INDIAN TOBACCO COMPANY LIMITED Vs. UNION OF INDIA

JUDGEMENT

(1.) By this writ petition field under Article 226 of the Consitution the petitioner-Comapny (Indian Tobacco Company Ltd.) is deeking to quash the decision of the Assistant Collector of Central Excise, Bombay (Respondent No. 2) dated 14th January, 1974 disallowing the deduction in respect of the selling expenses post-manufacturing expenses under four heads viz. (a) Marketing and distribution expenses, (b) Advertising expenses, (c) Freight on cigarette and smoking mixture, and (d) Interest from the wholesale price charged by it to its wholesale dealers-(wholesale buyers) while arriving at the assessable value under sec. 4(a) of the Central Excises and Salt Act, 1944 for levying excise duty on the products manufactured by it and praying for issuance of the writ of mandamus directing the three respondents (The Union of India, Assistant Collector of Central Excise, Bombay and Collector of Central Excise, Bombay) not to collect or recover any excise duty from it by including in the wholesale price of its products the post-manufacturing costs and expenses and to allow the petitioner-Company to clear its products on the basis of the prices list showing the wholesale cash price after excluding the post- manufacturing costs and expenses from the price recovered by it from its wholesale dealers. The petitioner-Company is also seeking to claim a refund of the sum of Ts. 5,213,743.19P. being the excess colected up to 22nd March, 1974 and any further amount that may be collected by the respondents after that date by failing to exclude from the wholesale cash price of its products the post-manufacturing costs and expenses.

(2.) Mr. Sorabjee for the petitioner-Comapny has contended that reading sec. 3 and 4 of the Act together it becomes clear that the excise is a tax on the production and manufacture of goods so produced or manufactured for the purpose of levying duty under sec. 4(a) of the Act the post-manufacturing expenses which are referable to post- manufacturing activity or rather non-manufacturing activity will have to be excluded and similarly, post-manufacturing profits will also have to be excluded from the price which the manufcture charges to his wholesaler. In other words, for arriving at the true wholesale cash price of excisable commodity under Sec. 4(a) of the Act, any loading of the price with items of expenses which are referable to post- manufacuring activity or rather non-manufacturing activity is not permissible. According to him, sec. 4(a) itself makes it clear that excise is levied only on the amount representing the manufacturing cost plus manufacturing profit and excludes post-manufacturing cost and profit arriving from post-manufacrturing operation, namely, selling profit and this postition is derived from the very nature and character of duty or impost. He, therefore, urged that since after ascertaining the facts the auditors of the petitioner-Comapny had certified that the price list initially submitted by the petitioner- Company and which was approved by the Excise Authorities showed the price of its products (which were charged by the petitioner-company to its wholesale dealers) which included post-manufacturing expenses under four heads viz. marketing and distribution expenses, advertisement expenses, freight and interest, the 2nd repondent should have excluded such post-manufacturing expenses fron the prices mentioned in the list for arriving at the true asessable value of the products for the purpose of levying excise duty. He further contended that the Explanation to sec 4, on which reliance was placed by the 2nd respondent, while rejecting the petitioner-Comapny's claim, could not and cannot come in the way of arriving at the assessable value of the petitioner-Comapny's product under sec. 4(a) of the Act in the manner canvassed by the petitioner-Company. He pointed out that before one could resort to Explanation which unquestionably specifies two items of deductions in deremining the price of any article under sec. 4, it would be necessary to determine whether in arriving at the assessable value of the goofs for the purpose of levying the excise duty under sec. 4(a) the items of expenses which are referable to post- manufacturing activities or rather which are referable to non- manufacturing activites will have to be excluded from the wholesale price which is charged by the manufacturer to his wholesale dealer and if because of the very nature or character of the duty or impost such items of expenses are required to be excluded from such wholesale price, the same will have to be done and the exclusion will not depend upon whether the same could be done under the Explanation. He therefore, contended that the decision of the 2nd respondent dated 14- 1-1974 is liable to be quashed or set aside. In support of his aforesaid contentions strong reliance was placed by Mr. Sorabjee on the observations of the Supreme Court in the case of A.K. Roy and another V/s. Voltas Ltd. -- whch have been reiterated and approved by that very court in its subsequent decision in the case of Atic Industries Ltd. V/s. H.H.Dave, Assistant Collector of Central Excise and Cus. -- . He also pointed out that following the decision of the Supreme Court in Voltas case, in the case of this very petitioner-company the Karnataka High Court has granted reliefs (similar to the reliefs sought therin) in Writ Petition No. 1975 of 1974 preferred by the petitioner-company in respect of its products manufactured in its Bangalore factory and the decision of Karnataka High Court is reported in (1975) 1 Karnatak law Journal, 442. REliance was also placed by Mr. Sorabjee upon two decision of this Court :(1) First Appeal No. 287 of 1972 decided on 16-9-1974 by Desmukh and Mukhi JJ. Union of India V/s. Mansinghka Industries Pvt. Ltd.,1979 ELT 158 and (2) Spl Civil Application No. 1295 of 1973 decided on 14/15- 7-1975 by Deshpande and Mukhi JJ. Ogale Glass Works Ltd. V/s. Union of India and Ors., 1979 ELT.

(3.) On the other hand, on behalf of the respondents Mr. Joshi raised two or three contentions with a view to sustain the impugned decision of the 2nd respondent dated 14-1-1974. In the first place, on the question of construction of section 4 of the Act, he raised a two-fold contention. He contended that having regard to the deeming provision which is contained in sec. 4 of the Act and having regard to the language employed therein, it would not be permissible to dissect the wholesale cash price that is being charged by a manufacturer (petitioner-company) to his or its wholesaler at the time and place of clearnace of such manufactured articles or goods from his or its factory for the purpose of ridding such price of expenses or profits attributable to post-manufacturing operation, and he urged that a deeming provision had been enacted to avoid the Excise Officer undertaking the job of a Cost Accountant. Secondly, he contended that in view of the Explanation to sec. 4, which specifically lays down that in determining the price of any article under the section no abatement or deduction shall be allowed expect those specified therein no deduction of any other kind from the wholesale cash price charged by the petitioner-company to its wholesalers would be permissible in determining the price of the goods under section 4. In support of these two contentions be strongly relied upon a decision of this Court in Ford Motor Company of India Ltd. V/s. The Secretary of State for India, 1936 38 BLR 283 which was a case under the Sea Customs Act, 1878, where this Court has taken the view that for the purpose of Section 30 (a) of the Sea Customs Act "the Court has to find a sale of goods at a wholesale cash price, and it is not legitimate to dissect the actual price paid, deduct from it such portions as may be ascertained to represent something other than the price of goods, e.g. the cost of service, and then say that the residue left is the wholesale cash price of the goods". Mr. Joshi submitted that the general observations made by the Supreme Court in Voltas' case, on which Mr. Sorabjee has relied, will have to read in the context of facts of that case and the Court has properly explained those observations in its subsequent decision in Atic Industries case and as such the said observations cannot avail the petitioner-Comapny in support of its case claiming the relief of the type sought in the petition. Thirdly he contended that all the expenses incurred by the petitioner-Company under four heads viz.(a) Marketing and Distribution Expenses, (b) Advertisement Expenses, (c) Freight, and (d) Interest, were not and could not be referred to post-manufacturing activity, as for instance, the advertising expenses must have been incurred by them both before as well as after manufacturing was complete. An advertisement inserted for securing the service of personuel or employees would be an expenditure referable to manufacturing activity while advertising done for the purpose of organization and promotion of the sale of proucts would represent post-manufacturing expenses and it would be extermely difficult for the Excise Officer to undertake an investigation into this aspect for the purpose of determining the assessable value of the products. As regards freight Mr. Joshi pointed out that under two types of agreements that were generally entered into by the petitioner-Comapny with the wholesalers two types of delivery were contemplated; (a) Delivery at the factory gate where the wholesalers bring their carriers-inw hich case there was no question of any freight entering into the price charged, and (b) Delivery at the godowns of the wholesalers effected by the petitioner- Comapny by their lorries-in which case the element of freight would enter into the price charged. Mr. Joshi contended that sicne in both the types of delivery the petitioner-Company admittedly charged a uniform price to its wholesalers there was no question of such wholesalers price including any element of freight. Similarly he urged that marketing and distribution expenses would form part of manufacturing cost and manufacturing profit. He, therefore, urged that the petitioner-Comapny was not entitled to claim any deduction under any of the heads from the wholesale cash price which it was charging to its wholesalers under its agreements with them while arriving at the assessable value of its product under sec. 4(a) of the Act. We shall deal with these contentions of Mr. Joshi presently.