1. This Writ Petition coming on for hearing on Thursday the 15th day of December 1977, Friday the 6th day of January, Monday the 9th day of January, upon perusing the petition and the affidavit filed in support thereof the order of the High Court, dated 12.8.75 and made herein, and the counter affidavit filed herein and the records of the Respondents culminating in the order of the first Respondent dated 16.6.76 and comprised in the return of the respondents herein to the Writ made by the High Court, and upon hearing the arguments of Mr S. Ramasubramaniam for M/s. King and Partridge Advocates for the Petitioner, and Mr. T. Chengalvarayan, Senior Central Government Standing Counsel on behalf of the Respondents, and having stood over for consideration till this day, the Court made the following order.
2. The petitioners manufacture biscuits at their factory at Auroville, Pondicherry. The biscuits are items falling under Tariff item I-C of the Schedule to the Central Excise and Salt Act, 1944 (hereinafter referred to as the Act). In November 1972 the third respondent (Assistant Collector of Central Excise, Pondicherry Division) visited the petitioners' factory and in the course of the said visit he expressed the opinion that since the two price lists were in force for sale of the petitioners' products, one with reference to Pondicherry, and another with reference to the entire southern region, the petitioners should submit two price lists and pay excise duty in accordance with the prices mentioned in those lists. The petitioners submitted to the third respondent that such a claim is opposed to the basic principles of levy of excise duty which is only on the manufacture, and therefore objected to the proposal.
3. An enquiry was conducted into the matter and after ascertaining the basic facts, an order was passed on 15.2.1973 by the third respondent. Therein he observed that there were two distinct types of sales and therefore a distinction should be made as reflected in the price list. They are:-
(i) as sales made at Pondicherry Without containers ; (ii) as sales made outside Pondicherry with container. Aggrieved by this order, an appeal was (J673) preferred to the second respondent. By this order dated 1st October, 1973, the said appeal was allowed by the second respondent. After the order in the appeal, the first respondent (Government of India, Ministry of Finance, Department of Revenue and Insurance, New Delhi) issued a show cause notice under section 36(2) of the Act on 19th September 1974. In the said notice it was stated that on an examination of the case, the first respondent was tentatively of the view that the order of the second respondent is not legal or proper. The notice further stated that the biscuits sold in returnable containers and non-returnable containers are not goods of the like kind and quality for the purpose of assessment. The notice therefore called upon the petitioner to show cause why the order of the third respondent should not be restored. The petitioner showed cause by the reply dated 30th September, 1974. A personal hearing was offered to the petitioners on 11th April, 1975. Thereafter by the impugned order dated 16th May, 1975, the first respondent held that the biscuits sold in returnable containers and in non-returnable containers cannot be considered goods of the like kind and quality and they are two distinct categories for the, purposes of assessment. In the result, the order of second respondent was set aside and that the order of the third respondent was restored. It is under- these circumstances, the present writ petition has been preferred, on the following among other grounds.
4. The first respondent erred in law in stating that biscuits sold in non-returnable containers are two distinct categories for the purpose of assessment to excise duty. The entry 1-C of the Schedule to the Central Excise and Salt Act, 1944 refers to 'biscuits' only and there is no jurisdiction for the first respondent to levy excise duty taking into consideration the value of the containers.
5. The observation of the first respondent that biscuits sold in returnable containers and in non-returnable containers are two distinct categories is an error apparent on the face of the records. The Supreme Court has clearly held that excise duty is a duty on manufacture, and what happens to the product subsequently is legally of no relevance for the purpose of levy of excise duty. Therefore, to say that biscuits become a different category when put inside containers is legally untenable.
6. The first respondent ought to have seen that the fact whether the containers are returned or not returned, can have no bearing on the assessable value of the biscuits. In this connection the statement that biscuits sold in returnable containers and in non-returnable containers cannot be considered as goods of the like kind and quality, is so erroneous on the face of it, that it cannot be accepted as valid. The order of the first respondent based on such an erroneous stand cannot be sustained.
Hence the prayer is for Certiorari to quash the order of the first respondent dated 16th May, 1975.
7. In the counter affidavit on behalf of the respondents, it is stated as under:
It is submitted that two price lists were in force in respect of the biscuits sold by the petitioner firm one in respect of the sales in Pondicherry area in returnable containers and the other in places outside Pondicherry in non-returnable containers. In respect of sales in Pondicherry the full value of container is not included in the invoiced price, whereas in respect of sales outside Pondicherry with containers the value of the container is included in the invoiced price. The Assistant Collector, Ppndicherry after making necessary investigation into the matter and after issue of a show cause notice and observance of all formalities, passed an appealable order on 15.2.1973 requiring the firm to furnish two price lists for determination of assessable value under Section 4 of the Act, observing that sale of bscuits in Pondichery in returnable containers and the sales outside Pondicherry with containers (non-returnable containers) constitute two distinct types of sales. Biscuits are of a nature that they become fit for marketing only after they are packed in containers (either small or big). In the case of the petitioner firm also all their products are filled in this in bulk either unwrapped in small paper packets. There is no difference in the form in which the goods leave the factory whether it be for sale to Pondicherry dealer or salies outside Pondicherry in that in both cases the biscuits are packed in tins and hence the value of the containers is also a factor to be taken into account for determination of assessable value. In the case of the sale at Pondicherry as the containers are returned back to the factory their full value is not included in the price. As regards the position relating to Britania Biscuit Factory cited by the petitioners, it may be noted that in their factory at Calcutta there is no market at the factory gate for goods in non-returnable containers. In respect of their factory at Bombay there are sales both in returnable containers and in non-returnable containers, at the factory. Two separate price lists one for biscuits sold in returnable containers and another for biscuits sold in non-returnable containers, are in force for purposes of assessment.
With regards to the grounds the answer is as follows:-
Under Tariff item 1-C biscuits are liable to a duty of Central Excise on ad valorem basis. Biscuits are of a nature which require packing before delivery whether for local market or for outside market. The biscuits manufactured by the petitioner firm are marketed only after being packed in containers both for sales at Pondicherry and for sales to places outside Pondicherry. The value of the containers is included in the invoiced price in respect of sales outside Pondicherry whereas in the case of sales at Pondicherry, as the containers are returnable their full value is not included in the invoiced price. In these circumstances the decision of the department to collect excise duty taking into consideration the value of the containers, in all cases where the biscuits are marketed with containers is correct in accordance with the provisions of Section 4.
8. Manufacture includes any process incidental or ancillary to the completion of a manufactured product Biscuits are a peculiar commodity where packing is a necessary ancillary process and hence the process of manufacture can be said to be complete only after they are packed in containers. Thus packing is only a process of manufacture and cannot be considered as a process subsequent to manufacture as contended by the petitioner. The biscuits are marketed only in packed condition.
The petitioner-firm sells biscuits to all dealers both at Pondicherry and at places outside Pondicherry only after being packed in containers. In all cases except in respect of sales at Pondicherry the value of the containers is included in the price. In the case of sales at Pondicherry a portion of the costs of the container is included in the invoice price as the tins are returnable. The two types of sales one in returnable containers and other with out containers cannot be considered to be goods of the like kind and quality. Hence it is submitted that the writ petition may be dismissed.
Mr. S. Ramasubramaniam, learned counsel for the petitioners Urges the following points before me.
9. There is no doubt that the excise duty is on the incidence of manufacture as laid down in Ford Motor Company v. Secretary of State A.I.R. 1938 15 and A.K. Roy v. Voltas Ltd. : 1973ECR60(SC) . Such a duty is levied only on 'excisable goods' listed in the schedule as per the charging Section 3 of the Act. Therefore it will obviously follow that the goods which are not manufactured by the manufacturers, viz., the petitioners herein, cannot be subject to the levy.
10. Section 4 of the Act defines the value. It is not correct to equate for value with the price as laid down in Vacuum Oil Co. v. Secretary of State for India in Council. and A.K. Roy. v. Voltas Ltd. : 1973ECR60(SC) . There are a number of decisions which cleanly lay down that in calculating the wholesale price, post-manufacturing expenses must be excluded, and all the High Courts are uniform in this regard (vide I.T C. Ltd. v. Union of India (1977 Tax L.R. 2060 ; Telco Ltd: v. SN. Guha 1977 ELT 14 Therefore, where after the manufacture of the biscuit which alone is the excisable commodity, merely because the petitioners happen to pack the same in tins, which is a post-manufacturing operation, those things cannot be subject to excise duty.
11. The significance of the word 'deemed' occurring under Section 4 of the Act is to show that price is not be the 'value' but something less than the 'price'. It does not and cannot enlarge the scope of Section 3. In other words, value would be equated with manufacturing cost plus manufacturing profit and nothing else. To add the cost of the container to the cost of biscuits would be illegal and cannot be done under the heading of 'deemed' value. It will invert the very purpose of the legislature using the word 'deemed'. As a matter of fact, a similar interpretation has been placed by Koshal, J., in Writ Petition No-1746/72 of this Court. 1978 E.L.T. 18 .
12. Lastly, it is urged that excise duty on content would not mean excise duty on the container.
13. Mr. T. Chengalvarayan, learned counsel for the respondents would draw my attention to Section 3 of the Act and submit that no doubt it is undeniable that the excise duty is on manufacture, but in the instant case, it is not a post-manufacture operation when the biscuits are packed in tins. It is the wholesale price charged at the factory gate. It is not the case of the petitioner that as far as sales outside Pondicherry are concerned, they are sold without the tins. Therefore, the various cases which are relied on by the petitioner cannot be of any assistance to determine the wholesale price.
14. Section 3 and 4 must be understood as one being the charging section and while the other is the quantifying section. What is not chargeable can be subject to excise by deeming provision. In fact, that is the intent and the purpose of Section 4. The judgment of Gujarat High Court in Special Civil Application No 858 of 1974-1977 ELT. (J 113) is very clear on this aspect.
15. There was a detailed discussion relating to the wholesale price and it was stated therein that the wholesale price at the factory gate is the quantum on which the levy should be made. The judgment of Koshal, J. does not afford any assistance to the petitioners because the scope of construing Section 4 did not arise.
16. It is not necessary for me to deal at length with the fundamental proposition that excise is a duty on the incidence of manufacture. There is no need to refer to any case law on this aspect. Section 3 of the Act is very clear in its terms. The whole question that arises for my determination in this case is when the petitioners pack their biscuits in tin containers for sales outside Pondicherry, are they liable to excise duty even on the value of these tin containers notwithstanding the fact that they do not manufacture the same? It is undeniable that the excise duty can be levied on the value of Biscuits, since item 1-C of the First Schedule to the Act reads:
'Food Products, in or in relation to the Ten percent
manufacture of which any process is ordin ad valorem.
arily carried on with the aid of power, the
(1) Biscuits. * * * *
It is clear that Section 4 at the relevant period requires to be looked at and let me extract the section in full for proper appreciation :-
'Where under this Act, the duty of excise is chargeable on any excisable goods with reference to value, such value shall, subject to the other provisions of this section, be deemed to be-
(a) the normal price thereof, that is to say, the price at which such goods, are ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and place of removal, where the buyer is not a related person and the price is the sole consideration for the sale:
(i) Where, in accordance with the normal practice of the wholesale trade in such gqbds, such goods are sold by the assessee at different prices to different classes of buyers (not being related persons) each such price shall subject to the existence of the other circumstances specified in Clause (a) be deemed to be the normal price of such goods in relation to each such class of buyers;
(ii) where such goods are sold by the assessee in the course of wholesale trade for delivery at the time and place of removal at a price fixed under any law for the time being in force or at a price being the maximum, fixed under any such law, then, notwithstanding anything contained in Clause (iii) of this proviso, the price or the maximum price, as the case may be, so fixed, shall, in relation to the goods so sold, be deemed to be the normal price thereof.
(iii) where the assessee so arranges that the goods are generally not sold by him in the course of wholesale trade except to or through a related person, the normal price of the goods sold by the assessee to or through such related person shall be deemed to be the price at which they are ordinarily sold by the related person in the course of wholesale trade at the time of removal, to dealers (not being related persons) or where such goods are not said to such dealers, to. dealers (being related persons) who sell such goods in retail;
(b) where the normal price of such goods is not ascertainable for the reason that such goods are not sold or for any other reason, the nearest ascertainabie equivalent thereof, determined in such manner as may be prescribed.
(2) Where, in relation to any excisable goods the price thereof for delivery at the place of removal is not known and the value thereof is determined with reference to the price for delivery at a place other than the place of removal, the cost of transportation from the place of removal to the place of delivery shall be excluded from such price.
(3) The provisions of this section shall not apply in respect of any excisable goods for which a tariff value has been fixed under Sub-section (2) of section 3.
(4) For the purposes of this section-
(a) 'assessee' means the person who is liable to pay the duty of excise under this Act and includes his agent.
(b) 'place of removal' means-
(i) a factory or any other place or premises of production or manufacture of the excisable goods; or
(ii) a warehouse or any other place of premises wherein the excisable goods have been permitted to be deposited without payment of duty from where such goods are removed.
(c) 'related person' means a person who is so associated with the assessee that they have interest, directly or indirectly, in -the business of each other and includes a holding company, a subsidiary company, a relative and distributor or the assessee, and any sub-distributor of such distributor.
Explanation :- In this clause 'holding company' 'subsidiary company' and 'relative' have the same meanings as in the Companies Act, 1956,
(d) 'value' in relation to any excisable goods-
(i) where the goods are delivered at the time of removal in a packed condition, includes the cost of such packing except the cost of packing which is of a durable nature and is returnable by the buyer to the assessee.
Explanation-In this sub-clause 'packing' means the wrapper, container, bobbin, pirn, spool, real or warp beam or any other thing in which or on which the excisable goods are wrapped, contained or wound;
(ii) does not include the amount of the duty of excise, sales tax and other taxes, if any, payable on such goods and, subject to such rules as may be made, the trade discount (such discount not being refundable on any account whatsoever) allowed in accordance with the normal practice of the wholesale trade at the time of removal in respect of such goods sold or contracted for sale;
(e) 'Wholesale trade' means sales to dealers, industrial consumers, Government, local authorities and other buyers, who or which purchase their requirements otherwise than in retail.'
As the marginal note reads, this section deals with the determination of value for the purpose of assessment of duty. It is clause (a) that is relevant for the case on hand. The value thereunder has to be deemed with reference to the following :-
(i) The wholesale price for which an article of the like kind and quality is sold or is capable of being sold ;
(ii) At the time of its removal of the article chargeable with duty from the factory or any other premises of the manufacture or production ;
(iii) For delivery at the place of manufacture or production (the rest of the section is not material).
What is stressed by the learned counsel for the petitioner is the article chargeable with duty alone could be subject to excise duty. Not any other article. This argument ignore the full effect of deeming clause. As to the importance of the deeming clause, it has been held in East and Dwelling Co. Ltd. v. Finisburg Council, (1951) 2 All E.R. 587 thus :-'Lord Asquith stated : if you are bidden to treat an imaginary state of affairs, as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents, which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it. The statute says that you must imagine a certain state of affairs, it does not say that having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs.'
17. Having regard to the principle extracted above, once it is deemed, it should be for all purposes. The said removal must be for the purpose of delivery. The excisable article here, viz., biscuits are not delivered at the factory gate (underlining mine) without the tin containers. Therefore, their value will have to be necessarily included. In other words, the wholesale price at the factory gate alone, is relevant. This came up for discussion in Special Civil Application No. 858 of 1974 of Gujarat High Court 1977 E.L T. 113. The learned judges of the Gujarat High Court, after referring to number of decisions, held :-
'Mr. Bhabha, however, vehemently relied on the fact that Section 3 is the charging section and by recourse to Section 4, while applying this measure for determining the wholesale cash price the concept of excise in the charging Section could not be violated. That position is already safe-guarded by their Lordships by this interpretation which has been put on the factory gate concept as elucidated in this decision that what is decisive is when the goods first have immediate contact from the manufacturer to the trade and they first enter the stream of trade. The post-manufacturing element 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 in the usual course of business, of course, less the trade discount envisaged by the Explanation. Such a net wholesale cash price for the goods sold at the factory gate within the meaning of Section 4(a) would have properly falling within the concept of excise. No confusion should ever be made in what is the basis of excise and its measure or the yardstick.'
It is precisely this contention which is being advanced before me which I have to necessarily reject. The decision of Koshal, J., in Writ Petition No. 1746 of 1972 : 1978 E.L T. 18 does not afford any assistance to the petitioner because the interpretation relating to Section 4 did not arise in that case at all. In all the cases cited, viz.- A.K. Roy v. Volias Ltd. : 1973ECR60(SC) , Atic Industries v. Assistant Collector, Central Excise : 1978(2)ELT444(SC) , I.T.C. Ltd. v. Union of India 1977 T.L.R. 2060 ; Telco Ltd. v. S.N. Guha 1977 T.L.R. 2189 and Hind Lamps. v. Union of India 1977 T.L.R. 2299 the question in the form in which it has arisen before me did not come up for consideration. All of them related to the meaning of the wholesale price, whether the post-manufacturing cost could be included or not. Even the explanation to Section 4 throws some light on this. I am unable to conclude that the packing in tin containers would ever be characterised as post-manufacturing operation so as to exclude the cost of the tin containers. In my view, it is the value at wholesale price when the excisable article is delivered at the factory gate, which should provide the quantum for the levy. From this point of view, it is unnecessary to decide whether the petitioner manufactures these tins or not, as otherwise the 'deeming clause' occurring under Section 4 will be rendered otiose.
18. For all these reasons, the writ petition will stand dismissed. However, I make no orders as to costs.