Viswanatha Iyer, J.
1. All these original petition raise a common question, namely, whether the tariff value for plywood tea-chest refixed with effect from 34-1979 by Notification No. 8 of 1979, dated 3-1-1979 issued under Section 3(2) of the Central Excises and Salt Act, 1944 is valid and enforceable against the petitioners. The petitioners are manufacturers of plywood of different descriptions in small scale industrial units. Plywood and plywood tea-chests are excisable goods included in item.l6B in Schedule of the Act. Plywood for tea-chest when cut to size in panels or shooks and packed in sets is dutiable at 10% ad valorem. By Section 3(2) of the Act a power is delegated to the Central Government to fix by notification tariff values for excisable goods dutiable ad valorem. In exercise of that power from time to time the Government used to fix tariff value for many excisable goods including plywood. By Notification No. 8/79, dated 3-1-1979 the tariff value was refixed by the Government. Ext. P2 is the copy of that notification. The value for plywood for tea-chest was re--fixed at Rs. 10.60 per square metre. But under Rules 96ZA to 96ZG there was a special procedure for levying excise duty on a compounded basis from the manufacturers like the petitioners. This enabling provision was withdrawn with effect from 1-7-1979 by an amendment of the Central Excise Rules, namely, Rule s 96ZA to 96ZG were omitted from the Rules. Consequently the petitioners became liable to pay excise duty on plywood tea-chest at 10% Rs. 10.60. They feel aggrieved.
2. The contention of the petitioners is that a fixation at a flat rate of Rs. 10.60 per Sq. Metre is invalid in that instead of providing for the fixation of the value for duty at manufacturing cost and manufacturing profit of the petitioners, an arbitrary value is fixed by the notification. According to them Section 3(1) permits only levy of excisable duty on goods produced or manufacured in India and this has been judicially understood in the case of ad valorem duty to mean a tariff on manufacturing cost and manufacturing profit only. The manufacturing cost and profit to the petitioners will work out only at about Rs. 5/- but by the notification Ext. P2 they have to pay 10% of Rs.'10.60 per Sq. Metre. That means some other amount is also taken in the fixation of the value. This is not permissible. If Section 3(2) is deemed to confer a power to fix a tariff value ignoring the basic concept of excise duty as above the sub-Section itself is alleged to be invalid. How far this challenge is sustajnable has to be examined.
3. At the outset it is necessary to make clear the concept of excise duty and the competence of Parliament to enact a law for levying excise duty. This can be best expressed in the words of Gwyer, C.J. in In re:-C.P. Motor Spirit Act (A.I.R. 1939 F.C). Sir Maurice Gwyer, CJ. has explained what is understood by the expression excise duty thus :-
'It was at first a general word for a toll or tax, but since the 17th century it has acquired in the United Kingdom a particular, though not always precise, signification. The primary meaning of 'excise duty' or 'duty of excise' has come to be that of a tax on certain articles of luxury (such as spirits, beer or tobacco) produced ,or manufactured in the United Kingdom, and it is used in contradistinction to customs duties on articles imported into the country from elsewhere. At a later date the licence fees payable by persons who produced or sold excisable articles also became known as duties of excise; and the expression was still later extended to licence fees imposed for revenue, administrative, or regulative purposes on persons engaged in a number of other trades or callings. Even the duty payable on payments for admission to places of entertainment in the United Kingdom is called a duty of excise; and, generally speaking, the expression is used to cover all duties and taxes which, together with customs duties, are collected and administered by the Commissioners of Customs and Excise. But its primary and fundamental meaning in English is still that of a tax on articles produced or manufactured in the taxing country and intended for home consumption. 1 am satisfied that this is also its primary and fundamental meaning in India; and no one has suggested that it has any other meaning in Entry (45),'
The entry referred to is Entry 45 in the federal list of Government of India Act 1935. By this entry uncontrolled by any other provision, a tax on articles produced or manufactured for home consumption may be imposed at any stage from production to consumption. In other words, a mere definition of excise duties is of little assistance in determining the extent .of the legislative power to impose them. Then the learned Chief Justice making a harmonious reading of the Federal list No. 45 and provincial entries relating to tax on sale of goods construed the scope of the Federal entry 45 to mean only a duty on production or manufacture of articles. In other words the time and manner of collection is spelled out in thte context of other entries and in that way the power of taxation of the Central Legislature was limited to tax the event of production or manufacture only. That is to say, the taxable event comprehended by Entry No. 45 Federal List was taken to be the stage of production or manufacture of the articles.
4. This understanding of the scope of the Federal Legislative power was affirmed in later cases decided by the Federal Court and the Privy Council,--See Madras Province' v. Boddu Paidanna & Sons 1942 F.C. 33),-CG. in Cuncil v. Madras Province (A.I.R. 1943 F.C. 11) and CG. in Council v. Madras Province (A.I.R. 1945 P.C 98). Entry 45 Federal List corresponds to Entry 84 List I of Seventh Schedule, Constitution of India. So the same meaning has been given to this Constitutional entry also by the High Courts and the Supreme Courts-See Mis. Chotabhai v. Union of India (A.I.R. 1962 S.C. 1006) and Shinde Brothers v. Dy. Commissioner, Raichur (A.I.R. 1967 S.C 1512).
5. But this Entry 84 List I of the Seventh Schedule cannot be narrowly construed, as sought for by the petitioners' counsel, to mean only as a duty on value of the excisable goods produced or manufactured. A legislative entry in a Constitution should be read in a broad sense unless there is any other entry in the Union List or State List to limit it. There is none. Duty of excise is no doubt a duty on manufacture but it can be levied and its measure may be in a manner the Parliament considers proper. It may be linked to quantity, value, volume or price wholesale, of goods produced or it may be measured by the amount involved in the transaction covered. All these are for the legislature to decide, it may be done on administrative convenience or policy. That will not be incompetent under the legislative entry. The scheme of the Central Excises and Salt Act is based on this principle. The charging Section, Section 3(1) of the Act reads as follows :-
'Section 3. Duties specified in the First Schedule to be levied.-(1) There shall be levied and collected in such manner as may be prescribed duties of excise on all excisable goods other than salt which are produced or manufactured in India and a duty on salt manufactured in, or imported by land into, any part of India as, and at the rates, set forth in the First Schedule.'
The First Schedule mentions the excisable goods and the mode of levy of duty. Some items are charged on the value of the goods produced, some are on the quantity measured by weight or volume.
6. In this connection it is necessary to consider an argument of the petitioners' counsel based on A.K. Roy v. Voltas Ltd., (A.I.R. 1973 S.C. 225). In that case the Supreme Court had to consider the terms and meaning of Section 4 of the Act which contains provision for valuing the excisable goods. In that context their Lordships stated that in ascertaining value the manufacturing cost and profit alone can be included in 'wholesale cash price' and not post-manufacturing expenses, We will have occasion to refer to this case later. At this stage we only want to observe that that decision does not deal with the ambit and scope of Entry 84 of List I. Legislative competence to levy excise duty on production and manufacture is traceable to Entry 84. How the duty should be levied or collected are all matters within the exercise of the power. They relate to machinery of collection and does not affect legislative competence.
7. Then we come to the main point of controversy. According to the petitioners' counsel the legislature having stated that levy of duty on certain goods will be in relation to their value, and as the value of goods may vary from manufacturer to manufacturer provision for individual assessment of value alone is permissible. According to him the fixation of tariff value by the Government will change the character of the imposition and the levy will cease to be a duty ad valorem. It will be a duty on production of a fixed quantity, as in this case a square metre of plywood tea-chest. This, according to the petitioner, is excessive delegation of the power of the Government. It is further argued that Section 3(2) of the Act is in conflict with the charging Section 3(1) and so it is unconstitutional. The fallacy in this argument is in the assumption that a power is given to the Government to change the levy. The levy remains the same even after the tariff value is fixed by the Government. The taxable event is not changed. The rate mentioned in the First Schedule is not allowed to be changed by any notification issued under Section 3(2). The value of excisable goods produced may vary from manufacturer to manufacturer or from region to region. So many factors may affect the manufacturing cost to a manufacturer. A scrutiny of these by the Department in relation to each manufacturer to impose tariff ad valorem will be a stupendous task. It will further increase if the number of manufacturers is large and they are having only small industrial units. The expenses of the establishment likely to be incurred by the Government for such an arduous task will be enormous and may wipe out the amount likely to be obtained by the levy. It is to meet this problem a power is given under Section 3(2) to. fix tariff value for some items. So a conferment of a power under Section 3(2) to the Government to fix the tariff value cannot be said to be excessive. It is only a machinery for the collection of the tax. The nexus remains the same. The levy will continue to be a tariff on value.
8. In the case of duty based on value, the value of the excisable goods has to be ascertained. The machinery is that provided for by Sections 3(2) and 4 of the Act. These two provisions lay down two different methods for the purpose of arriving at assessable value for levying excise duty. Under Section 3(2) the Central Government can fix the tariff value which can apply to all manufacturers of the same product. By Section 4 and the Central Excise Valuation Rules the assessable value has to be determined with respect to each manufacturer depending upon the various facts and circumstances. Section 4 in the present form was substituted by Section 2 of the Central Excises and Salt (Amendment) Act 22 of 1973. It was brought into force on 1st October, 1975. This Section provides for determination of value of excisable goods in different ways depending upon different prices at which the goods are sold to different classes of buyers depending upon the sales being to a related person or not. Section 4(l)(a) lays down that 'normal price' will be the price at which the goods are ordinarily sold by the assessee to a buyer in the course of 'wholesale trade' for delivery at the time and place of removal where the assessee and the buyer have no interest directly or indirectly in the business of each other and the price is the sole consideration for the sale. A perusal of the entire Section suggests that the value of excisable goods is not always assessed at the actual consideration for sale. Sub-Section (1) itself begins . with a statement that the value as determined under the Section shall be 'deemed to be' the value for the purpose of levy. That means the Legislature states how the value should be fixed. Very often the real value may not be the deemed value and vice versa. But for purpose of charging excise duty a fictional value is arrived at. This being only a machinery provided for by the Legislature the validity of the same is not open to challenge and is also not challenged. The meaning and scope of the unamended Section had been the subject matter in a number of cases. The leading case on it is A.K. Roy v. Voltas Ltd.- AIR 1973 SC 225. The expression 'wholesale cash pricev used in the unamended Section 4(1) was construed to take in only manufacturers' cost plus manufacturers' profit and excludes post-manufacturing cost and profit arising from post-manufacturing operations. The relevant observation which is very much relied on by ;the petitioners' counsel reads as follows :-
'Excise is a tax on the production and manufacture of goods (see Union of India v. Delhi Cloth 'And General Mills, (1963) Supp 1 SCR 586 : (AIR 1963 SC. 791). Section 4 of the Act therefore provides that the 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 pot-manufacturing cost and the profit arising from post-manufacturing operation, namely selling profit.'
According to the petitioners' counsel for fixing value under Section 3(2) also the same criteria alone can be adopted. This argument may possibly be available if Section 4 as it stood before 1-10-1975 was the law even now. The unamended Section was not stated to be not applicable to the fixation of the tariff value under Section 3(2). The mode of fixation of value under the amended Section 4 is expressly declared to be not applicable to the fixation of the tariff value under Section 3(2). Section 4(3) of' the amended Section provides :-
'(3) The provisions of this Section shall not apply in respect of any excisable goods for which a tariff value has been fixed under sub-Section (2) of Section 3.'
In the light of this change in the statutory provision, we will presently show that the decisions relied on by the petitioners' counsel have no relevance to decide the correctness of the fixation of the tariff value under Section 3(2) now under challenge. The first decision cited is Subbarayan v. The Union of India and Anr.-1979 E.L.T. (J 473). In that case the Madras High Court had to consider the correctness of the tariff value for ad valorem charge on free sugar of the petitioner's factory. It was held that in the fixation of tariff value under Section 3(2) the provisions of Section 4 will apply. After quoting Section 4 their Lordships have observed thus at page 474 :-
'This procedure envisaged by the Section controls, as it seems to us, fixation by the Central Government of the tariff values under Sub-Section (2); That this is so has not been disputed before us....'
And in paragraph 6 their Lordships further observed thus:-
'The values so fixed being on the average actual all India prices basis, such tariff values are not fixed in accordance with and as directed by the provisions of Section 4, which have to be followed in fixing the tariff values to be notified under Section 3(2).'
This is decision rendered on 15-4-1975, that is before the present Section 4 was substituted for the old Section. The next decision is of the Bombay High Court reported in Century Spinning and Manufacturing Co. v. Union of India (1979 E.L.T. 199). By a notification dated 28th November, 1970 the Government fixed the tariff value for unpurified sulphuric Acid falling under Item 14G to .the First Schedule to the Act. Similarly another notification of 26th July, 1971 was issued fixing the tariff value for liquid chlorine. These two notifications were challenged in that case. The Bombay High Court expressed thus in paragraph 10:-
'On reading the provisions of Section 3(1) and 3(2) and Section 4 together, it appears to us that it being a tax on production and manufacture of goods, the outer limit for fixation of the assessable value is the manufacturing cost together with manufacturing profit which has been expressed to mean the wholesale cash price in Section 4. If a uniform value is contemplated by the Central Government for administrative convenience or for other Teasons the provisions do not empower them to exceed the manufacturing cost and manufacturing profit of the producer arid if the tariff value is to be fixed, will have necessarily to be the lowest of the manufacturing cost and manufacturing profit of the producers or manufacturers in the country. It is, therefore, not possible for us to accept the contention that the provisions of Section 3(2) would be rendered nugatory or redundant by reason of such construction of the provisions.'
In Gwalior Rayon Silk ., v. Union of India and Ors. (1981 E.L.T. 52) the Madhya Pradesh High Court had also occasion to consider a challenge of a notification issued in 1971 and 1974 under Section 3(2) of the Act. In pargraph 7 it is observed thus-'-
'The administrative reasons for fixing tariff value which the Central Government may adopt cannot be such which go against the guidelines mentioned in Section 4.'
As stated earlier all the notifications considered in the above cases are notifications issued before Section 4 was substituted by the present Section. The present Section 4(3) clearly excludes the application of the other provisions of Section 4 in the fixation of tariff value under Section 3(2). Therefore the reasonings given in the above decisions are not of any persuasive value to decide the validity of the notification issued under Section 3(2) subsequent to the amendment of Section 4. The intention of the legislature is clear from the express provision in Section 4(3) the different method of valuation can be resorted to for fixing the tariff value under Section 3(2).
9. The three decisions of this Court pointed out by the petitioner's counsel, namely, The Madras Rubber Factory Ltd. v. The Asst. Collr. of Central Excise, (I.L.R. 1975 (2) Kerala 407) and The Madras Rubber Factory Ltd. v. The Asst. Collr, of Central Excise, (I.L.R. 1979 (2) Kerala 642).and W.As. 461 and 462 of 1975 related only to the scope and meaning of Section 4 of the Act. The excisable goods involved in these cases were rubber-dutiable ad valorem and there was no notification under Section 3(2).
10. Then we have to consider the alternate argument of the petitioners' counsel based on the assumption that Section 3(2) is not an excessive delegation of legislative power and that the method of valuation stated in Section 4 is not applicable to the fixation of price under Section 3(2). According to him Section 3(2) confers an arbitrary power on the Government to fix any tariff value they like and to pick and choose any excisable goods liable to ad valorem duty and as such it violates Article 14 of the Constitution. He further argues that the method adopted by the Government in fixing the value on a weighted average method is highly arbitrary. The first limb of the attack is not warranted by the scheme and provisions of the Act. As in the case of Sea Customs Act 8 of 1878 or the Customs Act of 1962, both of which contain a provision for fixing a tariff value, it would have been better if the legislature had added a definition clause of the word 'value' and therein stated that the value as fixed by Section 3(2) or Section 4 of the Act shall be the value for purposes of excise duty. Even without that it is clear from the scheme of the Act that Section 3(2) and Section 4 are only two methods of fixing the value for levy. Both are value deemed for levy. Both aim at quantifying the tax. Under Section 3(2) and Section 3(3) a flat value is fixed by the Government with reference to all or certain classes of manufacturers or with reference to different classes of the same excisable goods. Under Section 4 it is left to the assessing officers to arrive at the value in the manner laid down in the Section. The rate of duty is not disturbed in either case. In either case there are enough guidelines to tax the value. It is open to the legislature to leave it to the Government to determine in which case they should fix the value or leave it to be governed by Section 4. It is a matter to be determined on administrative convenience and is a familiar practice adopted in taxing laws. Sections 3(2) and 3(3) of the Act have to be read together to find out the guidelines to be followed by the Government in issuing a notification under Section 3(2). For that it will be useful to read them here:-
'Section 3. Duties specified in the First Schedule to be levied-(1)
(1A) ** ** ** **
(2) The Central Government may, by notification in the Official Gazette, fix, for the purpose of levying the said duties, tariff value of any articles enumerated, either specifically or under general headings, in the First Schedule as chargeable with duty ad valorem and may alter any tariff values for the time being in force.
(3) Different tariff values may be fixed-
(a) for different classes or descriptions of the same excisable goods; or
(b) for excisable goods of the same class or description-
(i) produced or manufactured by different classes of producers or manufacturers; or
(ii) sold to different classes of buyers :
Provided that in fixing different tariff values in respect of excisable goods falling under Sub-clause (i) or Sub-clause (ii), regard shall be had to the sale prices charged by the different classes of producers or manufacturers or, as the case may be, the normal practice of the wholesale trade in such goods.'
Section 3(3) in this form was added only with effect from 1-7-1979, the day Rules 96ZA to 96ZG were withdrawn. Under the new Sub-Section (3) it is open to the Government to fix different tariff value for different classes or descriptions of the same excisable goods or for the same excisable goods produced by different manufacturers or sold to different buyers. But regard should be had of sale price charged by the different manufacturers or the normal practice of the wholesale trade in such goods, in fixing the tariff value in cases coming under Section 3(3)(b). That means the sale price charged by the manufacturer or the normal trade practice has to be given due weight in fixing the tariff value, As this has to be given for cases under Section 3(3)(b) it is implied that that is the guideline for fixing the tariff value irrespective of whether a uniform or different tariff value is fixed by the Govern ment. Thus, there is no conferment of an arbitrary power under Section 3(2).
11. The second limb of the attack is that the weighted average method adopted to fix the value is wrong in principle and ignores the manufacturing cost plus profit of the manufacturers like the petitioners, which alone can be taken to levy a charge under Section 3(1). In this connection it has to be remembered that the notification challenged is one refixing the tariff value, Previously it was Rs. 9.75 per Sq. Metres and there was no challenge then from any quarter. To find out how the value was refixed we have perused the Government file relating to it. We find that the Directorate of Statistics and Intelligence (Central Excise and Customs) furnished data of (i) prices reported by field formations for the previous quarters, (ii) price lists of leading plywood manufacturers and (iii) wholesale prices and index of prices for plywood of different kinds reported by the Economic Adviser to the Ministry of Industrial Development. Plywood is manufctured in India mainly in the Eastern Zone and Southern Zone. The price lists of leading manufacturers like Standard Furniture, Kallai, Venus plywood, Nemmara, Travancore Plywood, Punalur and Ors. were taken into account and working out a weighted average price in the ratio 65 : 35 for Eastern Zone and Southern Zone it came to Rs. 10.77 per Sq. Metre. Average price worked out from the index of wholesale prices worked at Rs. 10.55 per Sq. Metre. Though an average of these two figures will be Rs. 10.66 only Rs. 10.60 was fixed and notified.
12. From this it can be seen that regard has been given to the guidelines in fixing the tariff value. It is not possible to take into account the price list of each and every manufacturer in a region. The price list of leading manufcturers alone was therefore taken. That will reflect the sale price of the commodity in the region.
13. The weighted average method of fixing the value is a known method employed in fixing a fair price of a commodity in an industry. This has been adopted as valid method in fixing fair prices under the Essential Commodities Act. All the arguments advanced before us against the weighted average method were urged by the sugar producers, big and small, but were rejected by the Supreme Court in Ankapalle Co-op. Agrl. & Ind. Society v. Union of India (A.I.R. 1973 S.C. 734) at page 742. Para 21 reads thus:-
'As pointed out in Cost Account's Handbook edited by Theodore Lang, 1945 Edn. the items of a series to be averaged vary in importance in some quantitative way in addition to the importance explicity given by the figures in the series. An illustration of weighted average occurs in pricing stores issues where different lots of raw material have been acquired at different prices. In such a case a simple average of price is usually not considered desirable. Examples have been given in the book to show that the simple average while it may be technically correct is practically valueless or positively misleading under certain circumstances. 'Where quantities as well as dollar values are to be considered, weighted averages are far more significant than a simple average.'
The argument that manufacturing cost plus profit is alone to be looked into is not warranted by the provision in Section 3(3). Regard is to be had to the sale price or the normal practice in the wholesale trade in fixing different tariff value. In fixing a uniform tariff value also these are relevant factors though not the sole factors. To arrive at an uniformity some principle of average will have to be taken. A simple average may not be satisfactory when an All India tariff value is thought of. The average of the prices in a region and the quantity sold in that region will have to be matched with price and quantity in another region. This is done by the weighted average method. To illustrate, suppose the price average and quantity sold in one region are 10 and 60 and in another region 20 and 40 respectively, the weighted average is arrived at thus:-
10x60+20x40 whereas the price average is 10+20
------------ =14 ------ = 15
The former average gives weight to the price and quantity and is a better method than the simple average of prices alone. In Economic Business Statistics this is generally done to fix uniform price for taxation or other purposes and it is not for the court to interfere with such fixation. There is no arbitrariness in this.
12. In this connection our attention was drawn to the decision in Century Spinning and . v. Union of India and Ors. (1981 E.L.T. 52) where this kind of fixation of tariff value for other excisable goods was struck down. As we observed earlier, those decisions are in relation to notifications issued under the unamended Section 4 which did not contain a provision like Sub-Section (3) of the amended Section 4 to fix the tariff value. At the same time we have to observe that the charging Section 3(1) does not limit the levy to manufacturing cost plus profit. That will be ignoring the levy on quantity by weight and volume of many excisable goods mentioned in the First Schedule and Entry 84 of List I Seventh Schedule of the Constitution of India. To understand the decision in A.K. Roy v. Voltas Ltd. (A.I.R. 1973 S.C. 225) as limiting the levy under Section 3(1) on manufacturing cost and profit alone will be wrong. In that case the Supreme Court was only construing Section 4 and the meaning of 'wholesale cash price' mentioned in it. Their Lordships were not dealing with the charging Section 3(1) at all. With respect, therefore, we do not agree with the view of the Bombay and Madhya Pradesh High Courts regarding the scope of Section 3(1) and 3(2) of the Act.
In the result the petitioners fail in all their contentions. Their petitions are therefore dismissed. No costs.
Kochu Thommen, J.
13. The impugned notification fixing the tariff values of the article in question was issued under Section 3(2) of the Central Excises and Salt Act, 1944 (the 'Act')- I shall read the relevant portions of Section 3 :
'3. Duties specified in the First Schedule to be levied.(l) There shall be levied and collected in such manner as may be prescribed duties of excise on all excisable goods...which are produced or manufactured in India...as, and at the rates, set forth in the first Schedule.
(2) The Central Government may, by notification in the Official Gazette, fix, for the purpose of levying the said duties, tariff values of any articles enumerated, either specifically or under general headings, in the First Schedule as chargeable with duty ad valorem and may alter any tarifi values for the time being in force.
(3) Different tariff values may be fixed-----
(a) for different classes or descriptions of the same excisable goods ; or
(b) for excisable goods of the same class or description--
(i) produced or manufactured by different classes of producers or manufacturers ; or .
(ii) sold to different classes of buyers :
Provided that in fixing different tariff values in respect of excisable goods falling under Sub-clause (i) or Sub-clause (ii), regard shall be had to the sale prices charged by the different classes of producers or manufacturers or, as the case may be, the normal practice of the wholesale trade in such goods.'
14. Neither 'tariff value' nor 'duty of excise' is defined under the Act. Tariff value presumably means a fixed or uniform value determined by the Central Government by notification as provided under Sub-Section (2). Unlike Section 4 which does not refer to tariff value, but to 'value', and which gives a detailed guideline as to how the value is to be determined, Section 3, apart from what is contained in Sub-Section (3) thereof, does not give any further indication as to how tariff value is ascertained. Section 3(1) is the charging Section from which the power to levy tax is derived, whether such levy is made in terms of Section 3(2) or Section 4. Section 4(3) rules out the possibility of deriving any help from that Section for construing Section 3(2). For the present purpose, I shall refer only to the relevant portion of Section 4(l)(a) and (3). They read :
'4. Valuation of excisabh goods for purposes of charging of duty of excise.-(I) Where under this Act, the duty of excise is chargeable on any excisable goods with reference to value, such value shall, subject to the other provisions of this Section, be deemed to be-
(a) the normal price thereof, that is to say, the price at which such goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and place of removal, where the buyer is not a related person and the price is the sole consideration for the sale :
(3) The provisions of this Section shall not apply in respect of any excisable goods for which a tariff value has been fixed under Sub-Section (2) of Section 3.'
Section 4(1) says that where duty ot excise is chargeable on goods with reference to value such value shall be deemed to be the normal price thereof. The normal price is the price at which the goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade. The provisos to Section 4(1)(a) as well as the other provisions of the Section lay down the principle of arriving at the price at which the goods are sold in a wholesale trade. Such is the price that is taken into account for fixing the value for the purpose of levying excise duty in terms of Section 4. Various decisions of the Supreme Court and other courts have already considered the principle of determining the wholesale cash price for the purpose of Section 4 as it stood prior to its substitution by the present Section by Act 22 of 1973. The old Section 4 as well as the present Section 4 are applicable only where duty is chargeable with reference to value, which under the old Section was deemed to be the wholesale cash price, while under the new Section is deemed to be the normal price at which the goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade. The decisions of the Supreme Court, particularly those in A.K. Roy v. Voltas Ltd., (A.I.R. 1973 S.C. 225) and Atic Industries Ltd. v. H.H. Dave, Asst. Collector of Central Excise, (A.I.R. 1975 S.C. 960) dealt primarily with the question, 'what is the wholesale cash price for the purpose of Section 4 as it then stood ?' A Division Bench of this Court in Madras Rubber Factory Ltd. v. Assistant Collector, Central Excise, (I.L.R. 1979 Ker. 642) did consider the scope and ambit of Section 4 as it now stands and held that the Section ought to be understood with reference to the principle laid down in the Voltas and the Atic (supra).
15. While Section 4 says that the value mentioned thereunder is deemed to be the normal price at which the goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade, Section 3(2) refers to the tariff value which the Central Government is competent to determine. Unlike Section 4, Section 3(2) does not refer to the price at which an individual assessee sells the goods manufactured or produced by him5but to the tariff value which is a uniform value fixed by the Central Government and which is applicable to each assessee falling under that sub-Section irrespective of the actual price at which he sold the goods. This, I think, is the fundamental distinction between the two provisions.
16. The power of the Parliament to make law for the levy of excise duty is derived from Entry 84 of List I of the Seventh Schedule to the Constitution which reads:
'Duties of excise on tobacco and other goods manufactured or produced in India except-
** ** **'The scope and ambit of the legislative power granted to the Parliament under this Entry are best understood with reference to the principles enunciated in regard to Item 45 of List I of the Seventh Schedule of the Government of India Act, 1935. Item 45 reads :
'Duties of excise on tobacco and other goods manufactured or produced in India except-** ** **'
On a special refeernce In the matter of the Central Provinces and Beraf Sales of Motor Spirit and Lubricants Taxation Act, 1938, (A.I.R. 1939 F.C. 1) the Federal Court considered the scope of Item 45 of List I and Item 48 of List II under the Government of India Act, 1935. Power to levy tax on the sale of goods was granted to the State by Item 48 of List II. The Court held that the provincial legislature was competent to impose taxes on the sale of goods after their manufacture or production while under Item 45 in List I the Central legislature was competent to impose duties of excise on the manufacturer or producer of the goods. Jayakar J. who was one of the three Judges composing the Court held that while all taxes on the sale of goods 'for purposes of consumption'', meaning taxes on retail sales, should be regarded as exclusively within the competence of the Provincial legislature, provided they were in no way connected with the production or manufacture of the goods within the Province, all other taxes on the sale of goods were duties of excise and were therefore exclusively within the competence of the Central legislature. Gwyer C.J. and Sulaiman J. did not however go that far, but drew a dividing line between the respective legislative spheres of the Centre and the Province at the point of manufacture or production. They stated that the legislative power of the Centre to impose duties of excise was limited to the power to impose duties on the manufacturer or producer of the goods, while the power to impose tax on the sale of goods after manufacture or production was reserved to the Province's.
17. The Court recognised the fact that the expression 'excise duty' was of wide import, but for the purpose of Item 45 of List I it had to be understood consistently with the other provisions of the Government of India Act, particularly Item 48 of List II. The legislative power of the Centre had necessarily to be reconciled with the specific grant of power iii favour of the Provinces. The Court accordingly limited the scope of Item 45 of List I to a line drawn at the point of manufacture or production.
18. Jayakar J. referred to the following definitions of Excise :
'Excise is a tax on commodities of domestic manufacture levied either at some stage of production or before the sale to home consumers.' ('Encyclopaedia of the Special Sciences', Edited by R.A. Soligmen, Vol. V, p. 669).
'Excises or taxes on commodities of domestic manufacture may be levied on the raw materials or at an intermediate stage of their production or when the articles are ready for consumption.' (Findlay Shirras, 'Science of Public Finance', Vol. II, 3rd edn., page 654).
'Excise is an inland tax laid upon the manufacture, sale, or consumption of commodities within a country.' (H.E. Willis, 'Constitutional Law of the United States', 1936 edn., page 372).
Jayakar J. then continued :
'For all these reasons I hold the view that if Item 45 (List I) had stood by itself and Item 48 did not exist in the Provincial List and consequently no necessity arose to reconcile the two items, the expression 'duties of excise' occurring in Item 45 (List I) would include all duties of excise on goods manufactured or produced in India, whether levied or collected at the stage of manufacture or production or at any of the subsequent stages upto consumption, and that the Central Legislature had, under that item, taken along with Section 100(1), the exclusive power to make laws with respect to the levying of all such duties.'
However such a wide meaning could not be ascribed to the expression 'Excise' appearing in Item 45 of List I, for Item 48 of List II had to be given effect to. The plain and natural meaning of the latter Item was that the Provincial legislature was competent to levy tax on the sale of goods. Jayakar J. on a review of the question concluded as follows :
'(1) That, as regards goods centrally excisable, taxes on their sale within the Province for purposes of consumption, when such taxes are in no way connected with their production, manufacture, etc. within the Province, but are imposed on their sale in the Province merely as existing articles of trade and commerce, should be exclusively within the competence of the Provincial Legislature.
(2) That, save as aforesaid, all duties of excise on those goods, whether levied and collected at the stage of manufacture, production or any subsequent stage upto consumption (exclusive of sale in the Province, as stated above), should remain exclusively within the competence of the Centre. A corollary of this rule will be that the residuary powers, if any, of levying and collecting excise duties on those goods (save on their sales as aforesaid) will remain exclusively within the competence of the Central Legislature.'
19. Although the other Members of the Court did not go as far as Jayakar J. did in construing Item 45 but limited its scope to the point of manufacture or production and no further, the rigidity with which the line was drawn by them was somewhat watered down in The Province of Madras v. Boddu Paidanna & Sons- (A.I.R. 1942 F.C. 33) where Gwyer C.J. stated :
'I may perhaps be mayself responsible for some of the confusion which seems to have arisen, by reason of the suggestion which I made in 1939 F.C.R. 18 (A.I.R. 1939 F.C. 1) that the Central Legislature should be regarded as having power 'to impose duties on excisable articles before they become part of the general stock of the Province, that is to say, at the stage of manufacture or production, and the Provincial Legislature an exclusive power to impose a tax on sales thereafter'. In using these words I intended to do no more than suggest a convenient dividing line between the two spheres of jurisdiction; but I certainly did not mean to elevate the dividing line into a legal principle....'
Drawing the distinction between excise duty and sales-tax Gwyer C. J. pointed out that tax on the sale of goods is a tax levied on the occasion of the sale of the goods. Tax levied on the first sale necessarily falls on the manufacturer or producer, but it is levied upon him qua seller and not qua manufacturer or producer. In the case of an excise duty it is the fact of manufacture which attracts duty, even though it can be collected later. Affirming this principle Lord Simonds observed in Governor-General in Council v. Province of Madras (A.I.R. 1945 P.C. 98) :
'that a duty of excise is primarily a duty levied upon a manufacturer or producer in respect of the commodity manufactured or produced. It is a tax upon goods not upon sales or the proceeds of sale of goods.... The two taxes, the one levied upon a manufacturer in respect of his goods, the other upon a vendor in respect of his sales, may...in one sense overlap. But in law there is no overlapping. The taxes are separate and distinct imposts.'
These decisions and the subsequent decisions of the Supreme Court* show that excise is a duty which is imposed in respect of goods manufactured or produced. Being in the nature of an indirect tax, although the levy is on the manufacturer or producer, the incidents of the tax fall upon the consumer of the goods. This is the position under the relevant entries of both the Government of India Act, 1935 and the Constitution of India. The power of the Parliament under Entry 84 of List I of the Seventh Schedule to the Constitution does not include the specific power granted to the State under Entry 54 of List II of the said Schedule which refers to 'Taxes on the sale or purchase of goods', any more than it did under the corresponding entries of the Government of India Act. Entry 84 of List I has therefore to be read consistently with and not derogatory to Entry 54 of List II. The former is as wide as the latter permits it to be.
. A.I.R. 1950 S.C. 10; A I.R. 1958 S.C. 452; A.I.R. 1963 S.C. 1760; A.I.R. 1967 S.C. 1512; A.I.R. 1970 S.C. 1589.
20. In Atic Industries Ltd. v. H.H. Dave, Asst. Collector of Central Excise- (A.I.R. 1975 S.C 960) the Supreme Court re-affirmed the principle which it had earlier stated in the Voltas case (supra). Speaking for the Court this is what Bhagwati J. said :
'12. In the first place, as pointed out by Mathew J., in Voltas' case (supra), 'excise is a tax on the production and manufacture of goods. Section 4 of the Act therefore provides that the real value should be found after deducting the selling cost and selling profit and that the real value can include only the manufacturing cost and the manufacturing
profit...If the price charged by the wholesale dealer who purchases the goods from the manufacturer and sells them in wholesale to another dealer were taken as the value of the goods, it would include not only the manufacturing cost and the manufacturing profit of the manufacturer but also the wholesale dealer's selling cost and selling profit and that would be wholly incompatible with the nature of excise.... The only relevant price for assessment of value of the goods for the purpose of excise in such a case would be the wholesale cash price which the manufacturer receives from sale to the first wholesale dealer, that is, when the goods first enter the stream of trade....The second or subsequent price, even though on wholesale basis, is not material. If excise were levied on the basis of second or subsequent wholesale price, it would load the price with a post-manufacturing element, namely, selling cost and selling profit of the wholesale dealer. That would be plainly contrary to the true nature of excise as explained in the Voltas' case (supra). Secondly, this would also violate the concept of the factory gate sale which is the basis of determination of value of the goods for the purpose of excise.'
Although it was solely with reference to Section 4 as it stood prior to its amendment that the Supreme Court made the above observation, some of the remarks are justifiably relied on by the petitioners' counsel Sri. Varghese Kalliath to point out that, even for the purpose of Section 3(2), the wholesale dealer's selling cost and selling profit should be excluded from the computation of the tariff value. The respondent's counsel Sri. Govinda Wariyer argues with his usual care and skill that the observation of the Supreme Court should not be understood to be applicable to Section 3(2), for, according to him, the Court did not have in mind anything other than the 'wholesale cash price' for the purpose of levying excise duty in terms of Section 4. That the passage cited above is capable of being understood as a general observation in regard to the nature of excise is clear enough from the decision of this Court in Madras Rubber Factory Ltd. v. Assistant Collector, Central Excise- (I.L.R. 1979-2 Kerala 642), although that was also a case where Section 3(2) did not come up for consideration. As in the Voltas and the Atic, the point at issue before this Court in the Madras Rubber Factory (ILR 1979-2 Kerala 642) was also with reference to the 'value' mentioned in Section 4. But this Court, unlike the Supreme Court, was dealing with Section 4 as it now stands. The 'value' referred to in the present Section is the normal price at which the goods are ordinarily sold in a wholesale trade. It was the concept of wholesale price that was examined by the Courts in those cases. To what extent this concept varied, if at all, from the old Section to the present Section is beside the point at issue in the present case.
21. What would however bs of interest to consider is whether it was the legislative intent to fetter Section 3(2) in the manner in which Section 4 has come to be construed, particularly because the concept of the real value or the wholesale cash price or the normal price is not germane to Section 3(2). This sub-Section has to be understood in terms thereof, bearing in mind the ambit of the legislative power contained in Entry 84 of List I and the nature of the charging provision embodied in Section 3(1). The tariff value mentioned under Section 3(2) is determined with reference to the prices in various regions of the country as correlated to the percentage of goods produced in each region. This computation is made on the basis of the weighted average and other relevant data applicable to the whole country. The method of determination of the tariff value is clearly stated in the counter-affidavit. As stated by my learned brother, there is absolutely no reason to suspect that the tariff value has not been determined solely with reference to the relevant data, or that the Government have not applied their mind fully and properly to the questions involved.
22. It would have been of interest to consider here whether, in the light of the decisions cited at the Bar, inclusion of anything other than manufacturing profit or cost in the computation of the tariff value for the purpose of Section 3(2) is statutorily prohibited, had the petitioners been in a position to establish that there had been such inclusion in the present case. This is not the case. The petitioners are not in a position-and no serious attempt has been made in that direction-to show that any non-manufacturing cost or profit has been taken into account by the Central Government in the present case. The respondents' counsel Shri Wariyar submits that, although it is the definite stand of the Central Government that, for the purpose of Section 3(2), the limitation imposed by the decisions of Courts in determining the wholesale cash price for the purpose of Section 4 is not applicable, in the present case the tariff value has been determined solely with reference to the manufacturing cost and profit as current in the trade and no other factor has come into the computation.
23. The point really at issue in the present case, however, is whether Section 3(2) permits determination of the tariff value with reference to the manufacturing cost and profit of various manufacturers or producers in the country, or whether the actual manufacturing cost and profit of each assessee alone can be charged to duty for the purpose of Section 3(2). It is the case of the Central Government that the data relating to various representative-manufacturers in the regions where the articles are produced had been taken into account. However, the petitioners contend that they are not liable to pay the tax except with reference to their actual manufacturing cost and manufacturing profit which, as they point out, in the present case is only Rs. 5.50 per sq. metre, whereas the tariff value is determined at Rs. 10.60 per sq metre which is almost twice the actual figures.
24. There is a fundamental fallacy in the petitioners' contention, for the basic difference between Section 3(2) and Section 4 has been lost sight of. While Section 4 says that excise duty is chargeable with reference to the normal price at which the assessee sold the goods manufactured or produced by him in the course of wholesale trade, such price for the purpose of Section 3(2) is not directly relevant, although it may be taken into account along with other relevant data in determining the weighted average with reference to which tariff value is fixed. What is brought to tax under Section 3(2) is not the actual price, but the tariff value which is the uniform price that is generally applicable to the trade. The actual manufacturing cost and profit of the petitioners is not what is chargeable to duty under Section 3(2). They cannot therefore have any complaint that the tariff value which has been determined by the Government with reference to the data mentioned in the counter-affidavit is in excess of their actual cost and profit; unless, of course, they are in a position to show-which they are not-that the determination is vitiated by any error apparent on the face of the record, or is arbitrary.
25. That the machinery of Section 4 is not applicable for the purpose of Section 3(2) is clear enough from Section 4(3) itself. Although the petitioners have pleaded that Section 3(2) and Section 4(3) are invalid, such contention was not seriously pressed at the time of argument and I do not therefore deal with it.
26. The impugned Notification fixing the tariff value of the article in question is perfectly consistent with the power delegated to the Central Government under Section 3(2).
27. I concur in the judgment delivered by my learned brother Viswanatha Iyer, J. and I too would dismiss the Original Petitions.
28. Counsel for the petitioners ask for leave to appeal to the Supreme Court. We are not satisfied that any substantial question of law of general importance which in our opinion requires a decision by the Supreme Court arises in these cases. Leave is refused.