C.S.P. Singh, J.
1. The petitioner, which is a public limited company, manufactures dry cell batteries and torches of various types and sizes. The batteries are subject to ad valorem excise duty under the Central Excises Act. For purposes of determining the excise duty, the petitioner has to submit a price that of torches and batteries for determination of their assessable value on which the excise duty has to be paid. The Assistant Collector or the Superintendent, Central Excise is entitled to approve the price list or modify it by enhancing the assessable value. In the year 1976, the petitioner submitted three price lists on account of the revision of the rate of duty on torches and batteries. The price lists submitted by the petitioner included the cost of packing batteries in card board cartons. It was stated in these price lists that in the'event of batteries being sent in wooden boxes at the request of the customers, extra packing charges were being recovered by the petitioner. The Assistant Collector, Central Excise, Allahabad, however, added the cost of packing charges in wooden boxes to the assessable value. He passed three orders in respect of the price lists submitted by the petitioner on 27-3-1976, 5-4-1976 and 10-8-1976. The petitioner filed three appeals against these orders under Section 35 of the Act. The Appellate Collector, Central Excise, New Delhi disposed of the appeals by a common order dated 28-10-1976, holding in favour of the petitioner. On 11-4-1977 the Government of India acting in exercise of powers conferred under Section 36(2) of the Act, issued a show cause notice to the petitioner as to why the appellate order should not be set aside, and the value of wooden boxes added to the assessable value. The petitioner sent a reply to the notice on 7-5-1977. The Central Government, however, by its order dated 9-5-1979 reversed the appellate order so far as exclusion of the cost of packing in wooden boxes, and held that these charges should be included in the assessable value for purposes of determination of the excise duty. The petitioner has challenged this order.
2. Counsel for the petitioner urged that excise duty can be charged only on the manufacturing cost of the article in question, and post-manufacturing expenses cannot be included in the assessable value. It was contended that the cost of manufacturing the batteries comes to a close after batteries are manufactured, and packed in card-board cartons for sale. The cost of packing in wooden boxes is not a part of the manufacturing cost, as it is incurred by the petitioner on the special request of the customers, who want to ensure that the articles are not damaged when they are taken to far out destinations. A large number of authorities have been cited in support of this contention. We will refer to them shortly. But before we do so, it is necessary to extract relevant provisions of Section 4 of the Central Excise Act as it stood at the relevant point of time.
'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 wholesale 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.
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(4) For the purposes of this Section :
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(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 warp or any other thing in which or on which the excisable goods are wrapped, contained or wound.'
We may point out at this stage that Section 4 as it stood in the relevant year was brought on the statute book by Act 22 of 1973 with effect from 1-10-1975. In Section 4 as it stood earlier the word 'value' had not been defined in the terms in which it now stands.
3. Counsel on behalf of the Union of India contended that packing charges are a part of the manufacturing cost, and are incurred for putting the commodity in a marketable condition, and as such, have to be included in the assessable value of an article. It was also urged that in view of Section 4(4)(d) the value of excisable article has to be arrived at after including the packing cost. A reference was also made to a decision of a Division Bench of this Court. State of U.P. and Anr. v. Union of India and Ors. (1980 U.P.T.C. 659) where it was held that the cost of packing has to be included in the assessable value of an excisable article.
4. We might begin by considering the nature of an excise duty. In the case of Chhotabhai Jethabhai Patel v. Union of India (A.I.R, 1962 S.C. 1006), it was held that excise duty is tax on home produced goods, the duty being calculated according to the quantity or value of the goods, and is chargeable on the production of goods, and unrelated to any transaction in them. A similar view was expressed in Special Reference In re : Sea Customs Act (A.I.R. 1963 S.C. 760), and in Union of India v. Delhi Cloth and General Mills (A.I.R. 1963 S.C. 791). In R.C. Jall Parsi v. Union of India (A.I.R. 1962 S.C. 1281) the same view was reiterated, and it was held that the duty can be levied not only at the stage of manufacture but at any other convenient stage e.g. at the stage when the excisable goods leave the factory, but the method of collection does not alter the true character of the excise duty, which is a duty on the manufacture of goods. In the case of Shind Brothers v. Deputy Commissioner, Raichur (A.I.R. 1967 S.C. 1512), it was held that excise duty must be closely related to the cost of production or manufacture of goods, and it does not matter if the levy is made not at the moment of production or manufacture but at a later stage, e.g. the collection is made from a retailer. In A.K. Roy v. Voltas Ltd. (A.I.R. 1973 S.C. 225), the Supreme Court considered Section 4 of the Excise Act as it then stood, and laid down the principles on which the assessable cost of an article had to be calculated. It is necessary to extract the view of the Supreme Court on this aspect of the matter, as strong reliance has been placed by the learned counsel for the petitioner on this decision. On page 230 of the Report their Lordships of the Supreme Court have observed as under :-
'Excise in a tax on the production and manufacture of goods [See Union of India v. Delhi Cloth and General Mills, (1963) Supp. 1 SCR-586 : AIR 1963 SC 791]. Section 4 of the Act therefore provides that the mal value should be found after deducting the selling cost and selling profits and that the real value can include only the manufacturing cost and the manufacturing profit. The Section makes it clear that excise is levied only on the amount representing the manufacturing cost plus the manufacturing profit and excludes post-manufacturing cost and the profit arising from post-manufacturing operation, namely selling profit. The section postulates that the wholesale price should be taken on the basis of cash payment thus eliminating the interest involved in wholesale price which gives credit to the wholesale buyer for a period of times and that the price has to be fixed for delivery at the factory gate thereby eliminating freight, Octroi and other charges involved in the transport of the articles. As already stated it is not necessary for attracting the operation of Section 4(a) that there should be a large number of wholesale sales. The quantum of goods sold by a manufacturer on wholsale basis is entirely irrelevant. The mere fact that such sales may be few or scanty does not alter the true position.'
This case is an authority for the proposition that for purposes of calculating the assessable value the manufacturing cost plus the manufacturing profit have alone to be taken into account, and all post-manufacturing costs and profit have to be excluded. A similar view was taken in Atic Industries Ltd. v. H.H. Dave (A.I.R. 1975 S.C. 960) where it was clearly laid down that for purpose of determining the wholesale cash price for calculating the assessable value, the first wholesale price fixed between the manufacturer and the wholesaler has to be taken into account, and the second or subsequent prices have to be ignored, as the subsequent prices would be loaded with a post-manufacturing element, namely, selling cost and selling profit. Such a method of calculation would also violate the concept of factory gate sale, which is the basis for determination of the value of the goods for purposes of excise.
5. Counsel for the petitioner has contended that the cost incurred in packing the goods in wooden boxes is a post-manufacturing cost, as it is an expense incurred after the excisable goods have come into existence.
6. This Court had again to consider this question in the case of this very assessee in Geep Flash Light Industries Ltd. v. Union of India [1979 E.L.T. (J 391)]. That case arose under Section 4 of the Excise Act before its amendment. A contention was raised on behalf of the Department that while considering the assessable value of an excisable article, the question as to whether the article can be sold in a loose condition without its being packed has to be taken into account, and in case the article is not normally sold in the wholesale market in a loose condition, but only in a packed condition, the process of manufacture of the article is not complete until it is put in a condition in which it is generally sold in the wholesale market at the gate of the factory. The Bench found considerable force in this contention. But in view of the fact that the Maharashtra and Karnataka High Courts had taken a view in favour of the assessee, by holding that the cost of packing material cannot be included in the manufacturing cost, and the fact that the Act had been amended, and the question was not of continuing importance, followed the decision of the Maharashtra and Karnataka High Courts, and held in favour of the assessee. What is worth noticing is that the Bench was tentatively of the view that with the amendment of Section 4 of the Excise Act by virtue of which packing cost could also be included in the assessable value, such costs would go towards determining the assessable value.
7. Reliance was placed by the counsel for the petitioner on the decision of Bombay High Court in the case of Indian Tobacco Co. Ltd. v. Union of India and Ors. [1979 E.L.T. (J 476)] but that decision is not very relevant, for the purposes of the present cantroversy for that did not deal with the question of inclusion of packing expenses in the manufacturing cost. It is of value only for the proposition that Section 3 of the Excise Act is the charging section, and Section 4 cannot be read so as to enlarge the ambit of that provision by including therein post-manufacturing or non-manufacturing expenses. In Union of India v. Man Singh Industries Private Ltd. [1979 E.L.T. (J 158)], a case decided before Section 4 of the Act was amended it was held that packing expenses cannot be included in the assessable value as they are post-manufacturing costs. In Malwa Vanaspati and Chemical Co. v. Union of India [1979 E.L.T. (J 243)] a case which arose under the unamended Section 4, it was held that the price of containers used for packing Vanaspati could not be included in the manufacturing cost. The Madhya Pradesh High Court, which decided the case disagreed with the decision of the Madras High Court in the case of Auro Food Private Ltd. v. Government of India and Ors. [1978 E.L.T. (J 673)] where it was held that the cost of packing biscuits has to be included in the assessable value. One of the consideration that weighed with the court was that while defining the word '. v. Superintendent, Central Excise [1978 E.L.T. (J 229)] a case which arose under the unamended Section 4, it was held that cost of packing of glassware could not be included in the assessable value.
8. We may now refer to the decison of our Court in State of U.P. and Anr. v. Union of India and Ors. (1980 U.P.T.C. 659). In that case the assessee was selling glass were packed in straw and gunny bags and charging its wholesalers a price, which included the cost of packing. It was held that as the assessable value is the wholesale price, which a manufacturer charges at the time of gate delivery the packing costs had to be included in the assessable value. It was pointed out that in cases where the manufacturer sells goods in an unpacked condition and packs them only at the request of the purchaser the packing costs cannot be included in the assessable value. We thus see that the Madras High Court in Auro Food Private Ltd. v. Government of India and Ors. [1978 E.L.T. (J 673)] has held that packing charges can be included, and this court in the case of State of U.P. and Anr. v. Union of India and Ors. (1980 P.T.C. 659) has held that in certain cases packing charges can be included, while the other cases mentioned above have held to the contrary.
9. We may now move to cases decided under Section 4 of the Act after its amendment.
In Indo National Ltd., Nellore and 4 Ors. v. Union of India and Ors. [1979 E.L.T. (J 334)], a decision of the Andhra Pradesh High Court, the question arose as to whether some charges including packing charges, could be included in the assessable value. It was held that only manufacturing cost can be included in the assessable value, and post-manufacturing cost could not form part of this value. It was pointed out that in case post-manufacturing costs are included, they will amount to a tax on sales, which will fall under entry 54 of list II of Schedule 7 to the Constitution which is within the domain of the State Legislature and the Parliament has no legislative competence to legislate in this regard. Considering the question as to whether packing charges could be included in the assessable value, reference was made under Section 4(d)(l). It was pointed out that this provision permitted the deduction of the cost of packing from the value, if the packing was of a durable nature, and was returnable. Relying on the fact that the cost of initial packing was deductible in certain cases, Section 4(4)(d)(l) was held not to include the cost of secondary packing in the assessable value. It then went on to consider as to whether the cost of display boxes in which dry cell batteries were packed and the cost of jute bags in which cement was packed could be included in the assessable value. It held that so far as the cost of display boxes were concerned, as it constituted secondary packing, they could not be included. So far as jute bags were concerned, similar views was taken. On page 372 in paragraph 16 of this report, the judges sounded a word of caution to the effect that the cost of every packing is not liable to be excluded from the assessable value, where without the initial packing of the excisable goods, cannot be consumed or utilised. It was held that in such cases the cost of initial packing would form part of manufacturing cost of goods.
10. In Alembic Glass Co. Ltd. v. Union of India and Ors. [1979 E.L.T. (J 444)] a case decided by the Gujarat High Court, the question arose as to whether the cost of packing and packing material which either the buyers supply or manufacturer purchase from the market could be included in the assessable value. Their Lordship of the Gujarat High Court pointed out that the packing material may originate from three sources (i) the buyers supplying the packing material, (ii) the manufacturer purchasing the packing material from the market and (iii) the manufacturer himself manufacturing the packing material. It was held that packing charges were post-manufacturing costs, and were neither ancilliary or incidental to the process of manufacture. It was held that in case Section 4(4)(d)(l) was interpreted so as to include packing charges in cases where either the buyer supplied the packing material or the manufacturer purchased it from the market, the costs could not be included in the assessable value for if this was done, the charge would lose its character of an excise duty, and become a sales tax in respect of which the Parliament had no legislative competence. As such a tax could only be levied by the State Government under entry 54 of list. In this view of the matter they read down the definition of the word 'value' given in Section 4(4)(d)(l) and excluded its application to the two types of cases which had arisen before them. They expressed no opinion on the third category of packing material which has manufactured by the manufacturer himself. It was held accordingly that the packing cost could not be included in the assessable value.
11. In Golden Tobacco Co. Ltd. v. Union of India and Ors. (1980 E.L.T. 311), in another decision of the Gujarat High Court, where the question arose as to whether the cost of wooden cases and corrugated fibre containers in which the articles were packed could form part of the assessable value. The court held in favour of the assessee on a concession made by the Excise Authorities. In Vallabh Glass Works Co. Ltd. v. Union of India and Ors. (1980 E.L.T. 437) another decision of the Gujarat High Court the view taken was that the cost of wooden containers in which glass products were packed would not form part of the assessable value of such glass products, and it made no difference whether wooden cases were purchased from the market or were manufactured by the manufacturer himself. This view was taken by reading down Section 4(4)(d)(l) as was done by the same High Court in its earlier decision to which reference has already been made.
12. The decision of the Madhya Pradesh High Court in the case in Birla Jute . v. Appellate Collector, Central Excise (1980 E.L.T. 667) followed the view of Gujarat High Court in the case of Alembic Glass Co. Ltd. v. Union of India and Ors. [1979 E.L.T. (J 444)] as regards the interpretation to be put on Section 4(4)(d) and held that the tin wood packing of pressure cookers could not be included in the assessable value, and further that the process of packing was neither incidental nor ancilliary to the manufacture of pressure cookers.
13. The Bombay High Court in the case of Duphar Interfrom Ltd. v. Union of India and Ors. (1980 E.L.T. 80) relying on the earlier decisions of the Court to which we have already referred, held that the cost of additional packing could not be included in the assessable value. A similar view was adopted in another decision of the Bombay High Court in the case of Maharashtra Vegetable Products P. Ltd. and Anr. v. Union of India and Ors. (1981 E.L.T. 468).
14. In the Collector of Central Excise, West Bengal v. Dunlop India Ltd. (1981 E.L.T. 398), the question arose as to whether the cost (incurred by a manufacturer for sending his goods to various depots for the purposes of sale could be included in the assessable value. It was held that such cost could be included. It was observed that the assessable value depends upon the wholesale cash price, which the manufacturer gets when the goods are put for the first time in the stream of trade and all expenses incurred before such goods are put in not at the first instance in the stream of sale has to be taken into account. The matter was however, referred to a larger Bench as the view which the Division Bench had taken are contrary to that expressed by an earlier Bench in the case of East Anglia Plastics India Ltd. v. Collector of Central Excise, Calcutta.
15. We have already extracted Section 4(4)(d)(l), a bare reading of this provision clearly indicates that packing charges of the nature involved in the present case are liable to be included in the assessable value, which is liable to excise duty. We have seen that a large number of High Courts had before the amendment of Section 4 excluded the packing charges on the consideration that it was a post-manufacturing expense. We have also seen that in some cases including the case decided by our own court, packing charges were including in case they formed part of the wholesale cash price, which was payable by the buyer at the factory gate. After the amendment of Section 4 and inclusion of Section 4(4)(d)(1) which expressly made the cost of packing a part of the assessable value of the excisable article, courts have taken the view that Section 4(4)(d)(l) must be read down so as to exclude packing charges, for if full play was given to the clear phraseology of this provision, the Section would be ultra vires the powers of the Parliament under list I of the 7th Schedule. The view has been expressed that such a charge would be sales tax and would be covered by entry 54, of list II, which could be levied only by the State Legislature and not by the Parliament. In some cases in order to whittle down the scope of Section 4(4)(d) of the Act, the view has been taken that in as much as Section 4 was a machinery section, it cannot enlarge or restrict the ambit of Section 3, which is the charging section, and under which the excise duty can be imposed only on the manufacturing cost plus the manufacturing profit and nothing else.
16. We' think that it would be profitable for us to examine the relevant provision of the Statute, and also the decisions of the Supreme Court in order to enable us to choose between the divergent views, which we have already noticed. The weight of authority seems to be in favour of the views that packing costs are post-manufacturing costs and cannot be included in the assessable value, notwithstanding the enactment of Section 4(4)(d)(l) of the Act.
17. At the outset, we may point out with respect that it is not possible to read down Section 4(4)(d) so as to exclude packing charges. We have seen that some High Courts read down Section 4(4)(d)(l) so as to exclude packing charges, which were supplied by the purchaser or purchased by the manufacturer from the market. By the same interpretative exercise, packing material manufactured by the manufacturer were also excluded. The result of adopting such a procedure would not be reading down Section 4(4)(d)(l), but reading out Section 4(4)(d)(l) outside the statute. We feel that in view of the clear phraseology of Section 4(4)(d)(l), we have either to hold that Section 4(4)(d)(l) is ultra vires, the powers of the Parliament in as much as it amounts to impose sales tax on packing costs and material or to hold that packing charges form part of the manufacturing costs provided such packing charges have been incurred before the delivery of the manufactured articles to the buyer at the factory gate.
18. Section 3 of the Act is the charging Section and Section 3(i) thereof states that these shall be levied and collected in the prescribed manner a duty of excise on excisable goods manufactured in India at the rates set forth in the first schedule. Under the first schedule the excise duty is chargeable on the ad valorem value of a large number of excisable goods including batteries and torches. Neither Section 3 nor the First Schedule lay down the manner in which the ad valorem, price of the excisable goods has to be calculated. This is found in Section 4 of the Act. Section 4(a) makes this value equal to the normal price thereof, which is stated to be the price at which such goods are ordinarily sold in the course of wholesale 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. Section 4(b) relates to a case where the normal price of the goods is not ascertainable for some reasons. In that eventuality the nearest ascertainable price calculated according to the rules has to be taken as the normal price. Section 4(2) applies to cases where the price at the place of removal is not known and the value is determined by the reference to the price for delivery at a place other than the place of removal. Under this provision the cost of transportation from the place of removal to the place of delivery has to be excluded from such price. Section 4(4)(d)(l) provides for inclusion of the cost of packing in the assessable value except where the packing is of a durable nature and is returnable. Section 4(4)(d)(2) excludes from the assessable value the amount of duty of excise, sales tax and other taxes payable on such goods. We thus find from Section 4 that the ad valorem value of the excisable goods is the price which the manufacturer gets at the place of removal from a wholesale trader, and in cases where such price is not known the nearest ascertainable price calculated according to rules. Where the price at the place of removal is not known and is determined with reference to the price for delivery at another place, the transport costs is to be excluded. Section 4(4)(d)(l) requires the inclusion of the packing cost and exclusion of certain other taxes while calculating the assessable value. In as much as Section 4 provides for the method by which the assessable value has to be calculated and as Section 3 is silent as to how this value has to be calculated for purposes of imposition of excise duty, we are of the view that Sections 3 and 4 are composite in character, and Section 3 left by itself does not fulfil completely the requirement of it being a charging provision. We are of the view that as Sections 3 and 4 are supplementary to each other, Section 4 cannot be read down so as to give an overriding effect to Section 3. It must be remembered that the decision of the Supreme Court in the Voltas case and Atic Industries case. When they laid down the test that only manufacturing costs and manufacturing profit could be taken into account for purpose of excise duty, and post-manufacturing cost had to be excluded, and that the duty was chargeable on the wholesale price payable at the factory gate at the time of delivery, did nothing more than to interpret Sections 3 and 4 of the Excise Act. Majority of these concepts are to be found in Sections 3 and 4 of the Act. It must also be noted that while pointing out that the post-manufacturing costs should not be included in the assessable value, their Lordships of the Supreme Court have also pointed out that the wholesale cash price which the manufacturer get from the wholesale buyer at the factory gate has to be taken into account for purposes of imposing duty. Now, can it be said that the wholesale price which the manufacturer charges for the excisable goods, consists of only the cost which are strictly incurred for manufacturing and article without costs incurred for it being put in a marketable condition so that it can be fed in the main stream of wholesale trade. We are of the view that all costs which the manufacturer incurs for putting an article in a marketable condition, so that it can be delivered at the factory gate to wholesale purchasers have to be included in the manufacturing costs. This would include charges for transporting the excisable goods from the factory to the factory gate, the cost of packing so as to render the article marketable in the wholesale market and may be certain other costs, which are necessary for putting it in a marketable condition. The Supreme Court has not laid down in any case brought to our notice as to what would constitute a manufacturing costs. Undoubtedly, some of the High Courts have held that packing charges are not a part of the manufacturing costs, but we have a decision of our own court in the case of State of U.P. v. Union of India (1980 U.P.T.C. 659) wherein it has been held that in certain cases packing cost has to be included in the assessable value. In the present case the batteries and the torches are commodities which cannot be sold to outside wholesale traders unless they are packed properly in wooden boxes, for if they are sent without such packing they are likely to be damaged. The fact that the assessee packs them in wooden boxes purchased by it at the request of the wholesale traders is inconsequential, for if it did not do so, it would not have willing wholesale traders, who wanted to take them to outside stations. In this view of the matter the packing charges would be part of the manufacturing costs, and the wholesale price, and no question of the tax becoming a sales tax would arise. Neither would the competence of the Parliament to enact Section 4(d)(l) be effected. The impugned orders were thus justified.
19. We accordingly dismiss the petition with costs. The stay order is discharged.