Bawa Potteries And Ors. vs Union Of India (Uoi) And Ors.
1969 Latest Caselaw 109 Del

JUDGMENT

S. Rangarajan, J.

1. An interesting question concerning the interpretation of Section 4 of the Central Excises and Salt Act of 1944 (hereinafter called the Act) arises in this writ petition. The petitioners are M/s. Bawa Potteries (Manufacturers of China and Porcelain ware at a factory at Qutab near Mehrauli, Union Territory of Delhi) and the other two petitioners are the previous and present proprietors of the said manufacturing firm. After manufacture, the goods are sent or dispatched to the Central Depto of the petitioners at Fatehpuri, Delhi, from where they are sent or. dispatched to the various dealers in and outside Delhi. The petitioners have their own sales organisations at Fatehpuri, from where the goods are sold, the same price level of the manufactured goods is maintained throughout this country. The retailers' price list, therefore, is burdened with and comprises of various expenses such as establishments, advertisement, distribution, cartage, railway freight, special packing charges, if any, and insurance covering breakage. Accordance to the petitioners they have no price list showing the ex-factory prices or wholesale cash price of their goods since the goods are nto sold ex-factory but only through their sales organisations at Fatehpuri. They are also no independent wholesale dealers who sell the petitoners' goods. The distributors and agents are paid remuneration in the form of discount, namely, trade and cash discounts.

2. The point that is involved in this petition is whether the petitioners are entitled to deduct anything more than five per cent for cartage and twenty five per cent for trade discount, making in all thirty per cent, in order to arrive at the wholesale value, which alone can be taken into account for the purposes of levying excise duty, the wholesale price being computed according to the principles set out in section 4 of the Act. It is sufficient to notice at this stage that the further items which are claimed to be deducted from the prices mentioned in the retail price list over and above the two items allowed by the Excise Authorities are :-

  (a) Railway Freight                         3 per cent
(b) Advertisement                      11 1/2   " "
(c) Distribution                        7 1/2   " "
(d) Insurance covering breakages           10   " "
                                      _________
                                Total      32   " "
                                      _________

 

3. 1 may also point out that in so far as the percentage claimed on the above said deductable item is concerned, there could be no serious controversy, its a fact, because the petitioner company has been utilising the services of a Chartered Accountant of standing and the above figures have been Worked out for the assessment period, namely 1962-63 in accordance with the figures Mentioned by the Chartered Accountant and there is no evidence cauta- There is no attack on the retail price list. What is seriously controversy in this writ petition by the revenue is the principle that is to be adopted in the matter of arriving at the wholesale figures, in terms of Section 4 or otherwise. It will also be material to note, in this connection, that previously the mode of assessment was different; the wholesale price was arrived at by working it out on the basis of the retail price.

4. It is also necessary to notice that the petitioners from time to time submitted their consumer's price list to the Revenue who approved and accepted the same up to 1961 and determined the assessable or real value of the goods after deducting the expenses referable to the post manufacturing process, including the sale organisation, and the trade discount etc., but in the year 1962, the Superintendent, Central Excise (Respondent No. 4) did nto allow discounts and the other expenses referred to above but only allowed trade discount to the extent of 12½ per cent. In other words, he held that the excise duty should be assessed on the retail price minus 12 ½ per cent. only. As against the said decision, the petitioners made a representation to the Assistant Collector of Central Excise and claimed the above items as well. But this order dated 30-3-1962, the Assistant Collector found that the petitioners had a market for their goods in Delhi, which was the nearest place from that of manufacture (there being none at the place of manufacture) and allowed a trade discount of 25 per cent plus one per cent, on the price list maintained by them. A copy of the said order is Annexure 'A' to the petition, Thereupon, an appeal was preferred to the Collector of Central Excise, New Delhi. (Respondent 16.2.). He required the petitioners to deposit the amount of duty demand, as a condition precedent to the hearing of the appeal. For non-payment of the said duty i.e. due to the petitioners nto complying with the above said direction the appeal was rejected on 17-1.62. Thereafter the petitioners filed a revision petition to the Central Government. Since even the Central Government required the petitioners to deposit the amount before the revision could be heard, the amount was deposited under protest. Shri Banerji, Additional Secretary to the Government of India, heard the revision petition on the merits on 19-03-1964. Certain information was called for from the petitioners and this was supplied. A personal hearing was also granted by Shri Banerji on 22-1-1966. A complete break up of expenses incurred by the sold. Distributors, M/s. Bawa Glass and Crockery Private Ltd., as between the Bawa Potteries Products and other goods dealt in by the distributors, along with a further break up of the expenses attributed at Bawa Potteries (as between the manufacturing Unit and the sale organisation) were also furnished as directed. Ultimate the revision was accepted only to the extent of the two items stated above, namely, cartage, five percent and trade discount 25 per cent. The rest were disallowed.

* * * * *

6. Clause (a) of Section 4 deals with a situation where an article sold for wholesale cash price or is capable of being sold at the time of the removal of the article chargeable with duty from the factory and also a case where a wholesale market does nto exist for such an article at such place. In the last eventually, the wholesale price is to be the price obtaining at the nearest place where such market exists. It is common ground that none of the features which would bring the case under Clause (a) of Section 4 exist in the present case. Therefore, it is nto a case where Clause (a) of section 4 can apply.

7. Clause (b) of Section 4 expressly refers to a situation where such (wholesale) price is nto ascertainable it also refers to (and that causes difficulty) to, the price at which an article of the like and quality is sold or is capable of being sold by the manufacturer or producer, or his agent, at the time of the removal of the article chargeable with duty from such factory or other premises for delivery at the place of manufacture or production, or if such an article is nto sold or is nto capable of being sold at such place, if any other place nearest thereto.

* * * * *

20. The explanation can only mean that in a case where the wholesale price is known for the purposes of levying the excise duty no abatement or deduction shall be allowed except in respect of trade discount and the amount of duty payable at the time of the removal of the article from the factory or other premises. The explanation, it is worth repeating, starts with the expression "in determining the price of any article under this Section", etc. .The further question arises as to whether it applies only to a case where the wholesale cash price is known in the sense of the price for which it is actually sold or is capable of being sold or at which an article of the like kind and quality is cither sold or capable of being sold but nto to a situation where for any reason such wholesale price is nto ascertainablc. In other words, the question is whether the explanation will apply to a situation where the wholesale price is nto ascertainablc. It seems to me that reading the explanation in order to harmonise the same with and clear up any ambiguity in the main section without widening the ambit of this section (test indicated by his Lordship Mr. Justice Mitter in the decision of the Supreme Court in Bihta Co-operative Development and Cane Marketing Union Ltd. v. Bank of Bihar and Ors. -A.I.R. 1967 Supreme Court 389) the explanation has to be read as referring to a case where the wholesale price is cither known or can be ascertained in the manner laid down by Section 4 and cannto be applied to a case where it is nto ascertainable. That apart, the question is different when the wholesale price is arrived at on the basis of the known retail price, especially bearing in mind the fact that the manufacturer himself is selling the goods in question at a uniform price throughout the country. In this situation, it will be wholly inappropriate to have recourse to . the explanation and restrict the deductions to the trade discount and the amount of duty payable, for these directions could obviously be made only from the wholesale price. In other words, it is clearly inapplicable to a case where the wholesale price has to be arrived on the basis of the retail price.

21. There being no other means suggested by the Revenue or any other evidence on which it relied upon the ascertaining the retail price it follows that the wholesale price in this case can be arrived at only by deducting the necessary items of expenditure belong to the post-manufacturing stage from the retail price.

22. At one stage I was inclined to take the figures given by the Chartered Accountant concerning the railway freight, distribution, advertisement and insurance, and straightway quash the duty on that basis, but Shri Brij Ban Kishore indicated at the later stage of the argument, that these might be worked out in the event of my these holding that these items had to be deducted by the revenue authorities themselves. In this view the order of assessment of the Assistant Collector, Central Excise confirmed in revision is quashed and with the direction that the Assistant v. Elector of Customs, who dismissed the petitioner's appeal on the ground that the demanded tax was nto paid, shall decide afresh in the light of the legal principles mentioned in this judgment.

23. The writ petition is accordingly accepted but there will be no order as to costs.