S. Ranganathan, J.
1. These four writ petitions filed by Hindustan Milk Food . (now known as HMM Ltd.), hereinafter referred to as 'the assessed', raise the question of determination of the 'assessable value' of the assessed's products for purposes of levy of the ad valorem duty of central excise. All the four writ petitions raise the same issue and the facts are also similar but for minor differences that will be noticed at the appropriate places. The writ petitions have been argued on the basis of the affidavits, material and counter-affidavits placed on record in C.W. 980/79 and hence the issues will be discussed in the context of those facts in this judgment.
2. The assessed is engaged in the manufacture and sale of milk food and dairy products and sells, inter alia, the goods popularly known as Horlicks, Elaichi Horlicks and Boost. These products fall under Tariff Item No. I-B of the list set out in the First Schedule to the Central Excises and Salt Act, 1944 ('the Act') viz. 'Prepared or preserved foods put up in unit containers and ordinarily intended forsale...'. Excise duty is livable on them ad valorem on the assessable value determined under Section 4 of the Act. The duty livable was 10% on the said value from 1.3.1969 to 28.2.1978. From 1.3.1978, a special duty of 5% was added thereto. However, with effect from 1.3.79 the special duly was abolished but the rate of duty was raised to 15%. We are, however, concerned in these writ petitions with goods manufactured and sought to be cleared between 15th May 1971 and December 1976. One material fact that is of great importance in deciding the writ petitions is that Section 4 of the Act which provides for the determination of the assessable value was substantially and materially amended by Act 22 of 1973 (with effect from 1.10.1975). The questions at issue in these writ petitions, thereforee, need separate consideration under the pre-amendment as well as the post-amendment language of the above section. Before proceeding to consider the contentions urged before us, it is necessary to set out the material and relevant facts.
3. The assessed manufactures its products at two factories situated in Nabha (Punjab) and Rajahnmndry (Andhra Pradesh). All the produce, however, is sent by road transport to packing stations located at Faridabad (Haryana), Bangalore (Karnataka) and Howrah (West Bengal) where they are got packed by independent contractors. For example, the powder manufactured at Nabha is sent from time to time in steel drums to the packing station at Faridabad. At Faridabad the packing of this powder into smaller containers like glass bottles is effected by a firm of packers known as A.K. Packaging at certain rates fixed by a written contract. All the packaging material is provided by the assessed. The packaging firm provides the company with storage space for the powder, the packaging material and other accessories free of charge. The packing contractors give the assessed a complete account tallying each consignment of powder received by them with the packaging done by them. At this stage, the manufacturing process of the assessed is claimed to have come to an end. The packing stations are thus part of the 'factory' for the purposes of the Act. The selling operations, it is clamied, start from the stage when the packed goods have to be sold in the market.
4. The selling operations are carried out by the assessed in the following manner. All the stock of the assessed is lifted by three selling agents M/s. G. Atherton & Co. (P) Ltd., M/s. Agentia Esquiria and M/s. Parry & Co. According to the assessed, some of the stock is also directly sold to these agents leaving it to them to market it according to their desire. It is also stated that if any bulk consumers approach the assesseds at the packing stations, the assesseds at the packing stations, the assessed enables them to purchase the goods from the agents at the same price for which the assessed sells to these agents. All these direct sales of the assessed, however, form only an insignificant proportion of the total product manufactured by the assessed, say about 4%. So far as the remaining 96% is concerned, it is also lifted by the three agents but they do so as the assessed's selling agents. Till 31.10.75, the three agents distributed the goods to various wholesalers, sub-distributors and stockists, collected the sale proceeds and forwarded the same to the assessed deducting their commission. After 1.11.75, it is claimed that they had no sub-distributors and directly sold the products to the wholesalers but otherwise the procedure was the same. The sales to the three agents were consignment sales and it is common ground that the title to the goods remained in the manufacturers (assesseds) till the goods were passed on to the wholesale purchasers. This being so, the assessed had to bear the costs of transport and insurance for conveying the packed goods to the various stations where sales were effected. It is also claimed that the assessed maintained a marketing division which looked after all aspects of sale, advertisement and incidental activities. Since the assessed remained the owner of the goods until the stockists purchased them, it is claimed that the prices at which they were sold to them had to include all the above types of expenditure incurred by the assessed. It is claimed that the assessed's endeavor was to sell its products at uniform rates throughout India to the ultimate consumer, but that since transport charges, sales tax rates and local incidentals varied from place to place, it had to supply the goods to the wholesalers at various places at different list prices. So, however, as to result in the final sale price being constant.
5. In order to enable the proper determination of the assessable value, Rule 173-C (of the Central Excise Rules. 1944) requires every assessed to file with the appropriate officer a price list in such form and manner and at such intervals as may be required by the Collector, showing the sale price of the goods. The Rule empowers the officer to approve the price list after making such modifications as he may consider necessary to bring the value shown in the price list to the correct value for purposes of assessment as provided in Section 4. Such an approval authorises the assessed to remove the goods from the factory on payment of duty in accordance therewith. It is unnecessary to refer in detail to the provisions of this rule or the contents of the forms prescribed there under. We shall, however, refer to one price list submitted by the assessed before October 1975 and one after October 1975 in order to bring out prominently the point of controversy between the parties. Price list 1/75, effective from 26.2.1975, relating to the Howrah packing station, pertained to Horlicks in units of 12 doz. bottles of 450 gms. each. The list gives the following figures:
Rs.Price to agent inclusive of exciseduty but exclusive of sales-tax 109.40Admissible expenditure :Octroi Rs. 2.04Insurance Rs. 0.75Freight Rs. 2.21Selling organisation andAdvertisement Rs. 4.82expenses.9.82Price less trade discount butinclusive of excise duty. 99.58Assessable value, i.e. priceexcluding trade discount andexcise duty of 10% (i.e. 10/11of the price) 90.53
The price list submitted after October 1975 was more elaborate and was required to be submitted in various parts: Part I required the details of sales to 'related persons' as defined in Section 4 (which will be referred to later). Part IV gave the price list of sales at various places-Price list 1 of the Faridabad packing station, effective from 1.10.1975, is extracted below giving the details of prices in respect of the same commodity in respect of three far flung stations to bring out the points made by the petitioner:
Delhi Bombay BangalorePrice at which goods Rs. Rs. Rs.are ordinarily soldin the course ofwholesale trade bythe related personsto dealers otherthan retail traders. 115.64 110.58 111.16Deductions claimedfrom above priceunder Section 4(2), 4(4)(d)Freight 0.25 2.30 4.00Octroi 0.43 6.66 2.22Insurance 0.26 0.26 0.26Service charges todistributor 4.56 4.56 4.56Selling expenses 5.77 5.77 5.77Excise duty 9.44 8.30 8.5821.21 27.85 25.39Assessable Value 94.43 83.03 85.77
The highest of the sale prices was Rs. 116.56 at Cuttack and the lowest was Rs. 110.84 in U.P. for which the assessable values were claimed to be Rs. 93.65 and Rs. 90.86 respectively on a similar basis as above.
6. One head of the assessed's grievance was that the respondents would not approve of the price lists with such modifications as they considered necessary but kept them in abeyance permitting the petitioner to clear the goods on the basis of provisional assessments under Rule 9B and that when this was eventually done and partly confirmed on appeal and the petitioner preferred revision petitions to the Government they were again kept pending indefinitely. However, these revisions have subsequently been allowed, the assessed having had to file two writ petitions C.W. 419/78 (which was withdrawn) and C.W. 493/78 (which was allowed) for this purpose. This aspect of the matter, thereforee, need not detain us.
7. The Deputy Collector of Central Excise passed two orders on 9.12.1976. By the first order, he dealt with the price lists of the period 7.2.1973 to 30.9.1975. So far as this period was concerned, he observed that the sales to Atherton & Co., Faridabad were negligible (about 4% of the total sales), that the said agents had no independent sales organisation or godown or office premises at Faridabad, that the petitioners claim that the agents had an office in the petitioners' factory at Faridabad could not be accepted and, that, in any event the agent was a favored buyer through whom 96% was sold to appointed stockists. He was, thereforee, of opinion that these sales should be ignored. On the question of assessable value, he observed that as the petitioner had fixed different prices in different areas for the same goods, the highest price at which the goods were sold during the given period of time should be taken as the assessable value. In his view, no deductions could be allowed from the petitioners till they entered the wholesale stream of trade. Moreover, the claims for freight, octroi and insurance were based on averages, not actuals, and were, thereforee, not allowable. He thereforee, ordered 'that the highest price at which the goods had been sold during the given time less excise duty payable in the case of the prices declared inclusive of excise duty will constitute the assessable value under Section 4(old) for purposes of assessment' and that the 21 price lists submitted be approved on the above basis. For the second period, he passed a separate order on the same date. But though referring to the new Section4(1)(a)(iii), the order merely embodied the same conclusion as before. Here again he rejected the nominal sales to the agents as not reflecting the market value and selected the highest prevalent price as the basis for assessable value. He also rejected the claim for deductions for the same reasons as before.
8. The petitioner preferred two appeals to the Appellate Collector of Central Excise which were disposed of by a common order dated 15.6.77. The Appellate Collector held that as the appellants had 'one uniform price for all destinations including the price at which they sell the goods to M/s. G. Atherton & Co.' and as the actuals of the expenses are not known, 'expenses, the deduction of which has been claimed, are part and parcel of the wholesale cash price under old Section4... and/or the normal price under the new section...'. He also rejected the sales to G. Atherton & Co. as manipulated ones, and observed that the wholesale list price cannot be said to include any post-manufacturing expenses as the goods sold by the petitioner entered the wholesale market only when they are sold by their redistributor stockists to wholesale dealers and till that stage is reached, they remain the property of the petitioners. So far as the post-amendment period is concerned, he pointed out that the sales through the agents had to be ignored as sales through 'related persons'. He confirmed the orders of the Deputy Collector.
9. Against the above consolidated order of the Appellate Collector and against four more like orders passed by him, the petitioner preferred revision petitions to the Government of India. The Government disposed of all the matters by its consolidated order dated 26.3.1979 after examining the records and giving a personal hearing. So far as the old Section 4 was concerned, it was pointed out the wholesale cost price had to be the assessable value provided it was a genuine one. In this case the sale price to the agents could not be taken as the genuine wholesale cost price, it was only the price at which the agents sold to wholesalers that could be taken into account for that purpose. However, it was not the highest price that should be taken but 'the price which is obtained nearest to the factory gate'. To this extent the appellate order was modified. Regarding the post-October 1975 prices, it was pointed out that the agents being 'related persons' the sale price to them had to be ignored. Here, it was only the normal price that would be relevant, this was the price at which 'the goods are in fact ordinarily sold by the agents to the various dealers'. It was held that, under the new section, no deduction for post-manufacturing expenses would be permissible. Only actual freight could be allowed under Sub-section 2 but this would not cover the 'equalised freight' claim made by the petitioner. In the light of these findings, it was directed as in respect of earlier period, that not the highest price but the price at which the agent, who sold the goods nearest to the factory in the course of wholesale trade, markets the goods should be taken as the assessable
10. The petitioner has filed C.W. 980/79 challenging the correctness of the above determinations of the Central Government. The other petitioner arise in like circumstances and raise the same issues.
11. The Act, passed in 1944, was declared by its preamble to have been intended to 'consolidate and amend the law relating to central duties of excise on goods manufactured or produced in British India'-now 'certain parts of India'-(leaving out the reference to Salt, which is irrelevant for our present purposes). It may be mentioned here that the legislative competence in this respect was derived in so far as the imposition of excise duties was concerned from item 45 of List I of the Seventh Schedule to the Government of India Act, 1935. Item 45, referred to above, which now finds its counterpart in item 84 in the Union Legislative list appended to the Constitution of India reads:
Duties of excise on tobacco and other goods manufactured or produced in India except...
Section 3 of the Act, which has been held to be the charging Section, directs by Sub-section (1) 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...at the rates, set forth in the First Schedule'. Under Sub-section (2) of this section 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'. Section 4, prior to its amendment, ran thus;
Where, under this Act, any article is chargeable with duty at a rate dependent on the value of thearticle, such value shall be 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 of 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 exists, or
The Explanationn to the section provided that, in determining the price of any article under this section, no abatement or deduction shall be allowed except in respect of trade discount and the amount of duty payable at the time of the removal of the article chargeable with duty from the factory or other premises aforesaid.
12. On the above provision, a dispute has arisen between the parties on two questions:
(a) Can the price at which the goods were directly sold by the petitioner to the selling agents at the factory (packing station) be taken as the wholesale cash price of the goods envisaged in Section 4 or are these sales liable to be ignored for arriving at the assessable value?
(b) Is the petitioner entitled to claim from the above, or other, figure of wholesale cash price that may adopted all or any of the deductions (other than excise duty) mentioned by the petitioner in its price lists?
13. On the first question, the respondent's contention is that the sales at the packing stations should be ignored, in support of this plea, they have raised a cloud of suspicion regarding the genuineness of the arrangement claimed by the petitioner and have also raised a legal contention that, at any rate, the selling agents are 'favored buyers' and the transactions with them cannot be considered to be at arms, length. We think that Sri Gulati is right in contending that the aspersions on the genuineness of the arrangement are based on no material. The petitioner's case is that while the selling agents serve as conduit pipes for the distribution of the major part of the petitioner's production, they are also the direct purchasers from the petitioner of about 4% of the goods. This fact does not appear to be disputed by the respondents but it is said that the selling agents do not have proper office, godown or marketing arrangements for the resale of the goods purchased by them and that the office premises claimed to be occupied by them in a portion, of the packing station had not been specifically shown in the ground plan of the factory submitted under the rules. Sri Gulati points out that oral evidence and correspondence had been placed before the officer which showed that the packing station building at Faridabad belonged to the partners of the packing firm and that the petitioners as well as the selling agents had been allowed to use separate portions thereof free of any rent or license fee. It was also deposed that the name plates of the petitioner as well as the selling agents were on the premises. The mere fact that, when the license for the factory was applied for the portion of the selling agents was not earmarked would not be a ground to reject the above evidence on which there was no cross-examination by the Department. In fact while the Assistant and Appellate Collector raise this objection, the order in revision, ignores it. Moreover, the oral evidence was also categorical that, apart from the consignment sales for which the agents only acted as intermediaries, there were outright sales of goods to the selling agents which, after adding their profit, they sold themselves-though such sales were only to the extent of about about 4% of the total sales. It does appear that the selling agents do not have an elaborate set up or marketing facilities but there is nothing suspicious about it. The direct purchases by them were not of a very large magnitude and they could resell the goods easily through the same channels as the consignment purchases effected by them. There is no inter-se personal relationship alleged between the persons behind the petitioner company, the partners of the packing firm and the persons behind the selling agents. The selling agents are independent companies which have their own reputation in the market. For instance. Parry & Co. Ltd. is a well-known concern which has a wide range of business activities. It is further stated at the time of hearing that these organisations have been selling agents for these products since 1956 or so, even before excise duty come to be levied on prepared foods and even before the petitioner started manufacturing operations in India. It is, thereforee, clear that there is no reason to doubt the genuineness of the claim of the petitioner that it had made direct sales on wholesale basis to the selling agents at the site of the packing station, i.e., factory and to hold that this was a make shift arrangement or a manipulated affair. The respondents have not brought on record even an iota of material to support their conclusion that the direct sales to the selling agents which are admitted, were manipulated or colourable.
14. The real stand of the respondents, which Mr. Chandrashekheran also put forward, appears to be that the sale price to the agents at the factory gate should be ignored because they are not 'third parties' but 'favored buyers'. His argument was that the petitioners and the selling agents had a mutual commercial relationship; in respect of 96% of the petitioner's sales, they had to rely upon the selling agents and so the arrangement on direct sales must have involved some concession or special treatment. In this context, both sides relied upon the leading Supreme Court decisions in Voltas : 1973ECR60(SC) and Atics : 1978(2)ELT444(SC) . It will be necessary to refer to these two decisions later while discussing the second point of controversy but, so far as the present issue is concerned, these two decisions, following the ruling of the Privy Council in the Ford Motors Co. case and overruling several High Court decisions held that the price at which the goods are sold on wholesale basis cannot be ignored merely because the percentage of such sales to the total turnover is small or because agreements with the purchasers in question stipulate for certain commercial advantages. So the fact that the selling agents also act as agents for the sale of 96% of the petitioner's goods does not detract from the weight to be attached to them as wholesale sales. The wholesale cash price obtained by an assessed can be disregarded only where the buyer is a favored buyer (where extra-commercial considerations have entered into the bargain or the terms are not fair and reasonable) or the transaction is shown to be not at arms' length (again due to personal relationship or collusion or like factors). Such is not the case here. On behalf of the petitioner, it was contended alternatively that at Faridabad there were direct sales not only to the selling agents but also to certain other wholesale purchasers like Government departments, canteen stores etc. though the quantum of such sales was not very large. It was stated that when certain local wholesale purchasers like canteens, departmental stores etc. approached the petitioner, they were allowed to purchase from the selling agents at the same price at which the sale had been effected to the selling agents themselves. It is argued that these, at any rate, would reflect the wholesale cash price at factory gate. Counsel for the respondent stated that there was no evidence or proof of such sales. It is, however, unnecessary to consider whether this was so, as in our opinion, the direct sales to the selling agents cannot be ignored and have to be taken as indicating the wholesale cash price at the factory. Mr. Chandrasekharan pointed out that in Voltas case, the sales to the distributors on wholesale basis were only about 5 to 10% and the balance of 90-95% were retail sales, that on the other hand, in Atics there were no retail sales at all and the two sets of wholesale sales were at the same price; and that the facts of the present case are different in that the present petitioner effects only wholesale sales but atdifferent prices. The attempt of Mr. Chandrashekheran was apparently to contend that it was open to the respondents to ignore the price charged by the manufacturers to the wholesalers (selling agents) and to adopt as the assessable value the price charged by the wholesale dealer to another wholesale dealer. This argument was considered in detail by Bhagwati J. in Atics and rejected (vide paras 11 & 12). We, thereforee, hold that the price at which the goods were sold to the selling agents at the respective packing stations will be the wholesale cash price for purpose of old Section 4.
15. This takes us to the question whether the petitioner is entitled to claim any deductions (other than trade discount provided for in the Explanationn to Section 4) from the wholesale cash price determined as above in order to arrive at the assessable value. In Voltas (supra), the Supreme Court pointed out the characteristic feature of excise duty and explained how, in charging duty on the basis of the wholesale cash price at the factory gate, the section ensured that post-manufacture elements like interest, freight, octroi and other charges are excluded from the purview of the duty and Mathew J. who spoke for the court said:
Excise is a tax on the production and manufacture of goods (see Union of India v. Delhi Cloth and General Mills : 1973ECR56(SC) Section 4 of the Act thereforee 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 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 time 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 wholesale basis is entirely irrelevant. The mere fact that such sales may be few or scanty does not alter the true position.
This being so, normally speaking, there is no scope for any deductions at all from the wholesale cash price at the factory gate, except trade discount (if any) and the excise duty payable, for arriving at the assessable value.
16. It is, however, contended on behalf of the petitioner that the cash price at factory as well as elsewhere includes elements of post-manufacturing costs and profits. It is claimed that the elements involved are octroi, insurance, freight and selling expenses and that these should be deducted from the sale price for arriving at the assessable value. The Department has rejected the claim by observing that no such element could be included in the factory gate price in the very nature of things as observed by the Supreme Court in Voltas and that the petitioner's claim which was not on the basis of actuals but on an equalised basis could not be allowed to be deducted. We are concerned here only with an analysis of the factory gate price but since the constituent elements according to the petitioner of the sale prices not only at the factory gate but also at the different stations will need to be considered while dealing with the post-October' '75 position, it is better to consider the matter in some detail here itself. We have extracted above the details of the price lists submitted by the petitioner in regard to three stations. A perusal thereof will show that, of the six deductions claimed, four viz., freight, octroi insurance and excise duty are based on actuals whereas the other two viz., service charges and selling expenses have been worked out on an average basis. The full details were, Mr. Gulati says, placed before the authorities for necessary verification, if need be, and even now, he says, the petitioner does not shirk an examination. So far as octroi is concerned, it is a matter of simple verification as to the rates prevalent at the several stations. So far as freight is concerned, Mr. Gulati points out, the contracts between the petitioners and various transport organisations as well as their bills were placed before the suthorities. For instance, the transport charges in respect of1500 packages (i.e., 1000 units) from Faridabad to Cuttack. Patna, Madras and Vijayawada respectively are shown from the bills to be Rs. 2,950, Rs. 2,1001- and Rs. 4,000/- and Rs. 3,300/- respectively. The deductions listed in respect of freight at these places are Rs. 2.95, Rs. 2.10, Rs. 4.00 and Rs. 3.30 respectively. It does, thereforee, appear that the freight are only being claimed at actuals in the above cases and this has been stated to be so in respect of all freight claimed. So far as insurance is concerned again one of cover notes produced by thepetitioner shows that the insurance premium to cover risks of transport was charged at 0.325% and a bottle of Horlicks was valued at Rs. 80 per doz. for this purpose. The insurance premium thus worked out to Rs. 0.26 per unit. Thus, it appears that all these expenses were claimed on the basis of actuals; the relevant documents were before the authorities and this was capable of simple and easy verification. The service charges and selling expenses were, however, admittedly averaged. Mr. Gulati stated that the petitioner maintained a special marketing division which met all the expenses on publicity, advertisement and sales organisations and that the selling agents, for the services rendered by them in the shape of exercising their management skills, handling the consignments, conducting the sale undertaking the responsibility of collection of sale proceeds and claims for defective and damaged goods from the stockists and the like were paid service charges. The total expenses incurred on these were averaged on the total sales of the petitioner the selling expenses on all the sales including those to the selling agents and the service charges on the total sales for which the selling agents acted as distributors. These details were explained in a letter' addressed to the revisional authority on 19.6.78 while clarifying certain points raised at the hearing and an auditor's certificate was also furnished regarding the average selling expenses and marketing overheads per Kg. Since these are essentially matters of fact, we cannot and do not give our findings but it seems to us that the nature of the deductions are as explained above. The petitioner's grievance that, without going into all the details placed before them and without verifying the actual position, the authorities have erred in summarily rejecting the claim for deductions as having been claimed on an equalised basis appears to be well-founded. However, we shall leave this question open and, as will be indicated later, give another opportunity to the respondents to examine the factual position and satisfy themselves that the petitioner's claim is on actual basis in respect of four of the items of deductions claimed and that the average basis is only in respect of selling expenses and service charges.
17. If we come to the wholesale cash price determined as above in the above context, it will be seen that there can be no deductions claimed in respect thereof except the average selling expenses per unit. There can be no octroi or freight at the packing station. Nor can there be any question of insurance for risks in the course of transport and the insurance on the factory stock etc. will be covered in the manufacturing cost and so not deductible. No deduction for service charges can be claimed against this either as that can arise only in respect of goods handled by the selling agents. The only two aspects of the question, that arise for consideration here are (a) whether the petitioner is entitled to claim deduction against the factory gate sale price in respect of the expenses incurred by it 'for putting the goods in the stream of trade, by creating and managing the selling force or promoting the sales of goods by known methods of advertisement and sale campaigns and (b) whether such a deduction could be claimed on an average or equalised basis. Neither Voltas nor Atics cover this situation for, in those cases, no deductions appear to have been claimed from the wholesale cash price, except trade discount. But such deductions are now claimed, relying on the principle enunciated in these decisions that excise duty can be levied only in respect of manufacturing cost and manufacturing profits and that selling cost and selling profit have to be eliminated in working out the assessable value. We think after careful consideration, that the answer to both the queries should be in the affirmative. The definition of wholesale cash price, as pointed in Voltas, is arrived at achieving this result but it does not take into account the possibility of the wholesale cash price at the factory gate including an element of post-manufacture expenses also, as is claimed in the present case. If the petitioner is in fact maintaining a marketing division and incurring expenses for marketing these goods the impact of such expenses cannot be excluded even from the sale price at the factory itself. In principle and logically speaking, there can be no objection if all these expenses are spread over the entire production of the assessed and the entire turnover, including the sales to the selling agents at the factory gate itself. It is also inevitable that the cost of this activity can only be spread over the entire turnover on an equalised basis for it would be impossible to attribute them sale-or-consignmentwise. There seems to be nothing absurd or unacceptable in the petitioner claiming to deduct, on an equalised basis, the selling and marketing expenses, from the sale price charged to the selling agents and others at the site of the packing stations. There are, however, two matters which need verification. The first is whether the selling expenses of the petitioner have been actually averaged over the entire production including direct sales to the selling agents as claimed. The second is whether all the expenses under this head relate only to post-manufacture activities or whether some portion itself is also attributable to manufacturing activity. As pointed out by the Bombay High Court I.T.C. v. Union 1976 Cen 49 D advertisement expenses would be incurred both before as well as after manufacture is complete so that a part of it may well be referable to manufacturing activity. On the other hand, marketing and distribution expenses would ordinarily be referable to the selling activity. It may, thereforee, be necessary to bifurcate the total cost of advertisement and other expenses claimed by the petitioner under this head, and only such part of the expenditure, if any, as may be referable or attributable to the selling activity of the petitioner, will have to be deducted from the wholesale price charged by it to wholesalers.
18. We may say that we would not have arrived at the above conclusion which seems at first blush to run counter to the mandate of Section 4 that the wholesale cash price at the factory gate less trade discount should be taken as the assessable value but for two important considerations. The first is that the duty levied under the Act is an excise duty within the meaning of Entry 45 of the Central List in the Government of India Act and is intended to be a tax on goods at the stage of manufacture or production and, thereforee, as pointed out in Voltas, is a tax on the value of the goods reflecting the manufacturing cost and the manufacturing profits. It is not intended to include within the purview of the duty any selling cost and selling profit. The interpretation of the statute should, thereforee, be harmonious with the scope of the legislative entry in pursuance of which it is enacted. Thus, though the language of Section 4 is somewhat wide, it should be read so as to carry out, and not militate against, the basic concept of excise duty. It should be, thereforee, taken as referring to the wholesale cash price at the factory gate without taking into account any part of the selling cost. The second consideration is that this is the view which appears to have found favor almost unanimously with several High Courts in the context of claims for various types of deductions such as equalised freight (although, strictly speaking, freight is an element which cannot enter into the concept of the factory gate price), advertisement expenses (to the extent referable to selling activity), marketing and distribution expenses interest and so on. Though we are concerned here only with the question of selling expenses, the deductibility of other items like freight, octroi, insurance, service charges has to be considered in relation to period subsequent to October '75 and so it will be useful to refer here briefly to these decisions.
19. The Indian Tobacco Co. Ltd. appears to have raised successfully a plea for the deduction of such expenses before a number of Courts. I.T.C. v. Union 1976-4 Census 49D is the decision of the Bombay High Court. The deduction claimed from the wholesale cash price were marketing and distribution expenses, advertising expenses, freight and interest charged to wholesalers. The argument on behalf of the Revenue that Section 4 embodies a statutory fiction to which full effect should be given and that no deductions can be permitted from this deemed assessable value except trade-discount and excise duty mentioned in the application was rejected. It was pointed out that Section 3 was the charging section (CF. Modi Rubber Ltd. : 1978(2)ELT127(Del) and Section 4 which was only the machinery section could not enlarge the ambit of the excise duty. It was held that the deeming provision was enacted for the limited purpose of defining the assessable value of article for the purpose of calculating the excise duty and reliance was placed, in this regard, on the decision of the Privy Council in the Ford Motor Co. case . In regard to the department's reliance on the Explanationn, it was pointed out that the real question raised was not one of allowing any deduction but one of exclusion of post-manufacturing expenses and profit in arriving at the assessable value having regard to the true nature of excise duty. As regards advertising expenses and interest it was held that it might be necessary to bifurcate the same between the manufacturing activity and the selling activity and deduct only the latter and it was pointed out that marketing and distribution expenses would ordinarily be referable to selling activity. As regards freight, Tulzapurkar, J. observed:. as regards freight, though it is true that in both types of delivery'-i.e. at the factory gate and at the wholesaler's go-downs -'effected by the petitioner company to its wholesalers a uniform price is being charged, that by itself would not be a valid ground to refuse the relief of deduction. The mere fact that the same price is charged both at the factory gate and also at the godowns of the wholesalers would not mean that the price charged at the factory gate would always be exclusive of non-manufacturing element of freight. It is quite possible that the petitioner company may have for the purpose of maintaining good relations with its wholesalers fixed a uniform price in both types of delivery, but at the same time in fixing the uniform price may have struck an average in regard to freight. It would, thereforee, be a matter of investigation and ascertainment whether the wholesale price charged by the petitioner company at the factory gate included non-manufacturing element of freight.
The Karnataka Hign Court considered the same question in I.T.C. v. Union 1977 Cen-Cus/22D : 1976 Tax. L.R. 2003 and held that the assessable value should be determined after eliminating from the wholesale cash price the expenses incurred in connection with marketing and distribution of goods, interest charged to wholesaler, freight, octroi and other transport charges and proportionate advertisement expenses. Reference was made to the decision, of the Kerala High Court in Madras Rubber case 1976 Tax. L.R. 1263, the Bombay decision earlier discussed and an un-reported decision of the Andhra Pradesh High Court. The Allahabad High Court took the same view in I.T.C. v. Union 1978 Cen-Cus/110D : 1977 T.L.R. 2060 following the above Bombay, Kerala and Karnataka decisions and a Madras decisionsince reported in 1978 T.L.R. 1824. An attempt to suggest that there was a conflict between Voltas and Atics was repelled. The Patna High Court also took the same view in I.T.C. v. Union 1978 Cen-Cus/207D : 1978 Tax. L.R. 1644. A Division Bench of the Kerala High Court appears to have affirmed the judgment of the single judge in the Madras Rubber case : See 1978 T.L.R. (N.O.C.) 50 and Ramanujam, J. of the Madras High Court also took the same view in W.P. 2180/72 decided on 13 2.1976. A claim for deduction of freight charges on actual or equalised basis was allowed in Calcutta Chemical Co. 1978 6 Cen 174 . Union Carbide 1979 7 Cen 62 D Mad. Bangalore Bottling Co.1979 7 Cen 50 and Coromandel Fertilizers (1979) Cen 525 D-A.P. The judgment of Divan C.J. in Vazir Sultan Tobacco Co. Ltd.1978 Census 97 D appears to be subsequent to the Coromandel case (supra) and contains an elaborate discussion, and points out that barring the Golden Tobacco case 1977 Cen 92 decided by the Gujarat High Court, all courts are unanimous on this issue. In para 18, the learned C.J. pointed out:
It is, thereforee, clear, that, when considering Section 4, one has to bear in mind that that section provides for machinery of collection of excise duty for administrative convenience. If, in enacting Section 4 and Explanationn thereto, any words are used which are capable of being construed as enabling the excise authorities to calculate the excise duty on any thing other than manufacture or production of goods by the well known doctrine of 'Reading Down', which has been evolved by Courts of law, first in Australia and then followed in India, the language of Section 4 must be confined to the power of the legislature referable to item 84 in the Union List in the Seventh Schedule to the Constitution, viz., that only the manufacture or production should be borne in mind and no post-manufacturing item of expenditure should be taken into consideration by the excise authorities while fixing the value of the goods for the purpose of excise duty when excise duty is livable on an ad valorem basis.
Again, in para 37, it was observed after discussing Voltas and Atics:
Mr. Subrahmanya Reddy for the appellants in the writ appeals and the respondents in the writ petitions with which we are concerned in these cases, has very strongly relied upon the conclusion of the Supreme Court in Atic Industries v. Asst. Collector, Central Excise 1975 Tax. L.R. 1515 (SC supra) asset out in para 13 of the report and contended that, in the instant case, the price charged by the manufacturers to the first wholesalers, be they referred as distributors or wholesalers, is the wholesale cash price and it is that wholesale cash price less trade discount and excise duty which should be the basis for imposition of excise duty in view of the language of Section 4. We are unable to accept this argument of Mr. Subrahmanya Reddy in its entirety. It is clear from the observations of Mathew, J., in Voltas case 1973 Tax. L.R. 1710 (supra) which were approved by the Supreme Court in Atic Industries v. Assistant Collector Central Excise (supra) that the excise duty, which is a duty payable on manufacture or production of goods, can only be on the aggregate of manufacturing costs and manufacturing profit, process of manufacture, they will also be Part of the manufacturing costs. But if it can be demonstrated by a particular manufacturerthat, even on the first sale to the first wholesale dealer there is an element other than that of manufacturing cost and manufacturing profit and thus the price charged to the first wholesaler includes post-manufacturing cost, such post-manufacturing cost must be eliminated by the excise authorities from their calculations. It must be pointed out that there may be two broad categories of manufacturers. The first category consists of manufacturers who only manufacture as in the case of Atic Industries case (supra) but do not sell the goods except to the first wholesaler with whom they have arrived at an agreement at arms length. The second category is the category of manufactures who not only manufacture, but also sell and incur the expenditure for the sale of goods as distinguished from manufacturing cost and manufacturing profit and if it can be demonstrated that, when the manufacturer of the second category sells the goods to the first wholesaler and incurs some post-manufacturing costs which have entered into the calculations and that the price charged to the first wholesaler by the manufacturer includes the post-manufacturing cost, then such post-manufacturing cost must be eliminated by the excise authorities from their calculations. Applying the process of 'reading down' it must be held that any item other than manufacturing costs, including costs which are necessarily incidental to manufacturing process and manufacturing profit, must be excluded for the purpose of arriving at wholesale cash price. If such loading of post-manufacturing costs even in the price charged by the manufacturer to the first wholesaler with whom an agreement was entered into at arras length is permitted, the concept of excise duty, being a duty payable on the manufacture or production of goods, would be violated. We are, thereforee, unable to accept this contention of Mr. Subrahmanya Reddy.
20. In view of the above discussion, we hold that, for the pre-amendment sales, the sale price to the selling agents at the packing stations should be taken as the assessable value, after deducting there from the whole or such part of the selling expenses as are attributable to post-manufacturing activities.
21. We now turn to the position after the introduction of the amended Section 4, which in so far as is relevant runs as follows:
Section 4. Valuation of excisable goods for purposes of charging of duty ofexcise - (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 assessed 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:
(i) where in accordance with the normal practice of the wholesale trade in such goods, such goods are sold by the assessed at different prices to different classes of buyer (not being related persons) each such price shall, subject to the existence of the other circumstances specified in Clause (a), be deemed to be the normal price of such goods in relation to each class of buyers;
(ii) where such goods are sold by the assessed in the course of wholesale trade for delivery at the time and place of removal at a price fixed under any law for the time being in force or at a price being the maximum, fixed under any such law, then, notwithstanding anything contained in Clause (iii) of this proviso, the price or the maximum price, as the case may be, so fixed, shall, in relation to the goods so sold, be deemed to be the normal price thereof;
(iii) where the assessed so arranges that the goods are generally not sold by him in the course of wholesale trade except to or through a related person the normal price of the goods sold by the assessed to or through such related person shall be deemed to be the price at which they 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 ;
(b) where the normal price of such goods is not ascertainable for the reason that such goods are not sold or for any other reason, the nearest ascertainable equivalent thereof determined in such manner as may be prescribed.
(4) For the purposes of this section,-
(b) 'place of removal' means-
(i) a factory or any other place or premises of production or manufacture of the excisable goods ; or
(ii) a warehouse or any other place or premises wherein the excisable goods have been permitted to be deposited without payment of duty; from where such goods are removed ;
(c) 'related person' means a person who is so associated with the assessed that they have interest, directly or indirectly, in the business of each other and includes a holding company, a subsidiary company, a relative and a distributor of the assessed, and any sub-distributor of such distributor.
Explanation:- In this clause 'holding company', 'subsidiary company' and 'relative' have the same meanings as in the Companies Act, 1956 ;
(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 assessed.
Explanation :-In this sub-clause 'packing' means the wrapper, container, bobbin, pirn, spool, reel or warp beam or any other thing in which or on which the excisable goods are wrapped, contained or wound ;
(ii) does not include the amount of the duty of excise, sales tax and other taxes, if any, payable on such goods and, subject to such rules as may be made, the trade discount (such discount not being refundable on any account whatsoever) allowed in accordance with the normal practice of the wholesale trade at the time of removal in respect of such goods sold or contracted for sale ;
22. The above amendment was effected by Act 22 of 1973 but with effect from 1.10.1975. The objects and reasons for the amendments were set out in the bill as follows:
Section 4 of the Central Excises and, Salt Act, 1944 provides for the determination of value for the purposes of charging the duty of excise under the Act. With the increase in the ad valorem levies in the Central Excise Tariff, the operation of that section has presented certain practical difficulties some of which got highlighted in the recent judgment of the Supreme Court (A.K. Roy and Anr. v. Voltas Limited) in a case where a manufacturer was selling a small percentage of his production through a distributor and the rest directly to the consumers from his branch offices at a much higher price. The Court held that the sale to the distributor constituted transactions is the wholesale market, and, thereforee, the entire production should be assessed under Clause (a) of that section and not Clause (b) thereof, i.e. on the basis of the price charged to the distributor. The Court has also made an observation that under the law, as it stands at present, the valuation for purposes of excise levy would include only manufacturing cost plus the manufacturer's profits. In order to overcome the various difficulties experienced in the working of the section it is proposed to suitably revise the valuation provision contained in Section 4 of the Act, providing, as far as practicable, for assessment of excisable goods at the transaction value, except in areas where there may be scope for manipulation (such as sales to or through related persons) and making specific stipulations with respect to situations frequently encountered in the sphere of valuation. The Bill is mainly intended to achieve the above objects.
23. It may be mentioned here that the Gujarat High Court has, in two decisions, Atic Industries1979 7 Cen 391, and Cibatul Ltd. 1979 7 Cens 404, declared that the concept of 'related person' occurring in the amended Section 4 is ultra virus the legislative competence of Parliament under Article 246 read with Entry 84 of the Union List in the light of Entry 54 of the State List in the Constitution. The expression 'the buyer is not a related personand...' and proviso (iii) to Clause (a) insection 4 (1) were struck down accordingly. It may not, however, be necessary to consider this aspect of the matter as Mr. Gulati contended that, for his purposes, it was sufficient if the provisions of the new Section were 'read down' in conformity with the Constitution and that, if this were done, it would not be necessary for him to take up any stand on the constitutionality of the amendment. We shall, thereforee, proceed, for the time being, on the basis that the amendment is valid and fully operative in law.
24. On the above basis, there is no controversy before us that the selling agents are 'related persons' within the meaning of the definition. Mr. Gulati, however, has drawn our attention to the evidence led before the authorities, which remained uncontradicted, that after October 1975 there were no sub-distributors appointed by the petitioner or the selling agents, as before. A representative of G. Atherton & Co. deposed that they 'did not maintain any distribution stockists after October, 1975'. There were also affidavits filed to the same effect on behalf of this company as well as Parry & Co. with the result that after October 1975 the petitioner as well as the selling agents directly sold to wholesalers without any sub-distribution arrangements. Copies of the selling agents' agreements for the period subsequent to October 1975 were also placed before the revisional authority along with the letter dated 19.6.1978. There appears to be no contradiction of this version of the petitioner. The Department in the impugned orders have also taken into account only the prices at which the goods were sold to wholesale dealers at various stations and there is no basis for a suggestion made by Mr. Chandrashekheran that actually the prices at which the goods were sold to retail trader at various places should have been taken into account by applying Section 4 (1)(b) instead of Section 4(1)(a), proviso (iii). The Government of India in the revisional order has directed that the least of the wholesale prices in respect of each of the factories should be taken into account as the normal price for the purposes of the amended Section 4 and about this the petitioner has no quarrel.
25. The only plea of Mr. Gulati, so far as the post amendment sales are concerned, is that the wholesale price taken in accordance with the Central Government's decision should be reduced by the amount of freight, octroi, insurance, selling expenses and service charges which have been detailed in the various price lists. This contention, however, is resisted on behalf of the Revenue, It is pointed out that the amendment to Section 4 was made in order to overcome the difficulties caused by the Voltas decision that the new section has deemed the 'normal price' to be the assessable value and further that it has specifically enumerated the deductions permitted from the 'normal price'. It is argued that, after the amendment, there can be no deductions allowed from the 'normal price'. This controversy, it will be seen, is practically the same as we have already considered under the unamended section. That section also defined assessable value as the wholesale cash price at the factory gate and the Explanationn provided that only trade discount and excise duty could be deducted from this amount. Nevertheless, as discussed above, judicial decisions had held unanimously that the wholesale cash price was liable to be adjusted so as to eliminate post-manufacturing cost and profits.
26. Mr. Gulati brings to our notice that there are decisions to the like effect even after the amendment. The Patna High Court considered the question in the Telco case 1977 Cen-Cus 47D : 1977Tax L.R. 2189. In this case, the petitioner objected to the treatment of its regional sales offices at different places as related person and also contended that post-manufacturing expenses should be deducted from the gross-price for arriving at the assessable value. These contentions were accepted. This case was followed and applied by the Kerala High Court in Madras Rubber Factory 1979 Cen 337 D. This company was engaged in the manufacture of automobile tubes, tread rubber and other rubber products. Its products were supplied to its 32 depots at various places throughout the country and the depots in their turn sold to other dealers or consumers. There were no factory gate sales. Excise duty was sought to be levied on the value of the goods after taking into account the post-manufacturing cost, and profit on such items as freight, transport, interest, traveling expenses of agents, insurance etc. The court first discussed the nature of excise duty as explained in the decisions of the Federal Court in the C.P. Motor Spirit Act case and the Supreme Court in the Sea Customs Act case AIR 1963 S.C. 1960. Then setting out Entry 84 of List I and entry 54 of List II in the Seventh Schedule to the Constitution, the Court summarised the arguments for the petitioner thus:
With the lines squarely drawn between the above two legislative entries, one for the Union and the other for the States, it is contended that there must be a dividing line between the two, to define where manufacture or production ends and also begins. May be, in Thackeray's phrase, 'thin walls do their bounds divide', but however tenuous, a line of division must be found at least by a process of judicial interpretation. The argument of counsel for the petitioner was that post manufacturing expenses pertain to sale and not to manufacture or production, and a duty which takes into account those post-manufacturing expenses, cannot partake of the nature of an excise duty. Alternatively, he would contend that Section 3 authorises the levy of an excise duty ; and, if Section 4 of the Act as amended in 1973 permits the taking into account of post-manufacturing expenses, the resultant levy would fall outside the legislative periphery of entry 84 of list I, and outside the scope and content of the livable duty as demarcated by Section 3 of the Act. In either event, counsel for the petitioner would argue that Section 4 would have to be read down to square with the impost sanctioned by Section 3 and with the legislative power under Entry 84 of list I of Schedule 7 of the Constitution.
After referring to the Supreme Court decisions in Tata Iron & Steel AIR 1958 S.C. 452, Voltas (supra), Atics (supra) and Shinde Brother's case : 1SCR548b and the Federal Court decisions in Boddu Paidanna AIR 1942 P.C. 33 and G.G. v. Madras Province AIR 1945 P.C. 981, the Court concluded:
The learned Central Government Pleader contended that whatever be the petition under the Act before its amendment In 1973, after the said amendment, it is permissible and possible to levy a duty of excise on the value of the goods as determined by Section 4. It was pointed out that the criterion for the levy under Section 4(1)(a) was the 'normal price in the course of wholesale trade for delivery at the time and place of removal where the buyer is not a related person'. It is the case of the petitioner that this section would not apply to it, as it has no factory gate sale, That is quite apart from its contention that the Section itself is ultra vires. The Central Government Pleader also placed reliance on Section 4(1)(b) where a power is given to determine the value of the goods in such manner as may be prescribed. But neither this power nor the power to determine tariffs as provided in the First Schedule to the Act, and as relied on the Central Government . Pleader, would carry with it a power to cross the frontiers of the levy sanctioned by Section 3 of the Act. Both by reason of the legislative entry-Entry 84 of List I-and by reason of the express provision of Section 3, the power is only to levy a duty of excise, as explained by the Supreme Court in Volta's case AIR 1974 SC 225, Atic Industries's case : 1978(2)ELT444(SC) , and Shinde Brother's case : (1982)ILLJ46SC not to mention the other cases referred to already. The very nature of excise duty requires a proximate connection with production or manufacture. At any rate, what has passed beyond the region of manufacture and production and entered the domain of sale, cannot pass as excise duty. It appears to us clear enough that the inclusion of post-manufacturing expenses would indicate that the levy is some thing other than a duty of excise.
It was then held, following Tisco (supra) that even under Section 4(2) the post-manufacture charges and expenses will have to excluded. There was an attempt then on the part of the Government to sustain the levy on the price including these charges by reference to Article 243 of the Constitution read with the residuary Entry No. 97 in List I of the Seventh Schedule but this argument was negatived.
28. In this context, the decision of the Bombay High Court in Union Carbide 1980 8 Cen 34 D may also be noticed. In this case the petitioner submitted a price list in respect of its Bombay sales and separate price lists in respect of sales out of Bombay, showing the same uniform price plus the actual cost of freight for each place. The Department rejected the petitioner's out-of-Bombay lists and passed an order that since the price for delivery at Bombay was available under Section 4(1)(a), there was no justification for approving the prices under Section 4(2)/4(4)(d)(iii). The Court observed:
5. Assuming that Section 4(1)(a) is applicable even so what cannot be gainsaid is that the cost of transportation from the petitioner's factory to various sales depots is a post-manufacturing expense and thereforee must be excluded from the assessable value. What the petitioner claims is a deduction of that post-manufacturing element consisting of the actual amount expended for transporting the finished articles from its factory at Chembur to the various depots. The real value of the goods under the old Section 4 or normal price under the new Section 4, must be ascertained by inclusion only of the manufacturing cost and manufacturing profit and after deducting the selling cost and selling profit. Excise is levied only on the amount representing the manufacturing cost plus the manufacturing profit and excludes post-manufacturing cost and profit arising from post-manufacturing operation, namely, selling profit. This is the ratio laid down by not less than two decisions of the Supreme Court, namely, in A.K. Roy v. Voltas Ltd. 1977 ELT 177, and in Atic Industries v. Asstt. Collector, Central Excise : 1978(2)ELT444(SC) , and has been followed by the Division Bench of this Court in Indian Tobacco Co. Ltd. v. Union of India 1976 Cen-Cus/49D : 1979 ELT 476, and in Century Spinning and . v. Union of India 1979 ELT 334, the Madras High Court in Nagpal Petro-Chem. Ltd. v. Assistant Collector 1979 Cen-Cus/97D : 1979 ELT 117, the Kerala High Court in Madras Rubber Factory v. Assistant Collector 1979 Cen-Cus/331D : 1979 ELT 397, the Delhi High Court in Madras Rubber Factory Ltd. v. Union of India 1977 ELT 173, the Patna High Court in Tata Engineering and Locomotives Co. Ltd. v. S. N. Guha Thakuria 1977 Cen-Cus 47 : 1977 ELT 14, and the Gujarat High Court in Cibatul Ltd. v. Union of India 1979 Cen Cus/404D : 1979 ELT 407.
6. In the circumstances looked at from any angle, the transportation cost being a post-manufacturing expenses must be excluded from the assessable value and cannot be taken into account in assessing the normal price of the goods as contemplated by Section 4(1)(a).
Thus, it would appear, there is a uniform line of decisions even under the amended Section 4 that expenses of the nature claimed by the present petitioner are to be deducted in arriving at the assessable value.
29. Faced with this position, Mr. Chandrashekheren. contended that, whatever may have been the justification for the above view under the old section, the same could not be extended to interpret the amended section for two reasons:
(a) that the amendment was specifically made with a view to get over the difficulties created by Voltas and A tics', and
(b) that the amended section, being a legislation of Parliament, could lawfully extend the scope of levy even beyond the purview of an excise duty, stricto sensus, in view of Entry 97 of List I in the 7th Schedule to the Constitution.
30. In regard to both the aspects urged by learned Counsel, it is necessary to bear in mind the law as declared by the Supreme Court in the Voltas case, the object of the legislature in introducingthe amendments, the difficulties it intended to provide for and also the language by which the object is intended to be achieved. We have earlier set out the statement of objects and reasons as explained in the amendment bill. A perusal thereof would show that the primary purpose of the amendment was to overcome the difficulties created by Voltas decision which had declared the small percentage of sales to a distributor as wholesale market sales. This object is sought to be achieved by introducing a concept of 'related persons' and excluding transactions of sale to or through them in arriving at the excisable value. We are not concerned with this aspect in considering the present contention. So far as the aspect presently under consideration is concerned, the statement of objects and reasons only contains two sentences:
The Court has also made an observation that under the law, as it stands at present, the valuation for purposes of excise levy would include only manufacturing cost plus the manufacturer's profits. In order to overcome the various difficulties experienced in the working of the section it is proposed to suitably revise the valuation provision contained in Section 4 of the Act... making specific stipulation with respect to situations frequently encountered in the sphere of valuation.
It will thus be seen from the above that no intention is manifested to modify the position resulting from the decision of the Supreme Court that the assessable value would include only manufacturing cost plus manufacturer's profits. All that is intended to be done is to make specific stipulations regarding situations frequently encountered. The amended section, thereforee, does not contain any words to suggest or imply that the value of the goods should also be loaded with any part or ingredients of post-manufacture cost or profit. On the other hand the new section also requires the department only to take into account the wholesale cash price at the factory gate with the difference that this rule is modified where the wholesale transactions are put through with the help of related persons. This, as the Supreme Court pointed out in para 21 of its judgment in Voltas extracted earlier, only emphasises the basic character of excise duty and the intention to exclude post-manufacture charges from its ambit. The exclusion of transportation costs, where the value is determined with reference to the price at a place other than the place of removal-Sub-section (2)-also indicates that the basic concept is still the same as before. Apart from the introduction of the concept of 'related parsons' to get over a situation like that in Voltas, the specific stipulations referred to in the statement of objects are those contained in Clause (i) and (ii) of the proviso to Section 4(1)(a)-which do not concern us here--and those contained in Section 4(4)(d) to exclude from the 'value' the cost of packing, trade discount as well as excise duty and other taxes payable on the goods. There is, however, nothing in Section 4(4)(d) from which it can be implied that only these items can be deducted and no others. Even under the old section, the Explanationn mentioned trade discount and excise duty but this was not considered as exhaustive of the permissible deductions from the wholesale cash price. In short, there are no considerations in deciding the question on the position after amendment that were not there when the pre-amendment statute was considered and there is no reason why the position should be different.
31. But, apart from above considerations which flow from a study of the amended section and its comparison with the old section, the constitutional setting in which it is enacted cannot be over-looked. Mr. Chandrashekheran's contention (which was raised for the first time only during the arguments) that the language of the new section should be given an enlarged scope and interpretation by relating it to Entry 97 of List I of the Seventh Schedule cannot, in our opinion, be accepted. We do not think, in considering this argument, that it is necessary for us to discuss whether, if Parliament were to enact a law imposing on goods manufactured or produced a duty based not only on the manufacturing cost/profits but also including in dutiable value the whole or some part of post-manufacturing cost/profits, such a law would be ultra virus or not, because it appears to us that no such law has been enacted in this case. We are clear in our minds that the legislature has neither intended a change in the basic concept of the levy. The Act, when framed in 1944, intended to consolidate several statutes that were in force under which excise duty was being levied on several articles. Basically, the concept was the same and it was this legislative practice that was embodied in Item 45 of the Federal List of the 1935 Act and adopted in Item 84 of the Union List in the Constitution (vide, the observations of Gwyer C. J. in re, C.P. Motor Spirit Act AIR 1939 FC l2, adopted in Ralla Ram v. U.P. 1948 FCR 207 and Gordandas v. Municipal Commissioner AIR 1963 SC 742. We shall assume, with Mr. Chandrashekheran, that, in view of Entry 97 in the Union List under the Constitution, it is open to and competent for the legislature to expand or even modify the nature of the levy. The question, however, will be whether it has done so. The statement of objects and reasons does not contain a whisper about such a radical change if intended to be made by it. The preamble to the Act, the language of the charging Section and the description of the levy through out remains the same as before. These amendments only touch cases where ad valorem duty is levied and have no impact on cases where duty is charged on number, weight or volume which will be governed by the same considerations as before. We have also pointed out that even the language of Section 4 does not spell any indications of any radical change. The pith and substance of the legislation remains the same. An avowed attempt to remove certain difficulties in the matter of valuation cannot be equated with an attempt to restructure the whole levy. Moreover Voltas (and even Atics) did not touch upon the question of valuation at all : they were only concerned with the concept of wholesale market Atics and all the decisions which have been referred to above in which the problems of deducting freight, octroi, insurance and other charges from the wholesale cash price were discussed all came up subsequent to the amendment which had been effected in 1973 itself (though given effect to from 1.10.1975). In these circumstances, it is difficult to envisage this amendment as having intended to introduce any redical change in the basic nature of the levy under the Act. In this context, the following observations of the Supreme Court in Ranganathan v. Government : 2SCR374 to which Mr. Gulati invited our attention are very opposite.
There is also a presumption against implicit alteration of law and that is enunciated by Maxwell on interpretation of Statutes, 10th Edition, at page 81 in the following terms:
One of these presumptions is that the legislature does not intend to make any substantial alteration in the law beyond what it explicitly declares, either in express terms or by clear implication, or, in other words, beyond the immediate scope and object of the statute. In all general matters outside those limits the law remains undisturbed. It is in the last degree improbable that the legislature would overthrow fundamental principles, infringe rights, or depart from the general system of law, without expressing its intention with irresistible clearness....'This passage from Maxwell was approved of by their Lordships of the privy Council in Murugian, P.V.Jainudeen, C.L. (1) and Their Lordship agreed that the law was correctly stated in the passage just cited. To the same effect are also the observations of the Court of Appeal in National Assistance Board v. Wilkinson (2) where it was held that the Statute is not to be taken as affecting a fundamental alteration in the general law unless it uses words pointing unmistakably to that conclusion. In that case at page 658 Lord Goddard, C.J. observed:
But it may be presumed that the legislature does not intend to make a substantial alteration in the law beyond what it expressly declares. In Minet v. Leman (1), Sir John Romilly, M.R. stated as a principle of construction which could not be disputed that 'the general words of the Act are not to be so construed as to alter the previous policy of the law, unless no sense or meaning can be applied to those words consistently with the intention of preserving the existing policy untouched'.
32. We also find that this matter has been considered, though briefly, by the Kerala High Court in the Madras Rubber Factory case 1979 7 Cen 337 D:
The Central Government pleader had one other argument to sustain the levy. He contended that the power of taxation was available to the Union Government under the residuary powers under Article 243 of the Constitution read with the Entry 97 of List I of the 7th Schedule. The Article and the Entry give power only with respect to a matter 'not enumerated in Concurrent List' or State List. The duty is expressly termed an 'excise duty'. That seems to be clearly referable to Entry 84 of List 1; and we see no case for pressing into service the residuary powers under Article 248 and Entry 97 of List I. Section 3 of the Act again expressly refers to the duty as a duty of excise. In these circumstances, we are afraid we cannot sustain the levy under the residuary powers pressed into service by the learned Central Government pleader.
We are thereforee of the opinion, that the respondents were wrong in insisting on the post manufacturing expenses and the post manufacturing profits to be included in the included in the reckoning for determining excise duty. In the light of the decisions noticed, this is vitiated. The learned Judge waswrong in holding otherwise.
For the above reasons we are of opinion that the interpretation of the Section has, to be made in accordance with Entry 84 and not Entry 97 of the Union list. Shri Gulati contended that, if the Department's contention were accepted and the duty was livable on the basis of the sale price unshorn of the post-manufacture cost/expenses, it would really be a tax on 'sale of goods' covered by Entry 54 of List II of the Seventh Schedule to the Constitution and would not thereforee be profited by Entry 97 in the Union list, which can apply only where the topic is not dealt with anywhere else specifically. In this context, he invited our attention on the following observations in the Cibatul case 1979 7 Cen 404 D 418 D):
Proviso (iii) to Clause (a) of Sub-section (1) of Section 4 is ultra virus the Parliament's legislative competence under Article 246 read with Entry 84 in the Union List and Entry 54 in the State List, because even though the manufacturer has charged his buyer-a 'related person'-a fully commercial price consisting of manufacturing cost and manufacturing profits, he is liable to pay excise duty on the second price which his buyer-'related person'-charges his buyer-an unrelated person. The second price, as observed above, is loaded with the selling costs and selling profits of the manufacturer's buyer-a 'related person.' Assessment of excise duty on selling costs and selling profits with which the assessable value is loaded partakes of sales-tax which falls under Entry 54 in the State List.
He drew our attention also the discussion in paras 69 to 75 of the above judgment. He, thereforee, contended that the respondent cannot seek aid from the principle of Hazareth A.I.R. 1970 S.C. 999 and Dhillon : 83ITR582(SC) where the purview of the State List was completely excluded and the substance of the legislation was not directly covered by a specific entry in the Union List. It is, however, unnecessary for us to enter into this controversy or the further question whether even assuming that Entry 54 applies a part of the levy could be sustained under Entry 92A of the Union List in the view we have taken of the scope of the amendment and the interpretation of the amended section.
33. For the reasons discussed above, we are of opinion that, while the respondents were right in determining the wholesale price in the manner they did, they erred in refusing to permit the deductions of the several ingredients which, according to the petitioners, have entered the said wholesale price. However, as stated under the discussion regarding pre. October 1975 sales, the claims regarding freight, octroi and insurance may have to be verified and the claim of service charges and selling expenses may need to be bifurcated between the manufacturing and selling operations.
34. Shri Gulati stated that all the writ petitions involve only the above contentions. While Civil Writ Petition No. 980/79 which relates to the Faridabad factory raises the question of determination of assessable value under Section 4 both before and after the amendment, C.W.P. 1169/76 and C.W.P. 876/79 pertain to the production cleared at the Bangalore packing station, before and after the amendment respectively. These writ petitions do not, thereforee, require any separate consideration either on facts or in law.
35. For the reasons discussed above, we direct the issue of writs of certiorari quashing the orders passed by the Government of India on the revision petitions preferred by the petitioner in regard to the three stations Faridabad, Bangalore and Calcutta, the details of which are as follows:
C.W.P. No. Revision Orders Nos. Date1. 980/79 212 to 217 of 1979 26.3.792. 876/79 210 & 211 of 1978 (sic) 26.3.793. 1169/76 1228 to 1230 of 1979 23.6.76
The consequence will be that, the revisional authority will have to dispose of the revisions afresh in the light of the discussion and conclusions contained in this judgment. Before doing so, however, the authority should give the petitioner an opportunity of being heard and may also obtain such details, calculations or other information which it may need to give effect to the judgment. As the matters have been pending for a long time and huge amounts are involved, we direct that the revision petitions should be disposed of afresh and in accordance with law at most within four months of the date of receipt of a certified copy of this judgment. It is unnecessary, in view of this direction to quash the appellate and assessment orders also, as sought for by the petitioner.
36. Mr. Gulati, relying upon the directions given in the Gujarat decision in Atic Industries and Cibatul 1979-7 Cencus 391 and 404 respectively sought for a direction that the refunds due to the petitioner should carry interest, particularly in view of the delay in the making of assessments and the disposal of the revision applications by the Central Government. We are unable toaccede to this request. In the first place, there is no specific prayer in the writ petition for such a direction and the respondents have had no opportunity of meeting the allegations of delay on their part. Secondly, the issue presented in these cases and, in particular, the position after the amendment of Section 4, is not free from difficulty and most of the decisions cited by counsel are also recent. We, thereforee, give no directions except that the matter be reheard by the Government of India in the light of this decision and disposed of expeditiously.
37. In the result, these writ petitions are allowed to the extent indicated above. The petitioner will be entitled to one set of costs in C.W. 980/79 only. Counsel's fee Rs. 500/-.
March 31, 1980 Judge.
D.R. Khanna, J.
1. I have the privilege of going through the judge ment of my learned brother. The conclusions arrived at have been in consonance with the almost unanimous view taken by different High Courts in the country. I thereforee concur with the overall decision. So far as the pre-amendment period of Section 4 of the Central Excises and Salt Act, 1944, there is not much scope for controversy in view of the decisions given by the Supreme Court in the cases of Voltas : 1973ECR60(SC) and Atics : 1978(2)ELT444(SC) . Earlier there was also the decision of the Privy Council in the Ford Motors Co. case AIR 1931 PC 15. It is, however, with the post amendment period that some difficulty arises and the contentions raised from the side of the respondents cannot be said to be entirely devoid of force. It may, further be said that normally the Court should be slow to interfere with findings of facts which three authorities in the course of assessment, appeal and revision, have concurrently arrived at. This may only be where the findings are perverse or, not borne out by any material whatsoever on record. It is not as if the matter comes for the first time before the Court that it has to freshly adjudicate upon the same. It is the absence of evidence and not its absoluteness which may provide justification for reversal of a finding of fact concurrently given by three authorities. There were certain factors taken into account by them. One of them was that the selling agents and the packing concern had no inter-se personal relations. It, thereforee, appeared unusual that the packing firm would have allowed user of a part of its premises to selling agents without charging any rent or license-fee. In the ground plan submitted under the rules, no such premises in possession of the selling agents was shown. The sales to the extent of 4% which were said to have been effected from there, were not of insignificant amount but were worth about rupees one crore. At the same time, in case the account books of the petitioners and the selling agents corroborated those sales, they also could not be ignored, and had to be given their due weight, unless it could be found that the accounts were not regularly maintained.
2. When the legislature by deeming effect defines a term in a statute or elaborates any of its provisions, the same has the effect of enlarging or abridging their purport and scope accordingly. In other words, the normal connotations which such terms or provisions carry, are deviated to the extent the deeming effect is given to. Statute books are replete with legislatures resorting to deeming effects. Once it is accepted that such provisions are within the constitutional or other competency of the legislature, they have to be given effect to. Section 3 of the Act, no doubt, is the charging section. Section 4 in turn while providing the mode of assessment, elaborates in what manner the assessable value has to be determined. Both these provisions are complementary to each other and not mutually exclusive. They, emanate from the same statute enacted by the same legislature. If the provisions are within the statutory and constitutional competency of that legislature then normally no exception can be taken to them simply because by deeming effect a wider meaning is extended to a term or, provision. Plain words must be allowed to have their natural and full flow. Reference to preamble or what could have been the underlying purport or intention of the legislature, can be availed for resolving ambiguity, if any, and not to restrict or curtail meanings of the words which are otherwise clear and unmistakable. Furthermore, when the legislature in its wisdom incorporates an amendment with certain object in view or for undoing an interpretation which it considers was not in consonance with the legislative intent of the original enactment, one should be slow to assume that the amendment was ineffective and the position of law continued to be the same.
3. As the objects and reasons for introducing amendment in Section 4 of the Act showed, it was motivated to render ineffective small percentages of sales at lesser value and thus getting the overall assessable value of the entire produce reduced. As such the concept of normal price at which the goods are ordinarily sold was introduced. Further the concept of related persons was brought in and sales to them were not to affect the other normal sales. Emphasis on place of removal of the goods was also laid. These objects and reasons further referred to the observations of the courts about the manufacturing cost and similar profits. It was to overcome various difficulties experienced in the working of the Section that the suitable amendments in Section 4 were introduced.
4. The principle is well recognised that in remedial legislations, even where two interpretations are possible, one that advances the remedy and suppresses the evil as the legislature envisioned must find favor with courts; see 1975 Taxation Law Reporter 2129. Furthermore, undue focussing of legislative periphery of one entry in Union List would not essentially render the statutory provisions unconstitutional or invalid if the matter is covered by another entry of the same List. Normally nothing would prevent or restrict the simultaneous operation of two or more items of the List in the same statute, more so when operation is extended by deeming effect. In other words, incidence of two or more types of taxes can be combined and integrated to create a single tax. What has to be taken guard is that in this process, theconstitutional power conferred on another legislature is not, in any manner, usurped or entrenched upon. In the case of H.C. Dhillon 1972 (2) Art 33, it was recognised that as long as there is no prohibition in List II pertaining to State subjects, Parliament's competency to levy tax remains unfettered. In a recent unreported decision, the Supreme Court has upheld the levy of tax described as property tax by the Bareilly Zila Parishad so as to include tax on trades, callings and professions. Merely because a particular tax or levy bears a certain name would not prevent its broader impact by deeming effect if otherwise its levy is within the competency of the legislature or the municipal body. It is correct that the Parliament may not be competent to levy sales-tax or sales effected within a State. However, on inter-State sales, such power is clearly available. In the case of the petitioner, overwhelming sales were of inter-State nature.
5. Subject to these observations. I concur in the overall findings arrived at by ray learned brother in allowing these writ petitions in terms of his judgment. This has been in line with the almost consistent approach adopted by different High Courts, and we abide by that.