S.H. Sheth, J.
1. The petitioner is a company incorporated under the Indian companies Act and has been engaged in the manufacture of the cigarettes. Amongst other places it has got a factory at Baroda. On the manufacture of cigarettes. the petitioner-company was called upon to pay excise duty. While determining the assessable value of cigarettes for the purpose of collecting excise duty, the central excise duty, the central excise authorities included in it certain post- manufacturing expenses, such as advertisement expenses, storage expenses, marketing and distribution expenses and Bank charges and interest recovered by the petitioner-company from wholesale buyers who enjoy a certain credit. The Assistant Collector of Central Excise determined the assessable value after including therein expenses under all these heads. The petitioner appealed against the order to the Appellate Collector of Central Excise who confirmed it.
2. Under the aforesaid circumstances, thee petitioner has titled this petition in which two questions are raised fro our decision:
(1) Assessable value fro excise duty cannot include post- manufacturing expenses because excise duty is a tax on manufacture or production.
(2) If post-manufacturing expenses are included in the assessable value, section 4 of the Central Excise and Salt Act, 1944, would be ultra vires the legislative competence of Parliament under Art. 246 of the Constitutions read with Entry 84 in List 1 and Entry 54 in list 11.
3. In order to answer the questions which have been raised before the us, it is necessary make a short reference to a few decisions which have a bearing on the first question. Some of them have interpreted section 4 as it was before it was amended in 1975 and the others have interpreted the new section.
4. Section 4 before it was amended on 1st October, 1975 reads as under :
'Where under this act any article is chargeable with duty at a rate dependent on the value of the article, such value shall be deemed to be-
(a) the wholesale cash price for which an article of the life kind and quality is sold or is capable of being sold at the time of the removal of the article chargeable with the duty from the factory or any other premises of the manufacture or production for delivery at the place of the manufacture or production, or if a wholesale market does not exist for such article at such place, at the nearest place where such market exists, or
(b) where such price is not ascertainable, the price at which an article of the like kind and quality is sold or is capable of being sold by the manufacturer or producer or his agent, at the time of the removal of the article chargeable with duty from the such factory or other premises for the delivery at the place of manufacture or production, or is such article is not sold or is not capable of being sold at such place, at any other place nearest thereto.
Explanation : In determining the price of any article under this section no abatement or deduction shall be allowed except in respect of the trade discount and amount of duty payable at the time of the removal of the article chargeable with duty from the factory of other premises aforesaid.'
Section 4 before it was amended specified ' the wholesale cash price' except when it could not be ascertained for determining the assessable goods and also laid down the manner in which 'the wholesale cash price'. could be determined.
5. On 1st October, 1975, sec 4 was amended. Amended 4(1)(a) reads as under :-
'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 the removal, where the There is a proviso to clause (a) of sub-sec (i) known and its value has been determined with reference to the price for delivery at a place other than the place of removal. Sub-section (3) and (4) are not material for the purpose of the present case.
6. In terms of the amended Section 4 the question which we are required to answer is this. What is ' the normal price ' of the excisable goods and whether it includes certain costs or expenses which follows the completion of the manufacturing process?
7. In Cibatul Limited v. Union of India and other = 1979 E. L. T. (J 407) this court whilst striking down the expression 'Where the buyer is not a related person' used in clause (a) of sub- section (1) of section 4 and while striking down clause (iii) in the provision to clause (a) of the sub-section (1) of section 4 examined the question of determining the assessable value of an excisable goods. After the having examined several decisions of the Federal Court and the Supreme Court this court observed in para 15 of the report that the excise is a tax on the production and manufacture of goods and that the excise is a tax on the production and the manufacture of goods and that the excise is a tax on the production and the manufacture of goods and that the excise duty can be levied only on the amount representing the manufacturing cost plus the manufacturing profit and that the post- manufacturing cost and the profit arising from the post-manufacturing operations are excluded.
8. Relying upon the decision of the Supreme Court in Atic Industries Ltd. H. H. Dave, Asstt., Collector of Central Excise and other AIR 1975 S. C. 960 = 1978 E. L. T. (J 444) this court observed para 17 of the report as follows:
'In the opinion of the Supreme Court the excise duty should be levied on the amount of manufacturing costs and manufacturing profit and post-manufacturing costs and post-manufacturing operations viz. the sale ought to be excluded.'
It also observed that 'While determining the assessable value of the goods for the purpose of excise duty, manufacturing costs and manufacturing profit alone should be taken into account and that they must not be loaded with the post-manufacturing profit arising from post-manufacturing operations.'
In para 19 of the report, this court summed up in the following terms its conclusion after the having reviewed a number of decision on the subject commencing from 1939 :
'It is clear from all these decisions rendered during a period of 37 years from 1939 to 1976 that a duty of excise within the meaning of Entry 84 in the Union List is a tax on manufacture or production. It other words, must be linked with manufacture or production of an excisable article. It can be levied on the assessable value of the excisable gods which consists of manufacturing costs and manufacturing profits and the which cannot be loaded with post-manufacturing costs nd post- manufacturing profits such as those which arise out of subsequent sales. Once the link of the levy with the manufacture or production of an excisable commodity has been established, it does not matter not matter at what stage it is recovered .'
In para 22 of the report, it has been expressly observed that the question whether costs incurred under a particular head will be a part of the manufacturing costs or not arisen in that case. That is the question which has now arisen in the present petition.
So far as this Court is concerned, this decision is the authority for the proposition that assessable value of an excisable goods can be made up only of manufacturing costs and manufacturing profit and that upon thee assessable value so determined, excise, duty can be levied.
9. Our attention has also been invited by Mr. Divan to certain other decision which have a direct or indirect bearing on the subject-matter of the controversy before us.
10. In The Union of India and others v. The Vazir Sultan Tabacco Co. Ltd. Hyderabad - 1978 Taxation Law Reports, 1824 = 1978 E. L. T. (J 461) a Division Bench of the Andhra Pradesh High Court has laid down that the excise duty which is a duty payable on the manufacture of production of the goods can only be on the aggregate of manufacturing costs nd manufacturing profit. It has been further observed : 'If there are any items of costs which area necessarily incidental to the process of manufacture, they will also be a part of the manufacturing costs, But if it can be demonstrated by a particular manufacturer that, even on the first sale to the first wholesale dealer there is an elements other than that of manufacturing cost and manufacturing profit and thus the price charged to the first wholesale includes post-manufacturing cost, such post-manufacturing cost must be eliminated by the excise authorities from their calculations ,' In that case, an earlier decision of this Court reported in Special Civil Application No. 858 of 1974, decided on 8th September 1976 by J. B. Mehta Actg., C. J. and M. P. Thakker, J. was dissented from. We are shortly referring to that decision.
11. Next decision to which our attention has been invited by Mr. Divan is in Indo-national Limited v. Union of India and others, = 1979 E. L. T. (J 334). A Division Bench of thee Andhra Pradesh High court has observed in that decision that under section 3 which is the charging section excise being a tax on manufacture, can be levied on the manufacturing costs and manufacturing profits. It has also been observed that if the price charged by the manufacturer from its first buyer includes post-manufacturing costs or expenses which are unrelated to the manufacture or production, the price must be relieved of such loading for the purpose of determining the assessable value under new section 4. provided such expenses are actually incurred.
12. In Bombay Tyres International Ltd. v. Union of India and others, = 1979 E. L. T. (J 625) Mr. Justice Lentin of the High Court of Bombay sitting singly observed : ' Excise duty in leviable only on the amount representing the manufacturing cost plus the manufacturing profit and excludes post-manufacturing costs and profit arising from post- manufacturing operation, namely selling profit.'
13. In India Tobacco Company Ltd. v. Union of India and others, = 1979 E.L.T. (J 476) to which our attention has been invited by Mr. Divan, a Division Bench of the High court of Bombay has observed that sec 4 cannot be construed so as to enlarge the ambit of duty by including therein the post-manufacturing or non- manufacturing expenses. It has also been observed that freight charges paid by a manufacturer for the removing the goods to certain other places for delivering it to his wholesale buyer cannot be included in the assessable value of the excisable goods. It has also been held that so far as advertisement expenses are concerned, so much of them which have reference to selling activity must be excluded from the assessable value.
14. In Cibatul's case (supra), after having a number of decision, this court has construed Entry 84 in the Union List and held that since that duty of excise can be levied on production or manufacturing of an excisable goods it can be levied only on the price which truly and fully reflects the manufacturing costs nd manufacturing profits. To levy excise duty on an assessable value consisting of manufacturing costs and manufacturing profit and loaded with certain other post- manufacturing costs or expenses would be ultra vires thee legislative competence of Parliament under Entry 84 in the Union List read with Entry 54 in the State List. Therefore, to expand the concept of 'normal price ' specified in section 4 (as amended) and the include therein something which has no reference to the manufacturing activity is to render section 4 ultra vires Art. 246 read with Entry 84 in the Union List. It is, therefore, necessary to confine the operation of section 4 (as amended) so as to determine the assessable value or the 'normal price' of an excisable goods which represents only the manufacturing costs and manufacturing profits.
15. Let us in that light see whether expenses under four heads specified above can be included in the manufacturing costs so as to determine a higher assessable value for the purposing of levy and collection of excise duty.
The first head of expenses of which the petitioner seeks exclusion from the assessable value or normal price relates to storage of the excisable goods at various depots. The question of storing the finished or manufactured goods either in the local 0depot or elsewhere arises only after the excisable goods have been fully manufactured and before they find their market. Storage of excisable goods after they have been manufactured have, therefore, nothing to do with the manufacturing activity and expenses incurred in that behalf of the are not referable to manufacturing costs or manufacturing activity. By any standard, storage is a post-manufacturing activity and expenses incurred in that behalf are post-manufacturing expenses. Therefore, expenses incurred in by a manufacturer on storage of its finished products cannot enter into determination of its assessable value which can be made up only of manufacturing costs and manufacturing profits. Ordinarily, a manufacturer who stores his goods before they are marketed may have to pay rent for the godowns for storing facility and to suffer loss of interest in investment made by him in the manufactured goods. Expenses under both these heads have nothing to do with manufacturing activity and , therefore, they are unquestionably post-manufacturing expenses.
16. The second head of expenses with which we are concerned relates to marketing and distribution arrangements. Marketing and distribution may include the salaries of the staff engaged exclusively for selling operations. Similarly, marketing and distribution expenses may include transpiration charges. The question of marketing an excisable goods arises only after it has been fully manufactured and its ready to be marketed. Manufacturing activity ends at the point where marketability of the goods commences. Therefore, marketing and distribution of an excisable goods have not relation or reference to its manufacture at all. Therefore, expenses incurred on marketing and distribution arrangement of an excisable goods cannot form part of manufacturing costs and, therefore, of their assessable value.
17. The third head of expenses in respect or which the petitioner claims deduction are Bank charges and loss of interest suffered by it on account of its having given credit to its wholesale buyer for payment of the price of the goods sold to them. Recovery of the price of the excisable goods sold by the petitioner to a wholesaler through the agency of the Bank saddles him with Bank charges. Secondly he suffers loss of the interest by giving credit for a certain period to his wholesale buyer to pay the price of the goods sold to him. They do not fall within the range of manufacturing activity but they fall within the range of sale of the manufacturing activity but they fall within the range of sale of the excisable goods. They, in our opinion have nothing to do within the manufacturing activities and, therefore, they do not have reference or relation to the manufacturing activities.
18. The last head under which the petitioner seeks benefit relates to advertisement expenses. What is goods in a case of storage expenses, marketing or distribution expenses and Bank charges does not necessarily hold goods in respect of advertisement expenses. Before the excisable goods is manufacture or produced it may be advertisement in order to secure market for it in future. Expenses incurred on such advertisements would necessarily have reference or relation to the manufacturing activity and can form a part of manufacturing costs leading to the determination of the assessable value on that the basis . However an excisable commodity may be advertised even after been manufactured or produced. Expenses incurred on such advertisements would fall clearly within the realm of the sale of the commodity rather than within the realm of its manufacture. It is quite probable that was on one hand an excisable commodity goes on being manufactured day-to-day advertisement in relation to that commodity may go on the published from day-to-day . Such an advertisement process will necessary involve expenses for a manufacturer but all such expenses cannot be to or cannot have relation to the manufacturing activity. In our opinion a part of it will have reference to manufacturing activity. while another part will have reference to the selling activity. In such a case, the central arise authorities will have to the apportion on some rational principle the advertisement expenses between the manufacturing activity on one hand the selling or marketing activity on the other hand and would be in including in the manufacturing cost whatever advertisement expenses have been apportioned by them as relation to the manufacturing activity or excisable goods.
19. Our attention has been invited to Division Bench decision of this Court inn Golden Tobacco Co. Ltd. Bombay Union of India and another = 1977 E.L.T. (J 113). In that decision question which as well as advertisement and publicity costs After they have construed the expression ' wholesale cash price' used in Section 4 before the it amended, This court in para 6 of the reports laid down that the cash price would include the interest elements and the freight if the commodity was transported from the factory to the nearest market place. In that behalf, this Court observed as follows:
'......freight also would have to be incidentally adjusted to translate the price on then and there basis right at the factory gate or the nearest market place.'
This Court next observed in para 6 of the report as follows :
'Therefore, when in this context it is emphasized that the selling cost and the selling profit should be excluded, the emphasis is on this basis concept of excise that the measure should not be of the second or subsequent wholesale price or the retail price as that would load the real price with the post- manufacturing elements, namely, selling cost and selling profits of the wholesale dealers. That would be clearly violative of not only the basic concept of excise where the taxing event is production or manufacture of goods but would violate even the basic factory gate concept because the price would be loaded with the post-manufacturing elements after the article has entered the stream of wholesale trade.'
20. In para 14 of the report, it has been observed by this court :
' The post manufacturing elements or the selling cost and selling profit of the wholesale dealer 'would enter in the picture if the basis taken is the second or the subsequent price and not the first wholesale price charged by the manufacturer himself in wholesale to a wholesale dealer at arms length and the usual courses of business, of course, less the trade discount envisaged by the Explanation.'
It has been observed in that decision ' such a net wholesale cash price for the goods sold at the factory gate within the meaning of section 4(a) would be properly falling within the concept of excise '. Proceeding further, this Court observed.
'The whole aspect of the post-manufacturing expenses would come in only after the first wholesale sale at the stage of subsequent wholesale price of retail price is not to be basis for this excise levy it is obvious that no adjustment could be made by way of any such apportionment which would make the whole price uncertain and not easily ascertainable as envisaged by their Lordships.'
Lastly, it has been observed that the petitioner in that the had never pleaded that it had both the manufacturing activity and the sales organization and that the nature of its arrangement with the distribution had not been disclosed.
21. Mr. Shelat who appears on behalf of the respondents has argued that so far as this Court is concerned this decision concludes the controversy and that it is binding on us. It is necessary to note in this context that this Court in that decision was concerned with interpreting the expression 'wholesale cash price'. which shall be the assessable value for the upon the interpretation of section 4 as it was prior to its amendment. With its amendment with effect from 1st of October, 1975, the new section has been substituted for the old section. Next, in Cibatul's case (supra) we have declared a part of section 4 (as amended) ultra vires the legislative competence of the Parliament under Art. 246 read with Entry 84 on the Union List. That situation did not obtain before the Division Bench. when it decided that the case. Next, as the report shows, this Court had proceeded on the assumption of the 'There and then sale' at the factory gate and had not thought of consequences which would follow from the passage of time-leg between the manufacture of an excisable goods and its sale. The present petitioner was the petitioner in that case. Whether the petitioner had a sales organization or not was not pleaded in that case. In view of the reasons which we have stated and more particularly in light of the substitution of new sec 4 for old sec 4 by the amending enactment. we cannot be hold that it is application to the fact of the present case and is binding upon us.
22. Our attention has been invited by Mr. Shelat tot he decision of the learned single Judge of the Madras High Court in Aurofood Private Ltd. v. Union of India and others = 1978 E.L.T. (J 673). In that decision the earlier decision of this court to which we have referred to the with approval.
23.In the result the petition succeeds. It is declared that the aforesaid expenses incurred by the petitioner on the excisable goods. after they have been manufactured, (except advertisement expenses ) cannot form a part of a 'normal price' within the meaning of section 4(1)(a) of Central Excise and Salt Act 1944 and cannot therefore enter into the assessable value of its product for the purpose of collection of excise duty. So far as advertisement expenses are concerned a part of the will enter into the manufacturing cost and, therefore the 'normal price' which is the basis for the determining the assessable value. It would be open to the central excise authorities to determine in each case how much of advertisement expenses shall be included within the 'normal price' for the purpose of the assessing excise duty and how much shall be excluded indeed depending upon what the part has relation or reference to the manufacturing activity and what part has relation to the salability or marketability of the commodity after it has been manufactured.
24. On the behalf of the petitioner Mr. Divan has also raised the question whether the value of corrugated fibre containers (CFC) or wooden cases can be included in the assessable value of the petitioner products. It has been conceded on behalf of the central excise authorities. in the affidavit-in-reply filed in this case that the value of CFC containers or wooden cases used in packing material by the petitioner for its products shall not form a part of the assessable value. On the concession made by the central excise authorities it is accordingly declared.
25. Mr. S. N. Shelat who appears on behalf of the central Excise authorities state that the petitioners claim fro refund in the relation to the value CFC containers or wooden cases shall be finalised by the central excise authorities within the period of three months. Since we have upheld the first contention it is not necessary for us to answer the second contention. It will be open to the central authorities to re-determine the 'normal price' or the assessable value of the excisable goods in the light of this decision. If it is found that the petitioner has paid anything more than what is should be have paid if the assessable value or the 'normal price' was determined in light of the principles laid down in this decision the central excise authorities shall refund such excess amount to the petitioner.
26. Rule is made absolute with costs.
27. Mr. S. N. Shelat who appears on behalf of the respondent applies for certificate of fitness under Art 133(1) of the Constitution to appeal against this decision to the Supreme Court. He has pointed out to us that the we have granted such a certificate to the Union of India and the central excise authorities in Cibatul's case (supra). In that case we have interpreted the Constitutional provision. we have not interpreted any constitutional provision in this case. Secondly the interpretation which we have placed upon section 4 does not raise any substantial question of law so as to warrant granting of a a certificate of fitness under art 133(1). The oral application made by Mr., Shelat is therefore rejected.
28. Whatever arrangement was ordered to be made by this court during the pendency of this petition shall remain in force for a period of two months after which it shall stand acted,. So far as the payment of different of excise duty in future is concerned it shall be open to the petitioner to furnish bank guarantee for the entire amount of difference. This arrangement also shall remain in force for a period of two months.