GOLDEN TOBACCO COMPANY LTD Vs. UNION OF INDIA

JUDGEMENT

(1.) This Petition under Article 226 of the Constitution of India has been filed by the Golden Tobacco Company Limited, who carry on the business of manufacturing cigarettes, against the Union of India and the Collector of Central Excise. At the relevant time the petitioners' factory was situate at Swami Vivekanand Road, Vile Parle, Bombay. The cigarettes manufactured by the Petitioners were, at the relevant time, subjected to the payment of ad valorem excise duty under Item 4 in the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944). The Petitioners had appointed sole distributors for different parts of India, and, therefore, for the purpose of marketing their goods the Petitioners sold the cigarettes manufactured by them to such sole distributors, who in turn sold them to wholesale dealers, Such wholesale dealers would sell the cigarettes to ordinary retailers, who would finally sell them to consumers. The number of such distributors appointed by the Petitioners has varied from time to time but has been generally more than 200. According to the Petitioners, none of these distributors were in any way financially or otherwise related to or connected with the Petitioners or any member of the family of any of the directors of the Petitioners. This fact is not disputed by the Respondents. In 1958 the Petitioners desired to know whether the excise duty payable on cigarettes manufactured by them was to be calculated on the basis of the prices received by the Petitioners from their distributors or on any other basis. The Petitioners accordingly approached the Assistant Collector of Central Excise at Bombay for a clarification on this issue. By his letter dated December 17, 1958 the said Assistant Collector referred the Petitioners to the provisions of Section 4 of the said Act and stated that what was relevant for the purpose of determining the wholesale cash price was a transaction in the ordinary course of business, that is to say, the open market, and that the prices received from a sole distributor could not be taken into consideration. According to the said Assistant Collector, the assessable value of the said products was the cost selling price to an independent wholesale dealer shown in the catalogue of the Petitioners' distributors. In accordance with what was stated in the said letter, the Petitioners from time to time paid excise duty on the prices at which the Petitioners' distributors sold to wholesalers the cigarettes manufactured by the Petitioners.

(2.) Until July 31, 1969 the procedure for the determination of the assessable value of cigarettes was for manufacturers to submit price-lists disclosing therein appropriate information and data, and the excise authorities who were physically present in the premises of manufacturers permitted the manufactured cigarettes to be cleared from the factory only after excise duty thereon was either paid or provided for. By a notification No. 171/69-C.E., dated June 21, 1969 the self-removal procedure prescribed under Chapter VII-A of the Central Excise Rules, 1944, was made applicable to manufacturers of cigarettes. Under this procedure the concerned manufacturers were to submit price-list from time to time for the approval of the excise authorities. Excise officers were no longer posted in the premises of the manufacturers, but instead the manufacturers were themselves responsible for ensuring the payment of excise duty, as and when the products were cleared, by maintaining appropriate records and by making the necessary entries therein and by paying the excise duty. In accordance with what they had been doing in the past, the Petitioners, when they submitted their price-lists from time to time for the approval of excise authorities, showed in such price-list the prices received by their sole distributors from wholesalers as the assessable value of cigarettes manufactured by the Petitioners.

(3.) According to the Petitioners, some time in August 1972 one A. D. Marphatia, who was at the time the manager of the Petitioner Company and was looking after the Petitioners' excise matters, came to know from some officers of the Excise Department in the course of informal discussions that one of the Petitioners' principal competitors, namely, Godfrey Phillips Limited, had submitted price-list showing in them as the assessable values the prices received by them from their sole distributors and the such price-lists of the said Godfrey Phillips Limited, were going to be approved by the concerned Assistant Collector. Paragraph 11 of the Petition further avers that it was on or about August 25, 1972 that the Petitioners came to know this fact for the first time. The Petitioners thereupon took legal advice, and the legal advice given to them was that the stand of the excise authorities, as mentioned in the said letter dated December 17, 1958, was not justified or correct in law and that on a true construction of the said Section 4 the excise authorities were bound to take into consideration the prices received by a manufacturer even from a sole distributor, such prices being the wholesale cash price within the meaning of that expression in the said Act, even though such sole distributor was purchasing manufactured goods under an agreement with the manufacturers. In the said paragraph 11 of the Petition it is further averred that