Decided on March 10,1980

Gwalior Rayon Silk Manufacturing Appellant
UNION OF INDIA Respondents

Referred Judgements :-



G.P.SINGH, J. - (1.)PETITIONER no. 1 in this petition is an incorporated Company. The petitioner Company owns a factory manufacturing chemicals and one of the products of the said factory is chlorine (Cl2). The second petitioner, is a share -holder and employee of the petitioner Company. The petitioners by this petition under Article 226 of the Constitution challenge notifications dated 26th July 1971 and 24th August 1974 issued by the Government of India under Section 3(2) of the Central Excises and Salt Act, 1944, fixing tariff value of liquid chlorine at Rs. 500/ - per metric tonne. The petitioners also pray for refund of excess amount of duty paid under protest by the petitioner Company.
(2.)SECTION 3(1) of the Act which is the charging section, provides that 'there shall be levied and collected in such manner as may be prescribed duties of excise on all excisable goods other than salt which are produced or manufactured in India and a duty on salt manufactured in, or imported by land into, any part of India as, and at the rate, set forth in the First Schedule.' Section 3(2) of the Act empowers the Central Govenment to fix tariff values of excisable articles chargeable with duty ad valorem. Section 3(3) authorises fixation of different tariff values for different classes or descriptions of the same excisable articles. Section 3(2) and 3(3) as they stood at the relevant time, read as follows :
'3. (2) The Central Government may, by notification in the Official Gazette, fix, for the purpose of levying the said duties, tariff values of any articles enumerated, either specifically or under general headings, in the First Schedule as chargeable with duty ad valorem and may alter any tariff values for the time being in force. (3) Different tariff values may be fixed for different classes or descriptions of the same aritcle.'
Section 4 of the Act which deals with determination of value for the purposes of duty as in force at the material time, was as follows :
'4. Determination of value for the purposes of duty -Where under this Act, any article is chargeable with duty at a rate dependent on the value of the article, such value shall he deemed to be - (a) the wholesale cash price for which an article of the like kind and quality is sold or is capable of being sold at the time of the removal of the article chargeable with duty from the factory or any other premises of manufacture or production for delivery at the place of manufacture or production, or if a wholesale market does not exist for such article at such place, at the nearest place where such market exist, or (b) where such price is not ascertainable, the price at which an article of the like kind and quality is sold or is capable of being sold by the manufacturer or producer, 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 article is not sold or is not capable of being sold at such place, at any other place nearest thereto.'

The first contention of the learned counsel for the petitioners is that Sections 3(2) and 3(3) are ultra vires as these provisions confer on the Central Government power to fix tariff values without any guidelines at its complete discretion. The second contention of the learned counsel for the petitioners in the alternative is that the guidelines, if any, were not followed in fixing tariff value of liquid chlorine by the impugned notifications and the tariff value fixed is entirely arbitrary.

(3.)AS regards the first contention as to the validity of Sections 3(2) and 3(3), in our opinion, the guidelines are impliedly furnished by the nature of the excise duty chargeable under Section 3(1) and the principles of valuation set out in Section 4. Excise duty is a tax on manufacture and production of goods. The duty is levied on the goods manufactured or produced at the stage of removal. The rates of duty as given in the Schedule are related to the value, weight or volume of the goods. Where the rate chargeable is related to the value, such value is to be determined in accordance with the principles laid down in section unless the traiff value for the goods is notified under Section 3(2). The power conferred on the Government to fix tariff values cannot be construed to embrace a power to fix any tariff values as that would in effect amount to delegation of unguided power of taxation and would make the provision invalid. There is a presumption against unconstitutional exercise of legislative power and it is reasonable to infer that Legislature intended that in fixing tariff values under Section 3(2), the Government would bear in mind the nature of excise duty and follow the guidelines of valuation enacted in Section 4. The Supreme Court in dealing with Section 4 in A.K. Roy v. Voltas Ltd. - AIR 1973 S.C. 225 observed : 'Excise is a tax on the production and manufacture of goods. Section 4 of the Act, therefore, provides that the real value should be found after deducting the selling cost and selling profits and that the real value can include only the manufacturing cost and the manufacturing irofit. The section makes it clear that excise is levied only on the amount representing the manufacturing cost plus the manufacturing profit and excludes post -manufacturing cost and the profit arising from post -manufacturing operation, namely selling profit. The section postulates that the wholesale price should be taken on the basis of cash payment thus eliminating the interest involved in wholesale price which gives credit to the wholesale buyer for a period of time and that the price has to be fixed for delivery at the factory gate thereby eliminating frieght, octroi and other charges involved in the transport of the articles.' These observations were quoted with approval in Atic Industries v. Asstt. Collector, Central Excise -AIR 1975 S.C. 1980 and it was further explained : 'The value of the goods for the purpose of excise must take into account only the manufacturing cost and the manufacturing profit and must not be loaded with post -manufacturing profit arising from post -manufacturing operation. The price charged by the' manufacturer for sale of the goods in wholesale would, therefore, represent the real value of the goods for the purpose of assessment of excise duty. The above principles laid down by the Supreme Court in construing Section 4 have to be kept in view by the Government in notifying tariff values under Section 3(2). As there are implied guidelines contained in the Act for finding the tariff values under Sections 3(2) and 3(3), these sections cannot be struck down as suffering excessive delegation.

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