PENTAX ENGINEERING PVT LIMITED Vs. UNION OF INDIA

JUDGEMENT

(1.) The petitioner No. 1 is a Company registered under the Companies Act and is engaged in the manufacture of the engineering goods. The goods are manufactured by the Company out of raw-material purchased by it or on job work basis out of raw-material supplied free of cost by its customers to it. In respect of job work, the Company charges its customers only the labour charges including its manufacturing profit. In exercise of powers conferred by Rule 8 of the Central Excise Rules, the Government of India published Notification No. 105/80 dated June 19, 1980 exempting goods falling under Item 68 of the First Schedule to the Central Excises and Salt Act, 1944, in respect of the first clearances of the goods for home consumption by or on behalf of a manufacturer from one or more factories upto a value not exceeding Rs. 30,00,000/- cleared on or after the 1st day of April in any financial year from the whole of the duty of excise leviable thereon. The exemption is available subject to the conditions set out in the Notification.

(2.) The petitioner No. 1 Company by Classification List No. 1 dated May 11, 1981 filed under Rule 173B of the Rules claimed benefit of exemption under the Notification. The petitioners were permitted to clear the goods without payment of duty and the Classification List was approved on February 15, 1982. Subsequently, the value of the clearance of the goods of the petitioners crossed the limit of Rs. 30,00,000/-, and accordingly, by letter dated October 31, 1981, the Company informed the respondents of that fact. The Company claimed that in respect of the goods manufactured from raw-materials, excise duty would be paid by calculating the value of labour charges without including the cost of the raw-material. The Superintendent of Central Excise rejected the claim of the petitioner holding that where the raw material has been received and undergoes manufacture and where the goods are entering directly in the market, the raw material value plus a reasonable margin of profit plus the labour charges must be taken into account. On November 6, 1981, the Division Bench of this Court in the case of Narendra Engineering Works v. Union reported in 1981 Excise Law Times 859 held that what must be accounted for in determining the real value of the rods processed on job work by the petitioners is the manufacturing cost and the manufacturing profit. The assessable value cannot include the cost of raw materials. In pursuance of the judgment, the petitioners addressed letter to the Assistant Collector suggesting that the value of the goods for the purpose of levy of excise duty should be calculated only on the labour charges and should not include the cost of raw material. The respondent No. 2 - Assistant Collector - by order dated February 8, 1982 rejected the claim. The respondent No. 2 by another order dated March 27, 1982 reiterated his earlier decision and this action on the part of the respondents has given rise to the filing of the present petition on April 29, 1982 under Article 226 of the Constitution of India.

(3.) Shri Ganesh, learned counsel appearing on behalf of the petitioners, submitted that in view of the decision recorded by the Division Bench of this Court in the case of Narendra Engineering Works v. Union of India (1981 Excise Law Times 859), it is necessary for the respondents while computing the value of the clearance of a job work to take into account only the cost which was incurred and has to ignore the value of the raw material. It is undoubtedly true that the judgment of the Division Bench supports the claim of the petitioners, but Shri Sethna, learned counsel appearing on behalf of the respondents, points out that against the decision recorded by the Division Bench of this Court, the Department has approached the Supreme Court and Special leave has already been granted and the appeal is pending for hearing. Shri Sethna submitted that in case, the decision of Division Bench of this Court is followed, the Department will have to file further appeal before the Division Bench of this Court and then to Supreme Court and that would lead to multiplicity of proceedings and the parties would be required to incur large expenses. Shri Ganesh also submitted that the decision in this case will also be required to be carried upto the Supreme Court in view of the pendency of appeal in the case of Union of India v. M/s. Narender Engineering Works. In these circumstances, I suggested to both the counsel that the parties should agree to abide by the decision of the Supreme Court and avoid multiplicity of litigation and large expenses. Both the counsel, after taking instructions, accepted the suggestion and it is agreed that the Bank guarantee furnished by the petitioners would be kept alive till the decision of the Supreme Court and in case of success of the Department, not only the Bank guarantee will be enforced, but the petitioners undertake to pay the additional amount which would be due from the petitioners.