G.P. Singh, C.J.
1. Petitioner no. 1 in this petition is an incorporated Company. The petitioner Company owns a factory manufacturing chemicals and one of the products of the said factory is chlorine (Cl2). The second petitioner, is a share-holder and employee of the petitioner Company. The petitioners by this petition under Article 226 of the Constitution challenge notifications dated 26th July 1971 and 24th August 1974 issued by the Government of India under Section 3(2) of the Central Excises and Salt Act, 1944, fixing tariff value of liquid chlorine at Rs. 500/- per metric tonne. The petitioners also pray for refund of excess amount of duty paid under protest by the petitioner Company.
2. Section 3(1) of the Act which is the charging section, provides that 'there shall be levied and collected in such manner as may be prescribed duties of excise on all excisable goods other than salt which are produced or manufactured in India and a duty on salt manufactured in, or imported by land into, any part of India as, and at the rate, set forth in the First Schedule.' Section 3(2) of the Act empowers the Central Govenment to fix tariff values of excisable articles chargeable with duty ad valorem. Section 3(3) authorises fixation of different tariff values for different classes or descriptions of the same excisable articles. Section 3(2) and 3(3) as they stood at the relevant time, read as follows :
'3. (2) The Central Government may, by notification in the Official Gazette, fix, for the purpose of levying the said duties, tariff values of any articles enumerated, either specifically or under general headings, in the First Schedule as chargeable with duty ad valorem and may alter any tariff values for the time being in force.
(3) Different tariff values may be fixed for different classes or descriptions of the same aritcle.'
Section 4 of the Act which deals with determination of value for the purposes of duty as in force at the material time, was as follows :
'4. Determination of value for the purposes of duty-Where under this Act, any article is chargeable with duty at a rate dependent on the value of the article, such value shall he deemed to be-
(a) the wholesale cash price for which an article of the like kind and quality is sold or is capable of being sold at the time of the removal of the article chargeable with duty from the factory or any other premises of manufacture or production for delivery at the place of manufacture or production, or if a wholesale market does not exist for such article at such place, at the nearest place where such market exist, or
(b) where such price is not ascertainable, the price at which an article of the like kind and quality is sold or is capable of being sold by the manufacturer or producer, his agent/ at the time of the removal of the article chargeable with duty from such factory or other premises for delivery at the place of manufacture or production, or if such article is not sold or is not capable of being sold at such place, at any other place nearest thereto.'
3. The first contention of the learned counsel for the petitioners is that Sections 3(2) and 3(3) are ultra vires as these provisions confer on the Central Government power to fix tariff values without any guidelines at its complete discretion. The second contention of the learned counsel for the petitioners in the alternative is that the guidelines, if any, were not followed in fixing tariff value of liquid chlorine by the impugned notifications and the tariff value fixed is entirely arbitrary.
4. As regards the first contention as to the validity of Sections 3(2) and 3(3), in our opinion, the guidelines are impliedly furnished by the nature of the excise duty chargeable under Section 3(1) and the principles of valuation set out in Section 4. Excise duty is a tax on manufacture and production of goods. The duty is levied on the goods manufactured or produced at the stage of removal. The rates of duty as given in the Schedule are related to the value, weight or volume of the goods. Where the rate chargeable is related to the value, such value is to be determined in accordance with the principles laid down in section unless the traiff value for the goods is notified under Section 3(2). The power conferred on the Government to fix tariff values cannot be construed to embrace a power to fix any tariff values as that would in effect amount to delegation of unguided power of taxation and would make the provision invalid. There is a presumption against unconstitutional exercise of legislative power and it is reasonable to infer that Legislature intended that in fixing tariff values under Section 3(2), the Government would bear in mind the nature of excise duty and follow the guidelines of valuation enacted in Section 4. The Supreme Court in dealing with Section 4 in A.K. Roy v. Voltas Ltd.- AIR 1973 S.C. 225 observed : 'Excise is a tax on the production and manufacture of goods. Section 4 of the Act, therefore, provides that the real 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 irofit. 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 time and that the price has to be fixed for delivery at the factory gate thereby eliminating frieght, octroi and other charges involved in the transport of the articles.' These observations were quoted with approval in Atic Industries v. Asstt. Collector, Central Excise-AIR 1975 S.C. 1980 and it was further explained : 'The value of the goods for the purpose of excise must take into account only the manufacturing cost and the manufacturing profit and must not be loaded with post-manufacturing profit arising from post-manufacturing operation. The price charged by the' manufacturer for sale of the goods in wholesale would, therefore, represent the real value of the goods for the purpose of assessment of excise duty. The above principles laid down by the Supreme Court in construing Section 4 have to be kept in view by the Government in notifying tariff values under Section 3(2). As there are implied guidelines contained in the Act for finding the tariff values under Sections 3(2) and 3(3), these sections cannot be struck down as suffering excessive delegation.
5. The next question is whether the fixation of tariff value of liquid chlorine at Rs. 500/- per metric tonne by the impugned notifications is in accordance with the guidelines contained in Sections 3(1) and 4. The return of the respondents as originally filed showed that the impugned tariff value was fixed on the recommendation of the Tariff Commission. We gave opportunity to the respondents to produce the said recommendation on which that stand was abandoned and return was amended. The stand now is that the impugned tariff value was fixed on the basis of weighted average price of all the manufacturers in the country.
6. The respondents have produced certain extracts from the Ministry's File No. 7/17/74 to show the basis adopted for fixation of tariff value of liquid chlorine at Rs. 500/- per metric tonne by the notification dated 24th August 1974. It appears from these extracts that the Central Government decided not to make any change in the tariff value of Rs. 500/- per metric tonne as earlier fixed by the notification issued in 1971 on the report made by the Additional Director, Statistical and Intelligeuoe Branch. This report states that the weighted average price of liquid chlorine worked out to Rs. 368/- per metric tonne. The report also states that there was a wide variation in the price charged by different manufacturer. The report then notices that the prices charged by M/s. Mettur Chemicals & Industries Corporation, which is a Government Company, differed from customer to customer and ranged between Rs. 312/- and Rs. 600/- per metric tonne, but from most of tha parties the price charged was Rs, 500/ per metric tonne. The report further notes that M/s Alkali Manufacturing Association of India of which the petitioner Company and other manufacturers of chemicals are members, submitted that as prices widely differed from factory to factory and from customer to customer, the value for purposes of levy of duty should be assessed under Section 4 and should not be fixed under Section 3(2). The report also notes that the arguments put forward by the Association were supported by the data. The report then states that there were a number of units which were using liquid chlorine for captive consumption and that the data for such units had not been taken into account and assessment in cases of units of this type would pose a problem. After noticing all these factors, the Director reported that for administrative reasons, specially when the production of chlorine was likely to go up, the Statistics and Intelligence Branch was of the view that the existing tariff value of Rs. 500/-per metric tonne be not disturbed. Table IV filed along with the return from the Ministry's file contains a statement showing clearance and price charged by different manufacturers for liquid chlorine. A perusal of this statement will go to show that except in case of three Government companies, namely M/s. Hindustan Heavy Chemicals Limited, M/s. Alkali Chemical Corporation of India and M/s. Mettur Chemicals & Industries Corporation, the prices charged were generally much below Rs. 500/-. We have already stated that the weighted average price of all the manufacturers was Rs. 368/- per metric tonne. The petitioners have exhibited Annexure-D wihch is a monthly statement showing total liquid chlorine manufactured by the petitioners' factory between December 1972 to June 1974 and the average invoice price charged by the petitioners. This statement, which is not denied by the respondents, shows that the average monthly invoice price during this period charged by the petitioners varied from Rs. 103.76 to Rs. 281.84 per metric tonne. The respondents exhibited Annexure S, a statement to show that the petitioners charged from certain parties price at a rate exceeding Rs. 500/-. This statement, however, related to a period with which we are not concerned in this petition.
7. The facts stated above go to show that in fixing Rs. 500/- as tariff value for liquid chlorine by the impugned notification, the Central Government did not even adopt the weighted average price which is only Rs. 368/- per metric tonne. The statement in the return that the tariff value was fixed in accordance with the weighted average price, therefore, does not correctly state the position. The price charged by the petitioners and other manufacturers, leaving aside a few Government companies, was much below Rs. 500/- per metric tonne. As earlier stated, the guidelines furnished by Sections 3(1) and 4 are that excise is a tax on the manufacture and production of goods and the value of the goods for levy of the duty should take into account only the manufacturing cost and the manufacturing profit, and that the price charged by the manufacturer for sale of the goods in wholesale at the factory gate against cash payment represents the real value of the goods for purposes of assessment of excise duty. It is clear to us that these guidelines have not at all been followed in fixing the tariff value of liquid chlorine by the impugned notifications. Learned Standing Counsel appearing for the respondents submitted that in addition to the guidelines furnished by Section 4, it was open to the Central Government to adopt administrative reasons for purposes of fixation of tariff value and that as the price of liquid cholorine varied from factory to factory and there was no data available for captive consumption, the Government was justified in fixing the tariff value at Rs. 500/- per metric tonne. We are unable' to agree with this submission. The administrative reasons for fixing tariff value which the Central Government may adopt cannot be such which go against the guidelines mentioned in Section 4. The reasons for fixation of tariff values may be to bring about uniformity and to avoid difficulties in assessment. But this does not mean that the Government can -fix any tariff value which bears no relation to the manufacturing cost and manufacturing profit i.e., the wholesale price charged by the manufacturer. If there is only a marginal difference between the prices charged by different manufacturers it may be open to the Government to adopt the average price as the uniform tariff value for simplifying the assessment. If the prices charged widely differ it may also be open to the Government to adopt the lowest price as the tariff value; but when the prices widely differ, any arbitrary price or even the weighted average price cannot be adopted as tariff value. The guideline furnished by Section 4 is clearly this that a manufacturer pays excise duty on his manufacturing cost and his manufacturing profit. Widely differing prices charged by other manufacturers are not relevant for determination of the value for purposes of excise duty. , Even the weighted average price which necessarily brings into consideration the prices charged by other manufacturers has not been held to be a good criteria for fixation of tariff value under Section 3(2);[ See Century Spinning and Manufacturing Co. v. Union of India-1979 ELT (J 199) (Bom.) and Subharayan v. The Union of India and Anr. 1979 ELT (J 473) (Mad.). In the instant case the position is worse as even the weighted average price has not been adopted as the tariff value so fixed by the impugned notifications. In our opinion, in fixing the tariff value of liquid chlorine at Rs. 500/- per metric tonne by the impugned notifications, the Central Government has exceeded its power under Section 3(2) as it has failed to follow the implied guidelines contained in Sections 3(1) and 4. These notifications are, therefore, invalid.
8. The petition is allowed. The impugned notifications in so far as they fix the tariff value of liquid chlorine are quashed. The excise authorities will assess the excise duty payable by the petitioner company on liquid chlorine for the period from December 1972 to 18th February, 1975 on the invoice value and refund any extra amount collected as excise duty from the petitioner. The bank guarantee is discharged. There will be no order as to costs. The security amount be refunded to the petitioner.