment, decree or order of any court, tribunal or other authority, -
(a) all duties of excise levied, assessed or collected during the said period on any excisable goods under the Central Excise Act, shall be deemed to be and shall be deemed always to have been, as validly levied, assessed or collected as if the amendment made by sub-section (1) had been in force at all material times;
(b) no suit or other proceedings shall be maintained or continued in any court for the refund of, and no enforcement shall be made by any court of any decree or order directing the refund of, any such duties of excise which have been collected and which would have been validity collected if the amendment made by sub-section (1) had been in force at all material times;
(c) refund shall be made of all such duties of excise which have been collected but which would not have been so collected if the amendment made by sub-section (1) had been in force at all material times;
(d) recovery shall be made of all such duties of excise which have not been collected, or as the case may be, which have been refunded, but which would have been collected or, as the case may be, would not have been refunded, if the amendment made by sub-section (1) had been in force at all material times.
'Explanation. - For the removal of doubts, it is hereby declared that no act or omission on the part of any person shall be punishable as an offence which would not have been so punishable if this section had not come into force.'
With this legislative history, we proceed to ascertain its true scope and ambit.
27. The explanation added has been expressly given retrospective effect from 1-10-1975 from which date the substituted Section 4 of the Act came into force. We must, therefore, read this explanation as if it was part of that Section from the very day it was placed on the statute book. From this it follows that every action to the extent it is affected and not expressly excepted and saved therein, has necessarily to be regulated in terms of that provision.
28. An explanation is generally added to clear what is obscure or serve as legislative dictionary. An explanatory enactment is generally declaratory of the law and is retrospective. Even the question of the courts construing whether the explanation added by the Finance Act is retrospective or not, does not arise as the same has been expressly given retrospectivity. Whatever the explanation has or has not achieved, one thing that is clear is that it is not permissible to read the same, as wholly destroying the concept of assessable value for giving effect to the charge of excise duty under the Act.
29. In determining the 'value' or the 'assessable value' under Section 4 of the Act, the first part of the explanation declares that the amount of duty of excise on any excisable goods shall be the sum total of the effective duty of excise on such goods chargeable under the Act or the aggregate of excise duty payable on such goods under any other Central Act. The effective duty or the duty actually chargeable or payable only should be exempted or excluded. What is chargeable is only the real or actual excise duty chargeable under the Act or other Central Acts thereto on such goods. This is the first general import of the explanation and has no relevance to the other part of the explanation relating to cases of exemptions granted by Government with which we are primarily concerned, which however is closely interlinked with the first. The second part of the explanation provides that in computing the effective or actual excise duty referred to in clauses (a) and (b) to which exemption have been granted by Government, then so much of duty that is actually paid by the assessee shall alone be computed. In other words, only the duty as reduced and actually paid on the manufacture goods should be excluded in determining the assessable value of such manufactured goods. In determining the assessable value of goods, that are not governed by exemptions either partial or whole, the duty chargeable under the Act had to be excluded. But in cases of exemptions only the actual or real duty paid by the assessee shall alone be excluded and not the duty hypothetically chargeable under the Act. The point may be illustrated thus : We shall take that on a manufactured goods 'A', the duty chargeable under the Act is Rs. 100/- but Government by a notification had reduced the same by Rs. 50/- and thus the assessee pays Rs. 50/- on such a manufactured goods. In determining the assessable value of goods 'A', the assessing authority is required to exclude only Rs. 50/- actually paid or payable by the assessee and not Rs. 100/- chargeable under the Act. All that the explanation provides is to regulate the assessable value on the realities of the situations and not on any notional basis. We are of the view that this explanation does no more than this.
30. We must also remember that exemptions are generally granted to encourage industry or achieve higher manufacture of goods by industry. But that does not mean, Government cannot impose a condition to the effect that industry should pass on the benefit to the consumer as it had done in some exemptions, which had not been done by Government in the notification we are concerned.
31. What emerges from the above is that the question of adding back any duty that is not passed on to the consumer or paying any additional duty on the same on the ground that the same had not been passed to consumers as if that was a requirement of the explanation is wholly misconceived and is not sound.
32. In the cases decided by the High Courts of Delhi, Madras, Andhra Pradesh and Orissa, referred to earlier, the precise question on the dimension imported to it by the introduction of the 'explanation, did not arise for consideration and therefore, those rulings do not really bear on the point. But however, the view expressed in all of them to the extent they hold that the manufacturers are under no obligation to pass on the benefit of exemption to consumer and on such default they do not incur any liability, if we may say so with great respect to the learned Judges that decided those cases, even after the introduction of the explanation is correct. We are in respectful agreement with that part of the enunciation in all of them.
33. In B. K. Paper Mills' case, the High Court of Bombay had occasion to examine the question in relation to an exemption granted to certain kinds of papers manufactured by small units and the scope of the explanation. In repelling a contention urged for the manufacturer to the effect that in determining the assessable value, the duty chargeable was the whole of the amount without reference to the reduction occasioned by the exemption notification vis-a-vis the explanation, the learned Judge expressed thus -
'14. It is the case of the petitioners that under Section 4(4)(d) the amount of duty of excise 'payable on such goods' refers to the duty of excise at the rate specified in the relevant tariff entry. Any exemption granted from excise duty under an exemption notification is not to be taken into account for the purpose of determining 'the excise duty payable' under Section 4(4)(d)(ii).
15. It is not possible to accept this interpretation of Section 4(4)(d)(ii). The amount of excise duty 'payable' on goods necessarily has a reference to the duty of excise payable on the goods by the assessee. Under Section 4(1)(a) for example, the normal price is described as the price at which such goods are ordinarily sold by the assessee in the course of wholesale trade. Similarly in Section 4(1)(a)(i) there is a reference to goods being sold by the assessee to goods sold by the assessee; as also sub-section (3). In the same manner in Section 4(4)(d)(ii) also the duty of excise payable on such goods must have a reference to the duty payable on such goods by the assessee. Excise duty payable by the assessee, therefore, may or may not be determinable only with reference to the tariff entry. If there is any exemption notification which applies either to the type of goods manufactured by the assessee or to the assessee by virtue of his being the type of manufacturer covered by the exemption, the duty of excise payable has to be computed with reference to such exemption notification also. The amount covered by Section 4(4)(d)(ii) is the amount of excise duty which is payable by the assessee on the goods in question. I necessarily refers to the actual quantum of excise duty payable on the goods in question by the assessee. In my view Section 4(4)(d)(ii) does not refer to the duty leviable under the relevant tariff entry without a reference to any exemption notification that may be in existence in connection with that entry as contended by the petitioners.
16. This position is now made clear by virtue of an 'explanation' which has been added to Section 4(4)(d)(ii) with retrospective effect from 1st October, 1975 under Section 47 of the Finance Act of 1982. The explanation sets out what is meant by 'the amount of duty of excise payable on any excisable goods'. By the amount of duty of excise is meant the effective duty of excise payable on such goods under the Act. The effective duty of excise is explained as follows : In a case where there is an exemption notification, the duty of excise computed with reference to the rate specified in the Act in respect of such goods as reduced so as to give a complete effect to such exemption. The effective duty of excise therefore is the duty of excise which is calculated on the basis of the prescribed rate as reduced by virtue of an exemption notification. This alone is excluded from normal price under Section 4(4)(d)(ii).'
We are of the view that this enunciation made by the learned Judge is in accord with what we have expressed earlier. We are of the view that it is unnecessary to examine the other questions that were decided in that case.
34. In Bata Shoe Co. case, the question arose under Section 4 of the Act as it stood prior to is substitution by Act No. 22 of 1973 on which ground itself the principles enunciated therein, even if correct, does not bear on the point. Even otherwise, the enunciation made in this case has been disapproved by the Supreme Court on an appeal by the Company in Bata Shoe Company (P) Ltd. v. Collector of Central Excise [1985 (21) E.L.T. 9 (S.C.)]. We, therefore, do not propose to place any reliance on this ruling of the High Court of Calcutta.
35. What emerges from the above discussion is that in determining the assessable value of manufactured goods governed by exemptions granted by Government either partial or whole, only that amount of duty actually paid or payable by such manufacturer should be excluded and the benefit of such exemption cannot be denied on the ground that the extent of such exemptions either in whole or in part had not been passed to the consumer. We need hardly say that assessments, levies, recoveries and refunds as against and from the petitioners from 1-10-1975 had to be regulated on this basis and not in the basis of the trade notice issued by the Collector.
36. We are of the view that the orders impugned by the petitioners are not in conformity with what we have expressed earlier and therefore, we must direct the authorities to redetermine them. We, however, consider it proper to permit the petitioners to file their additional representations or objections, if any, they propose to file in support of their cases and in opposition of the claims made against them before the original authority, except on matters that are concluded by our order within 45 days from this day.
37. In the light of our above discussion, we make the following orders and directions.
(i) We dismiss these writ petitions insofar as they challenge the validity of the explanation to Section 4(4)(d)(ii) of the Act added by Section 47 of the Finance Act of 1982.
(ii) We quash the Trade Notice No. 58/77 (Exhibit B) in W.P. No. 4766 of 1981 issued by the Collector and the orders impugned in these cases and direct the original authorities in each case to restore the proceedings to their original file, receive all such written representations/objections the petitioners may file within 45 days from this day and redetermine the assessments, recoveries and refunds due from or to the petitioners in accordance with law and the observations made in this order with all such expedition as is possible in the circumstances of the cases.
38. Writ Petitions are disposed of in the above terms. But in the circumstances of the cases, we direct the parties to bear their own costs.
39. Let this order be communicated to the respondents within 10 days from this day.
Order on the oral application made by the petitioners for a certificate of fitness to appeal to the Supreme Court under Articles 133-A and 134-A of the Constitution.
40. After we pronounced our order disposing of these writ petitions, Sri S. Ramaswamy Iyengar seeks for a certificate of fitness to appeal to the Supreme Court of India under Articles 133 and 134-A of the Constitution on the ground that the questions decided by us involve substantial questions of law of general importance and the same need to be decided by the Supreme Court.
41. Sri Bhat opposes the oral application made by Sri Iyengar.
42. We are of the view that the questions decided by us are not substantial questions of law that need to be decided by the Supreme Court. We therefore, reject the oral application made by the petitioners.