S. Ranganathan, J.
1. The petitioner, M/s. Electric Construction & Equipment Co. Ltd. has a registered office at Delhi and has a factory at Sonepat (Haryana) where the petitioner manufactures, inter alia, electric bulbs, and tube-lights. The question raised in this writ petition is regarding the determination of the assessable value of the aforesaid goods manufactured by the petitioner under Section 4 of the Central Excises and Salt Act, 1944 (hereinafter referred as 'the Act) as it stood prior to its amendment by Act 22 of 1973 but with effect from 1.10.1975.
2. As stated earlier, the petitioner manufactures bulbs and tube-lights at Sonepat in Haryana. On 31.1.74 the petitioner filed with the Excise Authorities a price list as required under Rule 173-C of the rules made under the Act. It may be mentioned by way of illustration, that according to this price-list, the estimated manufacturing cost of electric bulbs of 100 watts worked out of Re. 0.91 per piece and that of tube-lights of 40 watts worked out to Rs. 5.38 per piece. It was claimed in a covering letter that the assessable value had been estimated on the basis of manufacturing cost by a practicing cost accountant to which had been added an ad-hoc 10% as manufacturing profit. A certificate of the cost accountant was also enclosed.
3. It may be mentioned here that the petitioner not only manufactured the above goods but also marketed them to a considerable extent directly. The sales were affected by the Central Marketing Division (CMD) of the petitioner to independent wholesale buyers. Such sales by the CMD were in respect of 97.5% of the goods. The Assistant Collector of Central Excise while scrutinising the price-list filed by the petitioner came to know that the good manufactured by the petitioner were being sold by the CMD at much higher prices. For instance to 100 watt bulbs were sold at Rs. 3.10 per piece add the tube-lights were sold at Rs. 15 per piece. The petitioner was giving a general discount of 17 1/2%, a special discount of 7 1/2% and a cash discount of 1% and thus the rates on discount were also different. He was of opinion that under Section 4(b) of the Act the assessable value of the goods should be fixed on the basis of the wholesale prices at which the CMD were selling the goods in their turn after allowing only the trade discount giving uniformly. The petitioner gave a reply on 31.10.1974 explaining that this price-list had been based on the principles of the decision of the Supreme Court in the case of A.K. Roy v. Voltas Ltd. : 1973ECR60(SC) according to which the assessable value could only include cost of manufacturing and the manufacturing profit. It was also pointed out that though about 97.5% of the sale were effected through the CMD, the petitioner had also sold 2.5% of the goods approximately to two independent wholesale dealers, namely, Cosmopolitan Agencies and Bajaj Electronic. The petitioner annexed to the letter the details of the sales expenditure incurred by it up to 31 8.1974 under various heads. On 27.3.1974, the petitioner had also filed a detailed statement in respect of some of the items of manufacture giving the $ale price, the discount and the selling expenses which worked to 47.94%. It was, thereforee, claimed that the wholesale cash price at which CMD marketed the goods included not only the manufacturing cost and the manufacturing profit but also a good part of the selling cost and selling expenses and it was urged that the price list which took note of these factors and excluded the selling cost and selling profit should be approved After this letter was written there was also an oral hearing by the Assistant Collector who ultimately passed an order on 7.5.1975 approving of the price list submitted by the petitioner and accepting the assessable value as declared by it. The letter specifically stated that this approval bad been given for a period of one year and that it had been given after taking into consideration all the evidence put up by the party including the certificate of the cost accountant and the judgment in the Voltas case. The approval thus granted was effective for the period 1.2.1974 to 31.1.1975.
4. On receipt of the approval dated 7.5.1975 the petitioner wrote to the Superintendent of Central Excise on 25.5.1975 requesting that the approval granted may be extended for the period 1975 since there had been no change in the prices subsequently. There had, however, been a change in the marketing system of the petitioner in the meantime. On 23.11.1974 the petitioner appointed by a written agreement, valid for a period of one year, M/s Pawan Vidyut Agencies as a wholesaler. The agreement dated 23.11.1974 has since been subsequently renewed for further period of one year each till 31.12.1977 On 1.10.1975 an amendment to Section 4 of the Act modifying the definition of assessable value come into force. On 2.6.1976 the petitioner wrote to the Department seeking approval of the prices as already submitted for the period 1.2.1975 to 30.9.1975. It was claimed that the goods were being sold to CMD as to Pawan Vidyut Agencies at the same price and this should be taken to be the wholesale cash price and the assessable value for purposes of the Act. This was followed by further correspondence and enquiries particularly regarding the constitution and structure of the firm of Pawan Vidyut Agencies. In the course of the correspondence the petitioner clarified that it had been selling goods at the factory gate not only to Pawan Vidyut Agencies but also to one Ramesh Kumar Sharma and the two firms, Cosmopolitan and Bajaj Electronics which have been referred to earlier. However, the Assistant Collector issued a notice on 20.9.1976 calling upon the petitioner to show cause why, for the period from 1,2.1974 to 30.9.1975, the assessable value should not be fixed on the basis of the wholesale prices charged at CMD after allowing only the uniform trade discount but this notice did not refer to the previous approval of 7.5.1975 or allege a short levy having been made there under. After conducting further enquiries in the matter, the Assistant Collector, on 9.2.1977 passed an order fixing the price a which the goods were sold by the petitioner to its CMD as the assessable value under Section 4 of the Act in respect of the entire period mentioned in the notice. So far as the earlier period of 1.2.1974 to 31.1.1975 is concerned, he observed that the earlier order of approval (dated 7.5.1975) and the final assessments made thereon were incorrect and to be reviewed and demands for differential duty under Rule 10 issued on the basis of the conclusion now arrival at. In so fixing the price the Assistant Collector did not also allow the petitioner the deduction of quantity discount and bonus given by it to wholesale dealers. Consequent on the above order two notices of demand were issued to the petitioner. These notices demanded from the petitioner the sum of Rs. 7,93,252.39 and Rs. 8,33,804.22 respectively being the difference in excise duty arising out of the difference between the price at the factory gate as claimed by the petitioner and the price at which the CMD sold the goods. The demands covered the period 1.2.1974 to 30.9.1975. The petitioner preferred appeals from the order of the Assistant Collector which were dismissed by the Appellate Collector whereupon the petitioner filed a revision application which was also rejected after a hearing.
5. In the above circumstances the petitioner has come to this Court seeking the issue of a writ of certiorari quashing the orders of the respondents dated 18.8.1979, 9.5.1977 and 9.2.1977, the demand notices dated 17.2.1977 and also seeking a writ of mandamus or other appropriate writ directing the respondents' to determine the assessable value of the goods manufactured by the petitioner after deducting the cost of selling expenses, advertisement expenses, interest and freight and/or other selling incidental expenses from the price at which the goods are sold by the petitioner through its CMD.
6. Mr. Anil Dewan, counsel appearing for the petitioners raised three contentions: (i) that the Assistant Collector, Central Excise having already approval the price list submitted by the petitioner for the period 1.2.1974 to 31.1.1975 acted without jurisdiction in revising the same and claiming additional duty on a different basis ignoring the price-list which had been approved earlier; (ii) that the respondents should have treated the sales to Pawan Vidyut Agencies as sales to a wholesaler at the factory gate at arms' length within the meaning of the ruling in Voltas and thus accept the price list declared by the petitioner for both periods; and (iii) that until Section 4 was amended w.e.f. 1.10.1975 the petitioner was entitled to have the assessable value determined at the wholesale cash price but after excluding any selling expenses or selling profit that may be included therein and that the respondents have erred in refusing to take into account the petitioner's plea that the sale price of the CMD included such post-manufacturing expenses and profits which needed to be excluded in the determination of the assessable value.
7. We are of opinion that the present petition can be disposed of on the basis of the third argument put forward on behalf of the petitioner and referred to above and that in the above view it is unnecessary to consider the other two contentions raised by Mr. Dewan. We say this because the above contention has already been considered and dealt with by the judgment of this Court dated 31.3.80 in H.M.M. Ltd. v. Union of India CEN-CUS 1980/340D C.S. 980/79, 1169/76 and 876/79 (to which one of us was a party). In the above writ petition the question of determining the assessable value for the purposes of levy of excise duty arose in the context of Section 4 of the Central Excise Act both as it stood prior to the amendment which become effective on 1. 10. 1975 and subsequent to the said amendment. We are concerned here only with the position prior to 1. 10. 1975. In that case the petitioner manufactured its products at two factories in Nabha and Rajahmundry and the goods were transported to packing stations located at Faridabad, Bangalore and Howrah where they were packed by independent contractors. So far as the sale operations were concerned most of the stock of the company was lifted by three selling agents though it was also claimed (as in the present case) that a small proportion of the total product, say about 4%, was also directly sold by the manufacturer at the factory gate. The Department ignored the sales made to the three selling agents on the ground that they were not bonafide sales to a third party at arms' length and the assessable value was determined as the wholesale cash price at which the selling agents disposed of the goods. The writ petitioner, on the other hand, claimed that the price at which the assessed sold the goods to the selling agents should have been taken into account and further that even from that sale price the petitioner was entitled to the deduction of selling expenses, advertisement charges, freight, octroi and certain other expenses. Thus, two questions arose for the consideration of the court: (i) Could 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 were these sales liable to be ignored for arriving at the assessable value and (ii) Was the petitioner entitled to claim from the above, or any other figure of wholesale cash price that might be adopted, any of the deductions (other than excise duty) mentioned by the petitioner in its price lists
8. The court answered the first question in favor of the assessed and held that the price at which the goods were sold to the selling agents at the respective packing station would be the wholesale cash price for the purposes of Section 4 prior to its amendment by Act 22 of 1973.
9. Proceeding next to consider the question whether the petitioner was entitled to claim any deductions other than trade discount and excise duty from the wholesale cash price determined as above in order to arrive at the assessable value the court came to the conclusion that the petitioner was so entitled. It was pointed out that once the cash price at the factory gate or packing station was taken into account the assessed would be entitled to claim a deduction only in respect of average selling expenses and marketing overheads but not expenses such as insurance or freight since the wholesale price at the factory gate could not involve any transport charges or insurance charges in respect of the transport. Addressing itself to the question whether the petitioner was 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 whether such a deduction could be claimed on an average or equalised basis the court observed ;
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 aimed at achieving (intended to achieve) 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 gale 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-consignment-wise. 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...
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 would 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 contest of claims for various types of deductions such as equalised freight ...advertisement expenses (to the extent referable to selling activity), marketing and distribution expenses, interest and so on.
and the court proceeded to refer to a large number of decisions of various High Courts which embodied the above conclusion. It was held in view of the above discussion that for the pre-amendment sales the sale price to the selling agents at the packing station was to be taken as the assessable value after deducting there from the whole or such part of the selling expenses as were attributable to post-manufacturing activities.
10. The position in the present case is practically identical. In the case of H.M.M. Limited there were selling agents who lifted the goods produced by the manufacturer but it was common ground that the goods were transported to the various markets for sale at the cost and risk of the manufacturers and that the property in the goods did not pass until the selling agents brought the goods to the wholesale market and sold them there. In the present case also the petitioner manufactures the goods and merely passes them on to its CMD. It is no doubt true that the CMD is a part of the petitioner itself and is not a separate legal entity, Nevertheless for the reason which we have discussed at great length in the case cited above, we think, it follows that the price at which the goods were sold by CMD should not be the criterion for determining the wholesale cash price. The wholesale cash price which can be taken as the assessable value can only include the manufacturing cost and an element of manufacturing profit thereon. We have already referred to the fact that even in the very first letter addressed by the petitioner to the respondents on 31st January, 1974 the petitioner had made it clear that the assessable value declared by it was based on the manufacturing cost plus manufacturing profit as determined by a practicing cost-accountant. As part of the annexure to the subsequent letter dated 31.10.1974 the assessed had furnished the respondents with full details of the sales expenditure and tried to make out that 47.94% of the sale price less discount would represent the selling expenses which should be excluded in the determination of the assessable value; These contentions were accepted initially for the first period but not looked into by the authorities for the second period for the very simple reason that according to the authorities the wholesale cash price for the purposes of Section 4 represented the price at which the CMD sold the goods less the allowable discounts. All the authorities proceeded on the footing that no further deductions were permissible from the wholesale cash price as determined above. There was also some controversy between the parties regarding the items of discount that were allowable from the sale price of he CMD but that question is not in issue before us. The only point before us is whether the petitioner is also entitled to deduction and exclusion from the price as determined by the respondent authorities the element of selling expenses which have become a component element of that cash price. For the reasons discussed above, we are of opinion that the petitioner is so entitled.
In the view we have taken on this issue it is unnecessary to consider the first two contentions raised an behalf of the petitioner. The question regarding the correctness or otherwise of excluding the sales to Pawan Vidyut Agencies was canvassed on behalf of the petitioner but we express no opinion thereon. So far as the first period from 1.2.1974 to 31.1.1975 is concerned, again, it is unnecessary to express any opinion on the first contention put forward on behalf of the petitioner. The revision, assuming it to be permissible, was made only on principle that no deductions could be permitted from the CMD prices. We have held that this is not correct. As to the items deductible, at the time original order was passed on 7.5.1975 the petitioner has put forward its claim for exclusion of the selling expenses and this case was accepted by the Assistant Collector on 7.5.1975 in respect of sales up to 31.1.1975 after satisfying himself that the expenses claimed were post-manufacture in nature. This, in the light of what we have stated above, was the correct conclusion and the subsequent revision of the above view attempted by the respondent was not correct, there being nothing to suggest that any of the items earlier claimed and accepted did not constitute post-manufacturing expenses. This being so on the merits it is unnecessary to express any opinion as to whether in law the Assistant Collector was entitled to go back on the determination already made without issuing a valid notice followed by proper orders under Rule 10 of the Rules or without having the original order set aside under Section 35A of the Act. There appears to be prima facie force in the submission on behalf of the petitioner that having once accepted the price list for a particular period after an enquiry, it is not open to the respondent to revise this view without adopting the procedure envisaged in Rule 10 of the Central Excise Rules or Section 35A of the Act. However, since even otherwise the petitioner are entitled to succeed, it is unnecessary to pursue this matter further.
We, thereforee, accept the writ petition and direct the issue of a writ of certiorari quashing the orders dated 9.5.1977, 9.5.1977 and 18.6.1979 respectively passed by respondents Nos. 4, 3 and 2. For the reasons discussed earlier the result of the above will be that the demand for the sum of Rs. 8, 33, 804.22 being the differential duty in respect of the period up to 31.1.1975 will stand quashed. So far as the other demand of Rs. 7,93, 252.38 in respect of the period from 1.2 1975 to 30.9.1975 is concerned that demand will also stand quashed but so far as this period is concerned the matter will be restored to the file of the Assistant Collector for considering how far and to what extent the petitioner is entitled to the exclusion of the expenses claimed by him from the sale price of the CMD in the computation of the assessable value. As we have already mentioned, all the necessary details and expenses have been furnished by the petitioner to the respondents authorities in respect of the first period till 31.1.1975. If the respondents so desire, they will be entitled to call upon the petitioner to furnish similar derails in regard to the price list subsequent to 1.2 1975 and examine the various items of expenses claimed by the petitioner and decide to what extent these items of expenses could be said to represent post manufacturing expenses or profit and hence entitled to exclusion in the determination of the assessable value of the goods for the purposes of excise duty There will be a direction to that effect so far as the period 1.2.1975 to 30.9.1975 is concerned. The writ petition is allowed but, in the circumstances, we make no order as to costs.