M.P. Thakkar, C.J.
1. 'Heads', the petitioners, manufacturers of textile goods at Ahmedabad (who have recovered the excise duty from the consumers) win - (and make a windfall profit the doctrine of 'unjust enrichment' notwithstanding), 'Tails', the consumers, who have already suffered the burden of the levy, loss. Such are the implications of the problem posed in this group of petitions raising a question which one might be tempted to call as million dollar question but for the fact that it would be a gross understatement. For, the question, if answered the way desired by the petitioners, can cost the Revenue hundreds of millions of rupees (recovered over last several years by way of duty which will have to be refunded to the manufacturers all over India).
2. For more than 30 years, ever since the enactment of Excise Act in 1944, manufacturers of goods all over India have been paying excise duty at the prescribed rates. Wherever duty is payable ad valorem, it is being paid under Section 3 read with Section 4 of the Excise Act on the valuation made on the basis of the wholesale price fetched by the goods at the factory gate or the price at which the same could reasonably be expected to be sold at the factory gate, without protest or demur. A question as to whether the sale price obtained by the manufacturer from the wholesaler determined on the 'factory gate' concept should be the basis for computation of the duty under Section 4 of the Excise Act or whether the sale price obtained by the first wholesale purchaser who sold to the second wholesale purchaser or retailer should be the basis, arose in A.K. Roy v. Voltas Ltd. : 1973ECR60(SC) (hereafter called the 'Voltas Case'). The Supreme Court declared that the price at which the goods could be sold to the first wholesaler at the factory gate should be the basis. In order to stress the point that price charged by the manufacturer to the first wholesale alone matter, the consequences had to be analysed. The price charged by the manufacturer to the first wholesale would take care of the cost of the manufacturer as also his profits (if any). The price charged by the wholesaler thereafter would take into account his profit as well. To bring out this factor the Supreme Court inter alia observed to the effect that excise duty was payable on manufacturing costs plus manufacturing profits and that wholesaler's profits cannot be included in the computation, the same being post-manufacturing expenses. Drawing inspiration from the phrase 'manufacturing costs plus manufacturing profits' employed by the Supreme Court in the aforesaid context a number of Writ petitions came to be filed in various High Courts contending that expenses incurred by the manufacturers such as (1) publicity expenses (2) Storage expenses (3) expenses pertaining to promotion of Sales etc. required to be deducted from the wholesale sale price at which goods were sold by the manufacturer at the factory gate or could be expected to be sold by him at the factory gate. Some High Court upheld the plea. A Division Bench of this High Court negatived it in Golden Tobacco Co. Limited, Bombay v. Union of India, 1977 E.L.T. (J 113) (hereinafter referred to as the 'First Golden Tobacco Case'). The view was taken that there was nothing in the Voltas judgment which required any deduction being made from the price at which the goods were sold (or were saleable) to a wholesaler at the factory gate. All that was decided in Voltas Case was that the price at which goods were sold or saleable to a wholesaler at the factory gate alone was relevant. And not the price at which such a wholesale purchaser sold to a subsequent purchaser, for that would take within its sweep the said wholesaler's profits which could not be subjected to duty leviable from the manufacturer under Section 4 of the Excise Act. Shortly thereafter Section 4 was amended. The controversy persisted even after the amendment. A Division Bench of this High Court which was presented with the same problem some time later (Golden Tobacco Co. Ltd. v. Union of India, 1980 E.L.T. 437 : referred to as 'second' Gold Tobacco Judgment) took the view that such expenses, which were styled as post-manufacturing expenses, were not includible in making the computation for the purposes of levy. In view of the earlier Division Bench Judgment in First Golden Tobacco Case, the matter might well have been required to be referred to a larger Bench. The Division Bench presumably did not consider it necessary to do so in view of the fact that Section 4 of the Excise Act had been amended meanwhile as can be gathered from the fact that the earlier judgment in First Gold Tobacco Case was referred to as having been rendered in the context of the unamended provision. Thereafter a number of petitions have been instituted on the premise that expenses of the aforesaid categories (1) publicity expenses, (2) storage expenses, (3) charges of insurance of finished goods, (4) expenses of promotion of sales, (5) expenses of marketing and distribution, (6) freight charges, etc., are not includible in making computation for the purposes of levy. Deduction from the valuation of goods made by the petitioners themselves is claimed in regard to the estimated expenses incurred in this connection as per the computation made by a Chartered Accountant and proportionate refund is claimed in regard to the duty paid on goods cleared during past ten years. A direction to compute duty on this basis in respect of goods manufactured in future is also prayed for. So far as the first part of the prayer is concerned, refund to the tune of about Rs. 3 crores is claimed in Special Civil Application No. 502 of 1980. Similar claims for different amounts have been made in the allied matters. Such is the backdrop of the problem.
3. We propose to deal with the problem in three phases :-
(1) Whether expenses of any such categories are deductible in making computation of the value of goods for the purposes of the levy in the context of section 4 of the Excise Act prior to its amendment by Act 22 of 1979 with effect from October 1, 1975.
(2) Whether after the amendment of section 4 the position has been altered and the aforesaid items of expenditure are now deductible.
(3) Whether charges in relation to primary and secondary packing are includible under amended section 4 even if post-manufacturing expenses are considered to be includible.
The statutory landscape
4. The problem can be tackled more effectively only after we flash on the radar the relevant provisions of the Act viz. sections 3 and 4 along with amended section 4 which read as under :-
'3. Duties specified in the First Schedule to be levied - (1) There shall be levied and collected in such manner 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.
(1A) The provisions of sub-section (1) shall apply in respect of all excisable goods other than salt which are produced or manufactured in India by, or on behalf of, Government, as they apply in respect of goods which are not produced or manufactured by Government.
(2) The Central Government may, by Notification in the Official Gazette, fix, for the purpose of levying the said duties, tariff values of any article 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 : After amendment whichBefore amendment. became effective as and from1st October, 1975.4. Determine of value for the 4. Valuation of excisable goodspurposes of duty. - Where for purpose of charging ofunder this Act, any article duty of excise. - (1) Whereis chargeable with duty at a under this fact, the dutyrate dependent on the value of excise is chargeable onof the article, such value any excisable goods withshall be deemed to be - reference to value, suchvalue, shall subject to theother provisions of this(1) the wholesale cash price Section, be deemed to befor which an article of the (a) the normal pricelike kind and quality is sold thereof, that is to sayor is capable of being sold the price at which suchat the time of the removal goods are ordinarily sold byof the article chargeable the assessee to a buyer inwith duty from the factory the course of wholesaleor any other premises of trade for delivery at themanufacturer or production time and place of removalfor delivery at the place where the buyer is not aof manufacture or production, related person and the priceor if a wholesale market does is the sole considerationnot exist for such article for the sale.at such place, at the nearestplace where such market ... ... ...exists, or(b) Where such price is not (4) For the purpose of thisascertainable, the price at Section :which an article for the likekind and quality is sold or ... ... ...is capable of being sold bythe manufacturer or producer, (d) 'Value' in relation toor his agent, at the any excisable goods.time of the removal of thearticle chargeable with from ... ... ...such factory or other premisesfor delivery at the place of (i) Where the goods are deliveredmanufacture or production, or at the time of removal in aif such article is not sold or packed condition includes theor is not capable of being sold cost of such packing except theat such place, at any other place cost of the packing which is ofnearest thereto. a durable nature and is returnableby the buyer to the assessee.Explanation. - In determining Explanation. - In this sub-clausethe price of any article under 'packing' meaning the wrapper,this Section, no abatement container, bobbins, pirn spoolor deduction shall be allowed reel or warp or any other thing inexcept in respect of trade which or on which thediscount and the amount of duty excisable goods are wrappedpayable at the time of the contained or wound.'removal of the article chargeablewith duty from the factory or otherpremises aforesaid.'
1. Whether expenses of any such categories are deductible in making computation of the value of goods for the purposes of the levy in the context of Section 4 of the Excise Act prior to its amendment by Act 22 of 1973 with effect from October 1, 1975.
5. On a plain reading the scheme of section 4 becomes evident. For determining the value of the goods, when excise duty is chargeable on the ad valorem basis a fiction has been created by the statute. The value shall be deemed to be the price at which such goods are :-
(1) Ordinarily sold by the assessee -
(2) to the buyer in wholesale trade
(3) at the time and place of removal.
Since the value has to be determined (1) at the time of removal and (2) at the place of removal, we may call it the 'factory gate' price. And inasmuch as the price has to be the price charged to the buyer in the wholesale trade, we have to determine the 'wholesale price' at the 'factory gate'. For the purposes of the present discussion and for the moment we are not concerned with a situation where there is no market at the factory gate, it being situated at some distance. Nor are we concerned with a situation where the manufacturer does not sell to a wholesaler but himself sells the product through his own sales organisation. If the wholesale price at the factory gate can be determined, that must be be the value on the basis of which duty must be computed. There can be no doubt or debate about it since the Legislature in terms say that this will be deemed to be the value. No question arises or can arise of making any deduction from this deemed value on account of say (1) expenses of advertisement or publicity or (2) expenses of storage of finished goods. There is no warrant, therefore, for making any deduction on any account from such wholesale price at the factory gate in the context of the mode of valuation prescribed by section 4 of the Excise Act. Where then is the question of making an estimate of the advertisement or publicity expenses to be incurred during the whole year in which the goods are manufactured and cleared the goods soon after the goods are manufactured from time to time say from January to December in every calendar year on the basis of the valuation made by themselves as per the price list filed by them (as approved by the department). They pay duty as per the self-assessment procedure on this footing during the course of the whole year. Where is the question of re-adjustment of this duty subsequently According to the petitioners, their Chartered Accountant can find out at the close of the year as to what amount was expended during the whole year (January-December) on (1) advertisement and publicity (2) on storage of goods subsequent to the manufacture of the goods till the goods are actually sold, (3) the sales organisation and that such amount should be spread over the total quality of goods cleared during the year, and deduction should be made to this extent from the valuation made at the time of clearance and the excess duty referable to these amounts included in the value of such goods should be refunded. For future manufacturers according to the petitioners, they are entitled to clear the goods on the basis of the projected deductions on this account from the valuation made on the hitherto prevailing basis. Now, as emphasized earlier, there is no warrant in section 4 for making any such deductions. What then is the basis for such claim Since the petitioners do not contend that the claim has any roots in section 4, no question of interpretation of section 4 arises. In fact Explanation to section 4 in terms provides that no such deduction should be made.
But the petitioners contend that there is something in the basic concept of excise duty which buttresses their claim and the petitioners seek shelter and support from the Voltas' Case in this connection. The petitioners wholly bank on Voltas' Case and they do not have any legs to stand on if Voltas' Case does not support them. Reliance is placed on the observation of the Supreme Court in Voltas' Case to the effect that excise duty is payable on 'manufacturing cost and manufacturing profit' to which we adverted in the earlier part of our judgment. That is why everything in this case turns on (1) the true ratio of Voltas' Case (2) the true meaning, content and implication of the phrase manufacturing costs and manufacturing expenses, and (3) whether Voltas' Case or the aforesaid phrase has anything to do with the real concept of excise duty. We will, therefore, presently proceed to examine the true ratio of Voltas' Case bearing in mind this perspective. But it would not be out of place at this juncture to pause for a while and reflect on the question as to what exactly is the law declared by the Supreme Court and how the decisions of the Supreme Court are required to be interpreted. And fortunately for us, the Supreme Court itself has made it abundantly clear in a number of pronouncements as to what exactly binds the lower courts. No room for doubt is left on the score that it is not everything said by the Supreme Court in its judgment which is binding as law declared by the Supreme Court. What is considered binding to all the courts is the ratio decidendi of the decision which is to be gathered from the statements of principles of law applicable to the legal problems disclosed by the facts of the case decided by the Supreme Court in Dalbir Singh v. State of Punjab A.I.R. 1979, Supreme Court, 1384 at pages 1390 and 1391. Sen, J. speaking for the Supreme Court has observed as under :-
'According to the well settled theory of precedents every decision contains three basic ingredients :
(i) findings of material facts, direct and inferential. An inferential finding of facts is the inference which the Judge draws from the direct or perceptible facts;
(ii) statements of the principles of law applicable to the legal problems disclosed by the facts; and
(iii) judgment based on the combined effect of (i) and (ii) above.
For the purposes of the parties, themselves and their privies, ingredient No. (iii) is the material element in the decision for it determines finally their rights and liabilities in relation to the subject matter of the action. It is the judgment that estops the parties from reopening the dispute. However, for the purposes of the doctrine of precedents, ingredient No. (ii) is the vital element in the decision. This indeed is the ratio decidendi. (5) It is not everything said by a Judge when giving judgment that constitutes a precedent.
The Supreme Court has also uttered a warning to the effect that the greatest possible care must be taken to relate the observations of a Judge to the precise issue before him and confine such observations even though expressed in broad terms in the general compass of the questions before him (See Madhav Rao Scindia v. Union of India : 3SCR9 , and A.D.M. Jabalpur v. B. Shukla : 1976CriLJ945 . It is therefore, evident that the decision of the Supreme Court is only on authority for what is actually decided and the observations made in the judgment should be restricted to the context in which they are made after relating the observations to the precise issue before the court taking care to interpret the observations in the context of the question before the court even though the same are expressed in broad terms. Since the Supreme Court itself has administered the warning and has indicated in no uncertain terms that what is binding is an actual ratio decidendi of the decision culled out in the context of the facts of the case and the principles of law applied in the case in question, it is unnecessary to refer to any other authority. Even so we are tempted to refer to Quinn v. Leathan, 1901 A.C. 495 in order to stress the point. It has been observed therein that for more than 80 years the doctrine in question has never been disputed that every judgment must be read as applicable to the particular facts proved, or assumed to be proved, since the generality of the expressions which may be found there are not intended to be expositions of the whole law, but governed and qualified by the particular facts of the case in which such expressions are to be found and for the proposition that a case is only an authority for what it actually decides. In fact, the court has gone to the extent of observing in the aforesaid decision that a case cannot be quoted from a proposition that may seem to follow logically from it for to do so would be to assume that the law is necessarily a logical code, 'whereas every lawyer must acknowledge that the law is not always logical at all'. Be that as it may, it can scarcely be doubted that before culling out the ratio of a decision, the court must of necessity examine the precise question or the precise issue which arose before the court and identify the principles of law applied by the court in resolving the issue and make a further effort to find out what is the proposition of law which emerges from the decision of the court. It is in this perspective that the question will have to be examined as to what exactly has been decided by the Supreme Court in Voltas' Case and the proposition which emerges therefrom. This exercise will have to be undertaken because as pointed out earlier a particular expression used by the court in that case, namely 'manufacturing cost plus manufacturing profits' has given birth to the controversy which has arisen in regard to the interpretation of section 4 of the Excise Act which we are called upon to resolve.
The Voltas' Case
6. The ratio decidendi of Voltas' Case must be extracted intelligently and meaningfully - not mechanically and with a superficial quick look. A moment ago we have indicated how the Supreme Court itself says its ratio should be located. In the Voltas' Case, the Revenue assumed the posture that in making the valuation of the goods for the purposes of computing the excise duty, the price obtained by a wholesaler from a retailer should form the basis. In making this tall claim it was overlooked that it was thoroughly inconsistent with the formula for making valuation embodies in section 4 of the Excise Act. Section 4 prescribes how the deemed value of the excisable goods should be worked out. The levy is linked to :
(1) wholesale price
(2) at a particular place
(3) at a particular time,
and the price is the wholesale price, the place is the place of clearance, and the time is the time of clearance. Hence the expression factory gate. Three concepts telescope into each other (1) wholesale price, (2) prevailing at the time of clearance and (3) at the factory gate. The Supreme Court negatived the plea that the sale price fetched by a second wholesale transaction should be the basis for computation. Why Because the wholesale price at factory gate means the wholesale price which the manufacturer would get. The price at which the purchaser from the manufacturer sells or can sell is wholly irrelevant be it a sale by the first wholesale purchaser to a second wholesale purchaser or to a retailer. In order to emphasise this aspect the Supreme Court has used the expression 'manufacturing cost plus manufacturing profit'. The expression is used to clear the mist and make manifest the point. When the wholesale purchaser sells his profit would enter into the sale price. Since section 4 takes into account nothing other than the wholesale price at factory gate which the manufacturer can reasonably expect, for making the computation, the price obtained by the wholesaler in his turn cannot be taken as a measure. To make manifest the rational basis, why of the role) it is observed that this cannot be done because it would take within it embracce the wholesaler's profit (as contra-distinguished from the manufacturer's profit), and in order to bring home the point as regards the concept of reasonably expected wholesale price at factory gate, the telling phrase 'manufacturing cost plus manufacturing profit' has been employed. What a manufacturer would demand from a wholesale purchaser would of necessity be a price which is worked out on the basis of his quick computation of the cost of production and the profit he would expect to make thereon. No manufacturer would ordinarily sell at a loss. He would expect reasonable profit over and above the cost of production. Hence this is what he would quote to the wholesaler. That is why the phrase 'manufacturing cost plus manufacturing profit' is coined. It is neither an exposition of the true scope or concent of excise nor any magic formula to replace or displace the statutory formula embedded in section 4. The Supreme Court was in fact not rewriting section 4 or substituting its own formula, for computation in place of the formula prescribed by the Parliament in section 4. The Supreme Court was merely making explicit the effect of section 4 in its own words on the fact situation of the case before it. The Supreme Court was in fact unfolding the true meaning of the words inscribed in section 4 by the Parliament. The Supreme Court was not supplementing of adding anything to the formula embedded in section 4 by using the phrase 'manufacturing cost plus manufacturing profit'. The Supreme Court has been grossly misunderstood and is taken to have virtually said 'Forget what section 4 says for it is contrary to the very concept of excise. Treat section 4 as having been repealed and replaced by the new measure for computation of duty to wit' 'manufacturing cost plus manufacturing profit'. Be it realised that the Supreme Court was never faced with the problem of the supposed true nature and scope of the basic concept of excise. It was merely faced with the problem of valuation of excisable goods in the context of section 4 of the Act in the backdrops of the fact clauster obtaining in Voltas' Case and this is all that the Supreme Court has done. The Supreme court has not defined the true nature and content of the basic concept of excise. No such question arose and the court was neither invited to do so, nor did the court have any occasion to undertake the exercise and in fact it has not done so. The Supreme Court has merely interpreted and made manifest the formula packed into section 4. Otherwise from where does one get the concept of manufacturing cost What is manufacturing cost Manufacturing cost is the cost of the manufacture of the product. It does not merely mean cost of raw material plus the cost of energy. It means the cost of manufacturing the article. Now, from the stand point of a cost accountant every conceivable item of expenditure - even future expenditure would enter into manufacturing cost such as :-
(1) depreciation of machinery;
(2) interest on cost of machinery;
(3) salary element of its entire staff including wages of workers, dearness allowance and bonus payable to them, pension and gratuity payable to them in future;
(4) cost of publicity;
(5) remuneration of Directors;
(6) commission payable to Managing Agents and settling agents;
(7) tax liability.
When the manufacturer quotes his price to first wholeseller, he takes into account the overall cost which includes all these elements with a computer or by a quick mental process so that he can add to it the profit he wants to make on the article bearing in mind the price at which other similar articles are marketed by his rivals (who may drive him out if he quotes more). All thus the manufacturing cost and manufacturing profit takes into account every one of conceivable items of expenditure that would enter into the cost structure. We have, therefore, no hesitation in concluding that :-
(1) The Supreme Court was never called upon to make any pronouncement in regard to the true nature or content of the concept of excise duty, and the Supreme Court has in fact not made any such pronouncement in Voltas' Case.
(2) The Supreme Court has not declared that whatever be the legislative mandata enclosed in section 4 of the Excise Act which prescribes the formula for working out the deemed valuation of excisable goods, some deduction not warranted by the statutory formula should be made from the deemed valuation arrived at as per the formula.
(3) The phrase 'manufacturing cost plus manufacturing profit' has been employed merely with a view to underscore the point that the price charged by the wholesaler to the retailer cannot be taken as a basis for computation (as the same would take within sweep the wholesaler's profit).
(4) Nothing more can be read into the decision in Voltas' Case than what has in fact been said in the context of the question which arose, namely, whether the price at which the goods are sold or can be reasonably be expected to be sold by the manufacturer to the first wholesaler is the only true basis for valuation of excisable goods and whether what the wholesaler may obtain from the purchaser to whom he sells has any relevance.
(5) We cannot read in Voltas' Case what has not been said by the Supreme Court either expressly or impliedly.
(6) The expression 'manufacturing cost plus manufacturing profit' has been employed in the circumstances mentioned earlier. The Supreme Court has defined neither the circumference of the concept of excise nor the content of the concept of excise thereby. There is no warrant for reading into this phrase justification for re-writing the valuation formula hedged inside section 4 of the Excise Act unless we assume the power to legislate and substitute a new formula evolved by us in place of the existing formula. The same reasoning will apply to the decision rendered by the Supreme Court in Atic Industries Ltd. v. H.H. Dave, Assistant Collector, Central Excise and others : 1978(2)ELT444(SC) . We, therefore, do not think that the petitioners are justified in claiming deduction in respect of the aforesaid categories of expenses on the basis of Voltas' Case or Atic Industries case. The very bottom of their case thus disappears.
7. We believe that it would be appropriate at this juncture to unveil several weighty considerations which should deter us from falling a prey to the point of view canvassed by the petitioners. We, therefore, proceed to do so.
Weighty considerations which require to be taken into account in resolving the controversy at the centre of the stage in the present matter.
8. The following factors were highlighted and stressed by a Division Bench of this court in Prabhat Silk and Cotton Mills Co. Ltd., Surat v. Union of India (Special Civil Application No. 1640 of 1981 with allied matters decided on December 18, 1981 and March 8, 1982 - (unreported) [Since reported in 1982 E.L.T. 203 (Guj.)] in dealing with a problem arising in similar circumstances though in the context of the question whether landing charges are includible in computing the assessable value of the dutiable goods :-
'(1) The annual budget of the Central Government has been moulded on the assumption that this duty can be lawfully levied for more than 30 years not to speak of the formulation of the budget by the appropriate Government prior to the enforcement of the Constitution of India upon the attainment of Independence. (2) Income-tax must have been collected from tens of thousands of assessees on this footing. (3) the importer must have marketed the goods on this premise. (4) The consumer must have been made to pay the price on this assumption (5) and while the real losers, the consumers, cannot be identified and compensated, the importers will be enabled to make windfall profits and unjust enrichment. (6) the Central budget will have to bear an unanticipated outflow which will have to be passed on the tax payer, and (7) the consumer, the original and real sufferer, will again have to suffer as the burden will have to be again borne by him. He will have to pay the price for his pocket having been picked in the past instead of being compensated for it - thus insult will be added to injury. While, therefore, the court will not be deterred from upholding the plea if this was the only interpretation which was possible, it will not be in too great a hurry to do so without examining the matter closely, carefully and in depth. In such circumstances, upholding such a plea is not the first thing that the court will do. The court will do so only provided it appears that the other view is not equally possible. More so since the court, is exercising its high prerogative jurisdiction under Article 226 of the Constitution of India will not exercise it in such a manner that everything settled becomes unsettled and hundreds of crores of rupees are required to be refunded at the cost of the much exploited consumer or the majority of the populace who bear more than 75% of the tax-burden by way of indirect taxes, and only in order to benefit those importers who have marketed their goods on the footing that the duty was payable and have sustained no loss or detriment on that account and for no other purpose. One may then be tempted to quip 'not in order to rob peter to pay Paul' but in order to 'rob the poor in order to pay the rich' (Robinggood in reverse). The court will not, therefore, without due deliberation create a situation where the decision of the court will result in such unwholesome and unpalatable consequences and perhaps create a situation where the exercise in the courts of law may well become a paper exercise by inviting a validating legislation and all this at the time cost of thousand of litigants who are waiting in the queue for the removal of the injustice being suffered by them for many years. Pragmatism and commonsense approach need not therefore be outlawed in favour of unduly sophisticated, unduly refined, disingenous approach if new views are possible and what is reasonable, as also accords with reason, prevails ever what is unreasonable, but may also accord with reason. 'Just and unreasonable' when both sides are equally able to call into aid good reasons in support of their respective pleas'.
The very same considerations will apply in the context of the problem at hand. We do not think that we can shut our eyes to these considerations. What is more, there is one more weighty reason why the view which commanded to a Division Bench of this court in the first Golden Tobacco Case [1977 E.L.T. (J 113)] can be considered to be preferable to the contrary view. It has never been disputed since the time of Adam Smith (1) that the tax must be certain in the sense that the manner of payment and the quantification of the levy ought to be clear and plain not only to the contributor but to every other person lost the tax gatherer can either aggravate the tax upon any obnoxious contributor or extort for his own benefit more amount than is payable and (2) that the manner of the imposition of the levy must be convenient for the collector as well as the contributor. The following passages from Adam Smith's well known treatise 'The Wealth of Nations' may be quoted with advantage in this context (see Great Books of the Western Worlds published by Encyclopaedia Britannica Inc. 1978 Edition, Vol. 39 pages 361) :-
'II. The tax which each individual is bound to pay ought to be certain, and not arbitrary. The time of payment, the manner of payment, the quantity to be said, ought all to be clear and plain to the contributor, and to every other person. Where it is otherwise, every person subject to the tax is put more or less in the power of the tax gathered, who can either aggravate the tax upon any obnoxious contributor, or extort, by the terror of such aggravation, some present or perquisite to himself. The uncertainty of taxation encourages the insolence who favours the corruption of an order of men who are naturally unpopular, even where they are neither insolent nor corrupt. The certain of what each individual ought to pay is, in taxation, a matter of so great importance that a very considerable degree of inequality, it appears, I believe from the experience of all nations, is not near so great an evil as a very small degree of uncertainty.
III. Every tax ought to be levied at the time, or in the manner in which it is most likely to be convenient for the contributor to pay it. A tax upon the rent of land or of houses, payable at the same term at which such rents are usually paid, is levied at the time when it is most likely to be convenient for the contributor to paylor, when he is most likely to have wherewithal to pay. Taxes upon such consumable goods as are articles of luxury are all finally paid by the consumer, and generally in a manner that is very convenient for him. He pays them by little and little, as he has occasion to buy the goods. As he is at liberty, too, either to buy, or not to buy, as he pleases, it must be his own fault if he never suffers any considerable inconvenience from such taxes'.
If the interpretation canvassed by the petitioners were to be accepted, the statements by the Chartered Accountants of the petitioner company sometime after the accounts are closed, will have to be relied upon. Neither the manufacturers (petitioners herein) nor the excise authorities will be able to know as to the exact point of time as to when the goods are cleared and as to what would be the deduction required to be made in the context of several items such as advertising expenditure, marketing and distributing expenditure and similar other items of expenditure characterised as post-manufacturing expenses. To the manufacturer himself the alleged post-manufacturing component of the sale price will not be known at the point of time of the clearance of the goods. It will become known only after the accounting year is closed, accounts are completed, a chartered accountant looks into it and prepares a statement on the basis of his examination of the books of accounts. It means that even to the manufacturer himself the exact component of the post-manufacturing expenses deductible from the market value will be known after about 18 months or more depending upon the efficiency of the chartered accountant. So far as the department is concerned, unless it employs an army of chartered accountants at every manufacture centre who verifies the statements prepared by the Chartered Accountants of the manufacturers, it will not be possible for the department to determine the post-manufacturing element included in the market price or selling price. In reality, therefore, whatever is the computation made by the Chartered Accountant of the manufacturing concern will have to be accepted. We may assume the complete integrity of the manufacturer as also the complete integrity of the Chartered Accountant employed by him; we may even assume the thorough ability and efficiency of the Chartered Accountant concerned. We may even assume that there would be no inbuilt bias in the mind of the Chartered Accountant in favour of employer, namely, the manufacturer from whom he gets the remuneration; even then cannot assume that he cannot commit an error or make a mistake. And such an error or mistake cannot be detected by the excise authorities unless an army of equally competent Chartered Accountants is engaged all over the country in order to examine the statements prepared by the tens of thousands of Chartered Accountants in respect of tens of thousand of manufacturing units all over India. In fact the cost of employing a contingent of Chartered Accountants may itself be so prohibitive as to make the levy itself redundant in the sense that a larger part of it may be expended in the process of collecting it and it might be more profitable not to impose and collect a levy than to impose and collect it at such a cost. What is more, the most efficient and competent economist will not be able to predict in advance the extent of the levy at the time he prepares the central budget for the Union finances. So also the actual levy will have to be made more than a year or year and a half or perhaps two years after the actual clearance of the goods notwithstanding the fact that the Act envisions the collection of a levy and the collection of the actual and precise amount due and payable in connection with the manufacture at the time of the clearance of the goods. This question would have to be faced at the time of clearance of every consignment and from month to month and year to year. It will make collection process absolutely unworkable and unmanageable, cumbersome and uncertain. This was considered inexpedient even in the time of Adam Smith in the Eighteenth century. Can we consider this to be expedient and desirable to day at the fag end of Twentieth Century when one would expect with advanced technique of business management and the facilities of equipment like computers to make a precise estimation of the levy at the earliest and with accuracy The question has only to be asked to be answered. We, therefore, do not see any logical or rational basis for making an approach which would be counter productive even if two views were possible. This is an additional reason why the view which found favour with a Division Bench of this High Court in the First Golden Tobacco case should be considered perferable to the other view and worthy of acceptance on that account. It is now time to advert to some decisions rendered by other High Courts which see eye to eye with us.
The views taken by the other High Courts which have taken the same view as was taken by a Division Bench of this High Court in the first Golden Tobacco Case and which we are inclined to take now.
Punjab and Haryana High Court
9. In American Universal Electric (India) Ltd. v. Union of India, 1979 E.L.T. (J 125), decided on November 20, 1976 reliance has in terms been placed on the decision rendered by Division Bench of this High Court in the first Golden Tobacco case [1977 E.L.T. (J 130)]. The reasoning which found favour with the learned Judge of the Punjab and Haryana High Court is reflected in paragraph 12 of the report which for the sake of preciseness may be quoted :-
'I have very carefully gone through the judgments of their Lordships of the Supreme Court in Voltas case and Atic Industries case (supra) and in my considered opinion both the judgments cannot be interpreted in the manner as is being contended by the learned counsel for the petitioners in order to construe the ratio of the decision of their lordships of the Supreme Court in the above mentioned cases, the facts and the points in issue in the said cases have to be kept in view. M/s. Voltas is a manufacturing concern of air-conditioners, water coolers etc. and had its own sale organisations for sale at its various offices from which direct sales to the consumers had been made at the list prices to the extent of 90 to 95 per cent of the production and the remaining percentage of goods was being sold to the wholesale dealers, under the agreements which contemplated a commercial advantage in the shape of serving obligation where the wholesale price charged was the list price less 22 per cent discount. The first question determined by their Lordships of the Supreme Court was that for the purpose of section 4(s) of the Act, wholesale cash price would be the price under an agreement with wholesale dealer stipulating for commercial advantages if such agreement was made at arms length and in usual course of business and it was not necessary that such purchasers must be independent persons. The next question which was resolved by the Supreme Court was the meaning of the term 'wholesale cash price'. It was held by their Lordships of the Supreme Court that it is not necessary for attracting the operation of section 4(s) of the Act, that there should be wholesale of large percentage of goods produced by the manufacturer. The quantum of goods sold by manufacturer on wholesale basis is entirely irrelevant. It was held that the mere fact that such sales may be few or scanty, does not alter the true position. Their Lordships while making distinction between the 'wholesale price' and the 'retail price' emphasised that the wholesale price must be relieved of the loading representing post importation expenses which as a matter of business, must always be charged to the consumer and which must be eliminated. It was in this context that it was further elaborated by explaining that when a sale was effected in the retail market, it took within its sweep the profit attributable to the wholesalers who having purchased the goods from the manufacturer, sold it to the retailer or to the consumer at a profit. The price paid by the retailer would take into account the profit which would go into the coffers of the wholesale with which the manufacturer had nothing to do. It was in this context that their Lordships have made this observation on which strong reliance has been placed by the learned counsel for the petitioners to contend that section 4(s) provided that the real value should be found out after deducting the selling cost and the selling profits and that the real value could include only the manufacturing cost and the manufacturing profits. In my opinion this decision of their Lordships only gives the rational basis of the measure embodied in section 4, of the wholesale cash price at the factory gate in the context of the controversy whether the retail price realised by the manufacturing concern a large percentage of goods produced in a case where the manufacturer has also the selling organisation for sale directly to the consumers, should be taken as a basis for computing the liability. This decision could never be pressed in aid for the view that any further deductions were contemplated to be made in favour of the manufacturer on any score, which are nowhere indicated in section 4(a) keeping in view the Explanation to section 4 of the Act. The observations made were only for clearly bringing out distinction between the wholesale and retail prices. Reference to the freight and octroi made by their Lordships, was the necessary adjustments to give effect to the concept of wholesale cash price at the factory gate and to arrive at the net wholesale cash price. The scope of the Explanation to section 4 never came up for consideration in the said judgment. If the said judgment is interpreted in the manner as is being done by the learned counsel for the petitioners it would be reading some thing more in section 4 of the Act which is non-existing that notwithstanding the explanation even cases falling under section 49a), the manufacturer can claim some further deductions beyond the explanation itself. No such question or issue in fact arose in Voltas case (supra)'.
The learned Judge of the Punjab and Haryana High Court after referring to the report in Atic Industries Ltd. v. H. H. Dave, Assistant Collector, Central Excise and others : 1978(2)ELT444(SC) , has made it clear in paragraph 15 of the judgment that the decision of the Supreme court only elaborates the factory gate concept or the true nature of excise in the context of the relevant controversy raised in the case. The post-manufacturing elements, says the learned Judge, have been emphasised only in the context of making a distinction between the first wholesale price and the subsequent price after the goods have entered the stream of trade because at the earlier stage there would be no question of loading the price with any cost manufacturing element, namely, selling cost and selling profit of the wholesale dealer. The learned judge has culled out the ratio from the Voltas' Case and the Atic Industries Case in paragraph 16 in the following terms :-
'From the above discussion, it would be seen that in those cases, namely, Voltas case and Atic Industries case (supra), it was held that where the manufacturers sold the goods manufactured by them in wholesale to a wholesale dealer at arms length at the factory gate and in the usual course of business, the wholesale cash price charged by them to the wholesale dealer less trade discount, if any, as envisaged under the Explanation to section 4 of the Act, would represent the real value of the goods for the purpose of assessment of excise irrespective of the quantity of the manufactured goods sold at wholesale cash price'.
Thereafter the Punjab and Haryana High Court has concurred with the Gujarat view after taking into consideration numerous decisions of the other High Courts cited before the court. Says the learned Judge in paragraph 18 :
'I am in respectful agreement with the above-mentioned observations of their Lordships of the Gujarat High Court and, therefore, the decisions relied upon by the learned counsel for the petitioners, which are not of binding nature are of no help to him'.
It will, thus, be seen that the Punjab and Haryana High Court has culled out the true ratio of Voltas' Case and Atic Case and has based its decision in the context of the ratio of the aforesaid two decisions rendered by the Supreme Court which have introduced the concept of post-manufacturing expenses from the stand point of making a distinction between the first wholesale price and the subsequent price after the goods have entered the stream of trade. Nothing more can be read into the two judgments of the Supreme Court. It is, therefore, futile to clutch at the user of the expression 'post-manufacturing expenses' from the decision of the Supreme Court for the said post-manufacturing expenses cannot be included in the sale price in disregard of the fact that the proposition has been enunciated in order to emphasise that it is the first wholesale price which must be taken into account and not the subsequent price after the goods entered into the stream of trade.
Calcutta High Court
10. This very question arose before a Division Bench of the Calcutta High Court consisting of Chief Justice Mr. A. N. Sen (as he then was) and Mr. Justice M.M. Dutta in Collector of Central Excise, West Bengal v. Dunlop India Ltd., 1981 E.L.T. 398 (Cal.) decided on December 11, 1980. The question arose in the context of a claim for refund for 20 years from 1951 to 1971 amounting to Rs. 7.95 crores. Reliance was placed on the supposed ratio of Voltas' Case (supra). The Division Bench of the Calcutta High Court has taken the same view as was taken by the Gujarat High Court in the first Golden Tobacco Case and which we are inclined to take at present. The ratio of the decision in Voltas' Case decided by the Supreme Court has been set out in paragraph 11 of the judgment. It has been observed that the observations made by the Supreme Court that excise is levied only on the amount representing manufacturing cost plus manufacturing profit and excludes post-manufacturing cost and the profit arising from post-manufacturing operation namely selling profit has to be understood in the light of the facts of the case before it and not dehors the same. The Division Bench has proceeded to observe that the decision of the Supreme Court in Voltas' Case was not to the effect that when excise articles are sold at arms length to dealers at wholesale cost price, a further enquiry should be made whether such price also includes post-manufacturing cost and post-manufacturing profit. Support was sought from the decision of the Privy Council in Vacuum Oil Co. v. Secretary of State for India-in-Council , which was relied upon by the Supreme Court for the purpose of ascertaining the real meaning of the term 'wholesale cash price' and it has been clarified that it was in the context of the aforesaid facts and the circumstances that the Supreme Court had concluded that the only deduction that is permissible to be made from the wholesale cash price for the purpose of levy of excise duty is the trade discount and the amount of duty paid at the time of removal of the article. Reference was made to the observation made by the Supreme Court in Voltas' Case that selling profit which is a post-manufacturing operation in excluded from the excise levy. After referring to the aforesaid observation the Calcutta High Court has interpreted the decision in the light of the two ratio of the decision and has clarified as to how it should be understood in the context of the facts of the case which in the view of the Calcutta High Court unmistakably referred to the profit arising from retail sale price of articles charged with excise duty. It was observed that the concept of selling cost and selling profit in the wholesale cash price could not be thought of in Voltas' Case, for there was no scope for so thinking in view of the facts involved in that case. Says the Calcutta High Court :
'Indeed, no such argument was advanced before the Supreme Court. In the circumstances, it will be quite unreasonable to assume that in Voltas' Case, the Supreme Court laid down the concept of selling cost and selling profit in wholesale cash price.'
The ratio of the decision rendered by the Supreme Court in Atic's case (supra) has also been discussed in paragraph 12 of the judgment wherein it is made clear from the observations made by Bhagwati J. that the price charged by the manufacturer for sale of the goods in wholesale represents the real value of the goods for the assessment of excise duty and has observed that it was manifestly clear that the question of post-manufacturing operation involving post-manufacturing cost and profit will arise only when, after the goods enter the stream of trade, that is, after the first wholesale by the manufacturer, there is a further sale of the goods, retail or wholesale. The Calcutta High Court has interpreted the ratio of the Supreme Court in Atic's case as laying down that if excise duty were levied on the basis of second or subsequent wholesale price, it would lead the price with a post-manufacturing element, namely, selling cost and selling profit of the wholesale dealer. The Calcutta High Court has expressed the opinion that there can, therefore, be no doubt that there is no question of post-manufacturing operation giving rise to selling cost and selling profit so long as the goods chargeable to excise duty do not enter into the stream of trade or, in other words, so long as there is no wholesale of the goods after they are manufactured. The post-manufacturing operation will start after goods are first sold in wholesale and are put on onward journey and, before that, there is no question of any such post-manufacturing operation. In paragraph 13 the Calcutta High Court has in terms referred to the first Golden Tobacco judgment rendered by a Division Bench of this High Court and has concurred with the view taken by this Court that the question of exclusion of post-manufacturing expenses would come in only after the first wholesale has taken place and the second or subsequent sale price is the basis of levy. But if the second or subsequent sale price is not the basis for assessment, it is obvious that no adjustment should be made by way of post-manufacturing expenses. The contention on behalf of the respondent has been repelled by the Calcutta High Court in paragraph 15 in the following manner :-
'It is submitted that such costs are unrelated to the manufacture of the goods and, in any event, the wholesale price at which they are sold at the depots not being the wholesale cash price at the factory gate, such costs and profits should be excluded so as to get the wholesale cash price at the factory gate for the purpose of levy of excise duty. This contention, in our opinion, overlooks the provision of Section 4(a). Under Section 4(a), the wholesale cash price at the factory gate shall be the value of the article, provided a wholesale market exists at the factory gate and, if not, the wholesale cash price at the nearest place where such market exists. Admittedly, the respondent does not sell the goods at the factory gate, but the goods are sent to the different depots of the respondent for sale to the dealers. So, in view of the provision of Section 4(a), there is no market for the goods at the factory gate of the respondent and, therefore, there is no question of wholesale cash price at the factory gate. In the absence of market at the factory gate, the different depots at which the respondent sells the goods in wholesale will obviously be the nearest place where such market exists within the meaning of Section 4(a). It may be that the price at which the goods of the respondent are sold at the depots includes some additional costs, nevertheless that price should be regarded as the wholesale cash price within the meaning of Section 4(a). In this connection, we may refer to the explanation to Section 4 of the Act. It provides inter alia that in determining the price of an article no abatement or deduction shall be allowed except the trade discount and any duty payable at the time of removal of the article. In case the Legislature had intended that the cost that might be incurred by a manufacturer for wholesale of the goods chargeable to excise duty at the nearest place where a market for such goods might exist, it would have surely made a provision in that regard. But that has been provided for is that except the trade discount and any duty that may be payable at the time of removal of the goods, no abatement or deduction shall be allowed.'
The conclusion of the Division Bench has been expressed in paragraph 19 in the following terms :-
'Now, we may consider as to what is meant by 'post-manufacturing profit', for much argument has been made about the same on behalf of the respondent. When a manufacturer produces or manufactures an article, he incurs cost. This cost is manufacturing cost. He then sells the article in wholesale at a profit. The profit is undoubtedly manufacturing profit. The purchaser of the article sells the same in retail or in wholesale at a higher price. The difference between the price at which the purchaser purchased the article in wholesale and the price at which he sells the same in retail or wholesale, is the aggregate of retail or in wholesale and the profit he earns. The subsequent cost and the profit are undoubtedly the selling cost and selling profit as in the Supreme Court decisions in Voltas' Case and in Atic's Case. This is quite understandable. But what is not teadily understandable is the selling profit or post-manufacturing profit in the first wholesale cash price of the goods. The respondent manufactures the goods in question at its factory at Sahagunj. If the goods were sold at the factory gate, the wholesale cash price would consist of manufacturing cost and manufacturing profit. The goods are, however, taken to the depots of the respondent through its selling organisation for selling them in wholesale to the dealers. There can be no doubt that in taking the goods to the depots, the respondent incurs cost. No doubt the respondent adds this cost to the manufacturing cost, so that the wholesale price at which the respondent sells the goods to the dealers is the aggregate of the manufacturing cost, the subsequent cost and the manufacturing profit. There is, therefore, no scope or any additional profits over and above the manufacturing profit. Now what amount of profit the manufacturer wants to earn depends upon certain factors. If the manufacturer carries on a monopolistic business and there is demand for the goods he manufactures, he may earn any profit. In such a case, the profit is fixed arbitrarily by the manufacturer or producer. In other cases, the producer has to determine the amount of profit to be included within the price of the goods keeping in view the demand for the goods, the competition he has to face in the market and the economic condition of the consumers of such goods. Thus the above analysis reveals that there is no scope for any selling profit or post-manufacturing profit as claimed by the respondent, nor is there any reasonable method of ascertaining such selling profit or post-manufacturing profit.'
The Division Bench of the Calcutta High Court has observed in paragraph 23 of its judgment that the observations of the Supreme Court in Voltas' Case and Atic's Case were not susceptible to the interpretation canvassed on behalf of the manufacturers having particular regard to the facts involved in the said two cases and the fact the Supreme Court was never faced with the question as to whether a further deduction should be made from the wholesale cash price while levying excise duty on the first wholesale cash price on account of post-manufacturing cost and post-manufacturing profit. Says the Calcutta High Court :
'In our opinion, no such interpretation of the observation of the Supreme Court in Voltas' Case and Atic's Case is possible, particularly in view of the facts involved therein. Moreover, it is significant to be noticed that in these two Supreme Court cases no claim was made that while levying excise duty on the first wholesale cash price, a further deduction should be made therefrom of the post-manufacturing cost and post-manufacturing profit. It will not be unreasonable to presume the existence of such cost and profit, in Voltas' and Atic's but no claim was made in those cases and, in our opinion, rightly, to the deduction thereof from the wholesale cash price. In our considered view and, as discussed above, the concept of post-manufacturing cost and post-manufacturing profit or, selling cost or selling profit is absent in the first wholesale cash price and there is, therefore, no question of deduction of the same from such wholesale cash price before levying excise duty. It is significant to be noticed that while it has been held in the above High Court decisions and also in the above Bench decision of this Court that selling cost and selling profit should be excluded from the first wholesale cash price for the purpose of levy of excise duty, in none of these decisions any attempt has been made to levy down what the selling profit is in the first wholesale cash price, its proportion in the entire profit and how to determine the same. It has been already pointed out by us that there is no question of selling cost or selling profit in the first wholesale cash price.'
No doubt the Calcutta High Court referred the matter to the Full Bench (and possibly the matter is pending before the Full Bench) having regard to the fact that another Bench of the Calcutta High Court has taken a contrary view in East Anglia Plastics (India) v. The Collector of Central Excise, Calcutta (Appeal No. 231 of 1975, decided on 3-10-1980).
Allahabad High Court
11. A very recent judgment by a Division Bench of the Allahabad High Court rendered in Civil Misc. Writ Petition No. 370 of 1979, decided on February 4, 1982 takes the same view as was taken by a Division Bench of this High Court in the First Golden Tobacco Case and which we are presently inclined to take. The Allahabad High Court has fallen in line with the Gujarat High Court (as reflected in the First Golden Tobacco Case), the Calcutta High Court and the Punjab & Haryana High Court in regard to the true ratio of Voltas' Case and Atic's Case. The ratio has been stated in clear and simple terms in the following words :-
'This case is an authority for the proposition that for purposes of calculating the assessable value, the manufacture impost plus the manufacturing profit have alone to be taken into account and all post-manufacturing costs and profit have to be excluded. A similar view was taken in Atic Industries Ltd. vs. H. H. Dave : (1972)1CTR(SC)334 where it was clearly laid down that for purpose of determining the wholesale cash price for calculating the assessable value, the first wholesale price fixed between the manufacturer and the wholesaler has to be taken into account, and the second or subsequent prices have to be ignored, as the subsequent prices would be loaded with a post-manufacturing element, namely, selling cost and selling profit. Such a method of calculation would also vitiate the concept of factory gate sale, which is the basis for determination of the value of the goods for purposes of excise.'
After considering the scheme of sections 3 and 4 of the Act the Allahabad High Court has taken the same view as was taken by the Gujarat High Court in the First Golden Tobacco Case, namely that these two provisions are supplementary to each other and that the Supreme Court had merely interpreted these provisions in the Voltas' Case and the Atic's Case in the context of the question which arose before the Court, when it was faced with the question as to whether the wholesale cash price which the manufacturer gets from the wholesale buyer at the factory gate has to be taken into account for the purpose of imposing a particular duty. Having considered the scheme of the two supplementary provisions and the aforesaid two decisions of the Supreme Court the Allahabad High Court has taken the view that the Supreme Court has not laid down in any case as to what would constitute manufacturing cost and that all costs which the manufacturer in course for putting an article in a marketable condition, so that it can be delivered at the factory gate to wholesale purchasers have to be included in the manufacturing costs and that there was no question of excluding such costs either on an interpretation of the aforesaid sections or on an interpretation of the true ratio of the aforesaid two decisions. The following extract from the judgment of the Allahabad High Court may be quoted in extenso in order to comprehend the conclusion reached by the Court and the reasoning underlying it :-
'We thus find from Section 4 that the ad volorem value of the excisable goods is the price which the manufacturer gets at the place of removal from a wholesale trader, and in cases where such price is not known the nearest ascertainable price calculated according to rules. Where the price at the place of removal is not known and is determined with reference to the price for delivery at another place, the transport costs is to be excluded. Section 4(4)(d)(1) requires the inclusion of the packing cost and exclusion of certain other taxes while calculating the assessable value. Inasmuch as section 4 provides for the method by which the assessable value has to be calculated and as Section 3 is silent as to how this value has to be calculated for purposes of imposition of excise duty, we are of the view that Sections 3and 4 are composite in character, and Section 3 left by itself does not fulfil completely the requirement of it being a charging provision. We are of the view that as Section 3 and 4 are supplementary to each other, Section 4 cannot be read down as as to give an overriding effect to Section 3. It must be remembered that the decision of the Supreme Court in the Voltas' Case and Atic Industries Case, when they laid down the test that only manufacturing costs and manufacturing profit could be taken into account for purposes of excise duty, and post-manufacturing cost had to be excluded, and that the duty was chargeable on the wholesale price payable at the factory gate at the time of delivery, did nothing more than to interpret Sections 3 and 4, of the Excise Act. Majority of these concepts are to be found in Sections 3 and 4 of the Act. It must also be noted that while pointing out that the wholesale cash price which the manufacturer gets from the wholesale buyer at the factory gate has to be taken into account for purposes of imposing duty. Now, can it be said that the wholesale price which consists of only the cost which are strictly incurred for manufacturing an article without costs incurred for it being put in a marketable condition so that it can be fed in the main stream of wholesale trade. We are of the view that all costs which the manufacturer incurs for putting an article in a marketable condition, so that it can be delivered at the factory gate to wholesale purchasers have to be included in the manufacturing costs. This could include charges for transporting the excisable goods from the factory to the factory gate, the cost of packing so as to render the article marketable in the wholesale market and may be certain other costs, which are necessary for putting it in a marketable condition. The Supreme Court has not laid down in any case brought to our notice as to what would constitute a manufacturing cost. Undoubtedly, some of the High Court have held that packing charges are not a part of manufacturing costs, but we have a decision of our own court in the case of State of U.P. v. Union of India (1980 U.P.T.C. 659) wherein it has been held that in certain cases packing cost the same has to be included in the assessable value. In the present case the batteries and the torches are commodities which cannot be sold outside wholesale traders unless they are packed properly in wooden boxes, for if they are sent without such packing they are likely to be damaged. The fact that the assessee packs them in wooden boxes purchased by it at the request of the wholesale traders is inconsequential, for if it did not do so, it would not have willing wholesale traders, who wanted to take them to outside stations. In this view of the matter, the packing charges would be a part of the manufacturing costs, and the wholesale price, and no question of the tax becoming a sales tax would arise. Neither would the competence of the Parliament to enact section 4(d)(1) be affected. The impugned orders were thus justified.'
Kerala High Court
12. In Madras Rubber Factory, Madras v. Assistant Collector of Central Excise, 1978 E.L.T. (J 595), the question which arose before the Kerala High Court was in the context of the amended section 4. The Kerala High Court has taken the view that post-manufacturing expenses cannot be excluded. However, this view has been built on the distinction drawn between the section as it was worded prior to the amendment and the wording of the section as it stands after the amendment. The view has been taken that the new section 4 is wider in scope and, therefore, Voltas' Case cannot be said to be the law for the purpose of interpreting the new section 4. If the value for the purpose of excise duty were to be restricted to the manufacturing cost and manufacturing profits, it would have the effect of ignoring the amended section 4 and the valuation rules. While the view has been taken into consideration, the basis of the decision being different, we do not propose to discuss the decision at length.
II. Whether expenses of the aforesaid categories (such as publicity, storage, etc.) are now deductible in making computation in context of amendment of section 4 of the Act by Act 22 of the 1973 even if the same were not deductible before the amendment
13. This is the second remification of the matter which we indicated in the opening part of our judgment. We might not have posed this question at all as in fact so far as the claim for deductions on the basis of the interpretation of the expression 'manufacturing cost plus manufacturing profit' as employed in Voltas' Case (supra) are concerned, but for the fact that the decision in First Golden Tobacco Case [1977 E.L.T. (J 113)] has not been followed by another Bench of this Court in Second Golden Tobacco Case (1980 E.L.T. J 437) and a contrary view has been taken on the ground that the former case arose in the context of the unamended section 4 whereas the latter case arose in the context of amended Section 4. We have reproduced (in just a position) section 4 'before' and 'after' amendment in the earlier part of our judgment. With due deference to the Division Bench which decided the Second Golden Tobacco Case we have to say that so far as the challenge from this platform 'manufacturing cost plus manufacturing profit' - argument urged in the context of Voltas' Case and Atic's Case (supra) is concerned, the amendment has no significance at all. The basic fabric of the argument remains the same. The reasoning spread out by us in the course of the discussion on the first point applies fully and truly regardless of amendment. Now, after the amendment, the criterion for valuation is (1) normal price at which such goods are ordinarily sold; (2) in the course of wholesale trade; (3) for delivery at the time and place of removal. In other words, wholesale price ordinarily fetched at the 'factory gate'. There is therefore no scope for deduction on the score of storage expenses, publicity expenses, etc. under the mystycial formula which haunted the battlefield of argument in the context of 'post-manufacturing' expenses in the shadow of Voltas' Case and Atic's Case (supra). For the reasons indicated by us earlier, we must reach the same conclusion. These categories of expenses are not deductible from the wholesale price at the factory gate - the amendment notwithstanding. The amendment of course has clarified the position regarding packing charges which is the third dimension of the problem to which we will shortly negotiate.
III. Whether charges in relation to primary and secondary packing are includible even if post-manufacturing expenses are includible in the context of amended section 4
14. The amended provision (section 4) has been quoted earlier. We may however have a quick look at the relevant part of the same at this juncture in order to come to grips with the problem. Sub-clause (4) of section 4 provides that 'value' for the purpose of computation of duty in relation to excisable goods for the purposes of section 4 would 'include the cost of packing' where the goods are delivered at the time of removal from (the factory gate) in a 'packed condition'. And the Explanation defines the expression 'packing' to mean the wrapper, container, bobbin, pirn, spool reel or warp or any other thing 'in which' or 'on which' the excisable goods are wrapped, contained, or wound. Petitioners contend that notwithstanding section 4(4) and notwithstanding the Explanation which makes it explicit that cost of packing material will be includible in determining the valuation for the purposes of computation of duty (unless the packing is of durable nature and returnable by the buyer to the seller) cost of packing should be deducted from the wholesale price at the factory gate even when goods are sold in a packed condition. The obvious answer to this argument is that when the relevant section expressly provides for inclusion, unless the section is held to be ultra vires to the extent it so provides effect must be given to it. Counsel has therefore challenged the vires of the section. Before we deal with the said submission we may observe that inasmuch as the excisable article cannot be sold in a loose condition (in the wholesale market at the factory gate) without being packed in a container or packing material, as the case may be, and inasmuch as the process of manufacture of the article is not complete until it is put in a condition in which it is generally sold in the wholesale market at the factory gate, the cost is includible in valuation of the excisable goods. More so as amended section 4 in terms so provides. Therefore Counsel contends that if the cost of the packing material is so included it would lose the character of excise duty and would assume the character of Sales Tax. And as sales tax can be levied only by the State under Entry 54 of the State List (List II of 7th Schedule of the Constitution of India) the Parliament would have no legislative competence to provide under section 4(4)(d)(1) that cost of packing material should be included in determining the value of the excisable goods. Reliance is placed on two decisions of this Court viz. Alembic Glass Co. Ltd. v. Union of India & Others [1979 E.L.T. (J 144)] and Second Golden Tobacco Case (1980 E.L.T. J 311). And on the basis of this reasoning it is contended that section 4(4)(d)(1) must be read down as excluding the cost of packing material as it was done in the aforesaid two decisions or to hold it as ultra vires the legislative powers of the Parliament in the context of Entry 84 in List I of the Seventh Schedule to the Constitution of India.
IV. Can Section 4(4)(d)(1) be read down
15. With due respect to the Division Bench concerned in the aforesaid two cases we are unable to agree that section 4(4)(d)(1) can be read down so as to obliterate the provision which expressly makes the cost of packing material includible. When the Parliament has in so many words enacted the provision and made it includible, we cannot erase it by giving the exercise the label of 'reading down'. The doctrine of reading down cannot be invoked in order to paste a blank paper over the provision or scoring it off with ink and pen in the course of interpreting it. When we interpret it the body of the provision must remain intact though its books may be altered. But we cannot obliterate the body of the provision. It amounts to virtual repeal of a legislation by the Court. Now the Court can hold the provision to be unconstitutional. The Court cannot 'repeal' it for the obvious reason that the power of 'enacting' and 'repealing' a legislation is within the exclusive domain of the Legislature. Not that of the Court. We are therefore regretfully unable to agree with the view taken in Alembic Glass Co. Ltd. and Second Golden Tobacco, in the aforesaid two cases.
16. Realizing the difficulty in the context of this aspect, Counsel argued that the provision must be declared to be ultra vires if it cannot be read down.
V. Is Section 4(4)(d)(1) ultra vires
17. The first contention is that since the packing material is not manufactured by the manufacturer of excisable goods packed in the said packing material, inclusion of its value in order to levy excise duty would tantamount to tax on 'sale' or packing material. What is permitted is levy of tax on 'manufacture' and not levy of tax on 'sale' of packing material. It would therefore be sales tax which is a tax leviable by the State and not the Union Government. Such is the argument. In our opinion there is a basic misconception and a fundamental fallacy in this argument. Certain basic aspects are overlooked. What is overlooked is that section 3 and section 4 of the Act taken as a whole embloc and read conjointly constitutes the charging section. It is fallacious to assume that section 3 standing alone is the charging section. This is as evident as day light if the test we will presently formulate is applied. Can the impost be given effect at all if both the sections are not read as supplementary and complementary If section 4 were not there, the result would be that under section 3 goods are made excisable at the rates set forth in First Schedule to the Act which inter alia provides for ad valorem rates. The rate by its very nature is linked to the value, that being the very concept of ad valorem. And unless there is a provision which spells out what is meant by 'value' and how it is to be computed, several unanswerable questions will arise. Value to whom . v. Union of India and Others. (Civil Miscellaneous Writ Petition No. 370 of 1979, decided on February 4, 1982, speaking through C.P.S. Singh J.) 1982 ELT 857, (All). Since we have taken this view it is unnecessary for us to consider the alternative submission urged by the learned Standing Counsel for Union of India that worse come to worse, the levy in the context of packing material can be sustained as an indiscript levy under Entry 87 of List I of Schedule VII of the Constitution of India.
18. In the view that we are taking it is unnecessary to draw a distinction between 'primary' packing and 'secondary' packing. We may mention that Counsel for the petitioners contended that in regard to the cost of packing which is of a durable nature and is returnable by the buyer to the assessee, the provision concerned [section 4(4)(d)(1)] must be so construed that even if the contract does not provide for the return of the durable packing must be excluded. We are unable to agree with the submission in the face of the clear language of the provision. The expression 'returnable by the buyer to the seller' places the matter beyond the pale of controversy. 'Returnable' means returnable as per agreement between the buyer and the seller. What else can it mean When the cost of such packing is included in the price by the seller, it is obvious that it is so done in order that the durable packing is returned - it is a sort of a security for the return of the packing. The basic idea is that when by the contract of sale, the sale-price of the excisable article is to be unloaded by the packing factor and the packing is to be returned in specie, the cost of packing does not form a part of the sale price and cannot therefore, included in the valuation for the purpose of computation of the levy.
19. We may mention that we do not consider it necessary to refer to and consider the decision in Alembic Glass (supra) and every other judgment on the point of packing material as the reasoning reflected hereinabove, which is the fundamental basis of our decision, has not been considered therein.
20. The curtain cannot be dropped till we observe that in case we had sustained any of the contentions urged by Counsel for petitioners would have directed refund of the amount to the buyer or directed the same to be deposited in a Bank Account for the benefit of the consumers instead of allowing the petitioners to secure unjust enrichment. In the view we are taking, the question does not arise.
21. In the result, we see no substance in any of the contentions urged on behalf of the petitioners. The petitions are rejected. Rule is discharged and interim orders are vacated in each matter. No order regarding costs.