ADVANI OERLIKON LIMITED Vs. UNION OF INDIA

JUDGEMENT

(1.) THE Petitioner No. 1 is a deemed Public Company by virtue of provisions of Section 43 (A) of the Companies Act, 1956 and manufactures and markets welding electrodes. The Petitioner company has seven factories in India including a factory situated at Bhandup. The Company normally sells welding electrodes to its wholesale dealers spread all over the country at uniform prices. The wholesale dealers buy the goods in the course of wholesale trade and, they in turn sell the goods to the consumers. The Company's business consists of two distinct activities, viz. (a) manufacturing welding electrodes and (b) marketing and selling the same. The company makes two types of sales, viz. (1) sales from the factory direct to dealers and (2) sale from the factory to its area offices/godown wherefrom sale to dealers and customers take place. The company makes all sales ex-factory in the course of wholesale trade in large bulk entirely on a principal to principal basis and the same are evidenced by conditions of sale which represent normal commercial arrangements. The transactions between the Company and the wholesale dealers are at arm's length and in the usual course of business and do not involve any consideration other than the price of the goods.

(2.) THE manufacture of welding electrodes is liable to payment of duty in accordance with Tariff item No. 50 of the First Schedule to the Central Excise Tariff and ad valorem excise duty is payable in accordance with the assessable value approved by the Excise Authorities. The company was manufacturing welding electrodes since the year 1954 and till the beginning of year 1980 submitted price lists to Excise Authorities. It is the claim of the Company that the post-manufacturing expenses incurred towards freight, sales promotion, advertisements were erroneously included while determining the assessable value with the result that the excess duty was paid to the Department. The Company claimed that the excess duty paid is liable to be refunded and accordingly made demand for refund of Rs. 20,03,535. 74 by letter dated April 3, 1978 addressed to the Assistant Collector of Central Excise. The Assistant Collector declined to accept the claim holding that the post-manufacturing expenses claimed by the Company were inadmissible. The Company also submitted a fresh price-list and claimed that the post-manufacturing expenses amounted at 9% of the assessable value mentioned in the certificate dated March 22, 1978 issued by the Assistant Collector of Central Excise. The company requested the Assistant Collector to approve the revised price-list by deletion of post-manufacturing expenses claimed by the Company. The Assistant Collector declined to accede to the claim and informed that the price-list will be approved without accepting the deduction claimed by the Company in respect of alleged post-manufacturing charges. The company preferred an Appeal against the Order dated August 19, 1978 passed by the Assistant collector of Central Excise before the Collector, Central Excise (Appeals), but the Appeal ended in dismissal except modification in respect of certain items. The Company thereupon filed revision Application before the Government of India on July 31, 1979. The Revision application remained pending for a considerable length of time and thereupon, the Company preferred the present Petition under Article 226 of the Constitution of India in this Court on february 3, 1981. The Petition was duly admitted on March 2, 1981. The Petitioners claimed that the Department is liable to pay a large amount of refund and sought an interim relief that the department should deposit an amount of Rs. 49,32,569. 54 in this Court and liberty should be given to the Company to withdraw the same. While admitting the Petition, this Court directed the respondents to deposit the said amount and the Company was given liberty to withdraw the same on furnishing Bank Guarantee. Accordingly, the Department deposited the amount and the company withdrew the same on November 2, 1982. The refund amount of Rs. 49,32,569. 54 was in respect of period commencing from March 1, 1975 to September 30, 1980. The principal question which was raised by the Company in the Writ Petition was about the items which are to be taken into consideration as post-manufacturing expenses while determining the assessable value of the welding electrodes.

(3.) DURING the pendency of the Petition, the Supreme Court delivered judgment in the case of union of India v. Bombay Tyre International Limited reported in 1983 (14) ELT 1896 examination the entire ambit of the issue of post-manufacturing expenses. The Supreme Court subsequently issued clarificatory orders from time to time laying down the principal for determining the assessable value of manufactured article for the purpose of payment of excise duty. After the decision of the Supreme Court, the Petition was posted before one of us (Pendse j.) on December 14, 1983 and directions were issued to the Assessing Authority to permit the company to submit statement of deductions in respect of price-lists already filed and claim in respect of refund claims. The Company sought deductions under four headings : (1) Fright, (2)Insurance in transit, (3) Discounts and commission, and (4) Interest on Book Debts. The assessing Authority was directed to examine the claim with reference to the judgment and order delivered by the Supreme Court in the case of Bombay Tyre International. The Company was directed to file statement and documents in support of the claim and the Company was directed also to file such documents as would be required by the Assessing Authority. The direction was also given that the Company shall pay back to the Department a sum of Rs. 32,00,000/- with interest at 12% per annum to be calculated from the date of the Order till payment. The Bank guarantee was to stand proportionately discharged. The direction was given that Petition should come up for further direction on March 29, 1984, i. e. after the assessing authority records a fresh finding. In pursuance of the directions given by this Court, the Company filed fresh statements before the assessing Authority and the Assistant Collector of Central Excise, Division V, Bombay II. The company's claim for deduction under four heading was turned down. The Assistant Collector held that the Company is liable to pay an amount of Rs. 49,32,669. 54 which was recovered by the Company in accordance with interim order passed by this Court. The Assistant Collector further held that the Company is also liable to pay a sum of Rs. 35,64,729. 94 towards duty in respect of the goods cleared during the period March 22, 1981 and ending with April 1983. The company thereafter amended the Petition and challenged the impugned Order dated August 13, 1984. The Petition is now placed before us for final disposal.