N.L.TIBREWAL, J. - (1.) IN this petition under Article 226 of the Constitution, the assessee, which is a private limited Company, challenges the demand of Rs. 3,06,60,879.89 raised by the District Excise Officer, Alwar (respondent No. 3) to be invalid and illegal and has, therefore, prayed to quash the Demand Notice dated July 9, 1991 (Annexure 5). The circumstances leading to the filing of the writ petition may be narrated:
(2.) THE Company was manufacturing patent/proprietary medicines containing alcohol having its manufacturing unit in RIICO industrial Area, Bhiwadi in Alwar District. It had started production of pharmaceutical formations by using alcohol from August 27, 1987, and was paying excise duty to the State of Rajasthan. It is stated that the Company has stopped manufacturing medicines for the time being from August, 1992 for the reasons mentioned in para 11 of the writ petition. The products of the Company were liable to excise duty under the Medicinal and Toilet Preparations (Excise Duties) Act, 1955 (hereinafter referred to as 'the Act of 1955') and the rules made thereunder. The Industrial Unit of the Company functioned under physical control of the Excise officer posted there and clearance of the products was made on realisation of excise duty under the Act of 1955 on the issue of prescribed transport permit in Form T.P.I. The Demand Notice (P.IA) dated July 9, 1993, was served on the Company on 12.7.1993 showing a short payment of duty to the tune of Rs. 3,06,60,870.89 by declaring wholesale price at lower rates than the actual. Petitioner's case is that before raising the demand no show cause notice was given to it and there was no determination or calculation of the deficiency in duty and the demand was raised in an arbitrary manner in violation of the principles of natural justice. The demand has been challenged on other grounds also, including that of limitation. A perusal of the Demand Notice (Annexure 5) shows that the basis of additional demand of the duty was on the ground that the Company had made short payment of excise duty by sowing the wholesale price of the medicines at lower rates than the actuals and that a Committee was appointed by the State Government and after holding an enquiry it calculated the short payment of excise duty in the sum of Rs. 3,06,60,870.89. By the said Demand Notice the Company was asked to deposit the amount within 15 days, failing which recovery proceedings under the Rajasthan Land Revenue Act shall be initiated. The respondents, in their return, have come with the case that there was great difference in the wholesale and retail prices of the medicinal preparation manufactured by the Company, and the Excise Commissioner apprehended that wholesale prices were shown at lower rates than the actuals. Therefore, a committee was constituted under the Chairmanship of Additional Excise Commissioner to enquire into the mater. According to them, the Committee and the District Excise Officer gave several letters asking the Company to furnish informations in relation to costing of wholesale prices of the products but it failed to co -operate with the Committee and did not furnish any information. Thereafter, the Committee itself collected informations and submitted a report to the State Government on 5.4.1992, on the basis of which a show cause notice, dated May 27, 1993, was issued to the petitioner questioning about the difference in wholesale and retail prices. However, the Company did not submit any reply or any material in response to the notice. It was also stated that the District Excise Officer, Alwar, was directed to compute the deficiency in duty as per the inquiry report and to submit a Balance -sheet before the Committee for its approval and, on being approved by the Committee, the Demand Notice for recovery of the amount was issued. The respondents came with a categorical case that the products of the assessee company were sold by two firms namely; M/s Alchem Laboratory Ltd., 510, Shahnagar, Dr.E. Mornes Road, Worli, Bombay and M/s Anglomad Pvt. Ltd., 702/A, Poonam Chambers, Dr. Annie Besant Road, Bombay as the Company had no net work for sale of its products. That applying the proviso (iii) of Section 4(1)(a) of the Central Excise and Salt Act, 1944 (hereinafter referred as 'the Excise Act') the price at which the medicines were sold by the aforesaid two firms was the wholesale price to the dealers, for the purposes of payment of excise duty. In other words, the principle of 'related person' was applied while fixing the wholesale price of the products of the Company and the difference of excise duty was being now charged. Thus, in substance, the case of the respondents was that the duty of excise was chargeable on the price at which the products of the Company were sold by the aforesaid two firms on applying the principle of 'related person' as provided in Section 4 of the Excise Act. Preliminary objection about the maintainability of the writ petition was also taken on the ground that the order raising demand could be challenged by way of an appeal and the same was an efficacious alternative remedy. 4. Before I deal with the various contentions made by the learned Counsel for the parties, it would be convenient to briefly refer the relevant provisions of the Act and the Rules. The Act of 1955 was enacted to provide for the levy and collection of duties on medical and toilet preparation containing alcohol, opium, Indian hemp and other narcotic drug or narcotic. Section 3 is the charging provision. It reads as under: 3. Duties of excise to be levied and collected on certain goods - (1) There shall be levied duties of excise, at the rates specified in the schedule, on all dutiable goods manufactured in India. (2) The duties aforesaid shall be leviable - (a) where the dutiable goods are manufactured in bond, in the State in which such goods are released from a bonded warehouse for home consumption, whether such State is the State of manufacture or not; (b) Where the dutiable goods are not manufactured in bond, in the State in which such goods are manufactured. (3) Subject to other provisions contained in this Act, the duties aforesaid shall be collected in such manner as may be prescribed. Excise duty is thus imposed by S3 of the manufacture of dutiable goods at the rates specified in the Schedule. Sub -section (2) indicates the stage at which duty is levied; where Sub -section (3) provides for collection of duty. It lays down that the duties shall be collected in such manner as may be prescribed. Section 3, therefore, imposes a duly on the manufacture of medicinal preparation to pay excise duly and it lays down the rates and also indicates the stage at which the duty is to be levied. So far as collection of duty is concerned the Act leaves the same to the rule making authority. The relevant part of the Schedule applicable in the present case for the levy and collection of excise duty is also reproduced for the sake of convenience: JUDGEMENT_445_TLRAJ0_1994.htm Explanation II to the Schedule provides that where any article is chargeable with duty at a rate appended on the Value of the article, such value shall be deemed to be the value as determined in accordance with the provisions of Section 4 of the Central Excise and Salt Act, 1944.
(3.) SECTION 4(1)(a) of the Central Excise Act reads as under: Section 4 -Valuation of Excisable Goods for purposes of Charging of Duty of Excise.: (1) Where under this Act, the duty of excise is chargeable on any excisable goods with reference to value, such value, subject to the other provisions of this section, be deemed to be - (a) the normal price thereof, that is to say, the price at which such goods are ordinarily sold by. the assessee to a buyer in the course of wholesale trade for delivery at the time and place of removal, where the buyer is not a related person and the price is the sole consideration for the sale: Provided that (i) Where, in accordance with the normal practice of the wholesale trade in such goods, such goods are sold by the assessee at different prices to different classes of buyers (not being relates persons) each such price shall, subject to the existence of the other circumstances specified in Clause (a), be deemed to be the normal price of such goods in relation to -each such class of buyers; (ii) Where such goods are sold by the assessee in the course of wholesale trade for delivery at the time and place of removal at a price fixed under any law for the time being in force or at a price, being the maximum, fixed under ' any such law, then, notwithstanding anything contained in Clause (HI) of this proviso, the price or the maximum price, as the case maybe, so fixed, shall in relation to the goods so sold, be deemed to be the normal price thereof; (Hi) where the assessee so arranges that the goods are generally not sold by him in the course of wholesale trade except to or through a related person, the normal price of the goods sold by the assessee to or through such related person shall be deemed to be the price at which they are ordinarily sold by the related person in the course of wholesale trade at the time of removal, to dealers (not being related persons) or where such goods are not sold to such dealers, to dealers (being related persons), who sell such goods in retail; (b)... Sub -section (4) defines 'assessee' to mean the person who is liable to pay the excise duty under the Act and includes his agent. 'Related person' has been defined in Clause (c) of Sub -section (4) asunder: (c) 'related person' means a person who is so associated with the assessee that they have interest, directly or indirectly, in the business of each other and, includes a holding company, a subsidiary company, a relative and a distributor of the assessee and any sub -distributor of such distributor. Explanation -In this clause 'holding company' 'Subsidiary company' and 'relative' have the same meaning as in the Companies Act, 1956. Wholesale trade has been defined in Clause (e) as under: 'Wholesale trade' means sales to dealers, industrial consumers, Government, local authorities and other buyers, who or which purchase their requirement otherwise than in retail. ;