MADRAS RUBBER FACTORY LTD. Vs. ASSISTANT COLLECTOR OF CENTRAL EXCISE

JUDGEMENT

(1.) The appellant, The Madras Rubber Factory Ltd., Madras, is a company registered under the Companies Act with its registered office in Madras. It is engaged in the manufacture of automobile tubes, tread rubber both with and without cushion, and other rubber products sold under the name and style of 'Mansfield'. Its factory is located at Vadavathoor in Kottayam District in this State. It started its manufacture of rubber products from the financial year 196970. Its products are supplied to its depots at various places throughout the country. In so doing, it has incurred expenses of storage, transportation, insurance, etc. In the matter of costing rubber, the practice seems to have been to strike the average price called the 'billing price' after taking into account all these heads of expenses, and to transfer to the depots the stock at the said billing price. The depots in their turn sell to the dealers or consumers.

(2.) The question agitated in this petition is regarding the levy of excise duty on the articles produced and sold by the petitioner. In brief, the excise duty was sought to be levied on the value of the goods calculated after taking into account not only the post manufacturing profit but also the post manufacturing cost. These post manufacturing costs and expenses taken into account comprise, as indicated, such items as freight, transportation charges, interest charges, travelling expenses of agents, insurance, etc. The petitioner has 32 depots throughout the country. There are no factory gate sales but the sales are only through depots to dealers and consumers. The dealer is entitled to 7 1/2 per cent commission from the consumer. S.3 of the Central Excise and Salt Act, 1944 referred to for convenience, where necessary, as the Act provides for the levy of excise duty on excisable goods produced or manufactured in India at the rates set forth in the I Schedule. The I Schedule classifies the commodities and fixes the rates based on the number, area, length, quantity or value. For instance, item 16 is 'tyres', and, in the case of tyres, the excise duty is 40 per cent ad valorem plus special duty at 20 per cent.

(3.) The case of the petitioner in short is that a duty of excise is a tax on the production or manufacture of goods; and that it had been explained by the Supreme Court in A. K. Roy v. Voltas Ltd. (AIR 1973 SC 225), that S.4 of the Excise and Salt Act, which provides that the real value of the goods for purposes of excise duty should be found after deducting the selling cost and the selling profit, can signify that the real value can include only the manufacturing cost and the manufacturing profit. The argument proceeds that expenses incurred by the petitioner's sales organisation which pertains to the post manufacturing stage and selling profit, would not enter into the assessable value for purposes of excise duty. After the pronouncement of the Supreme Court in Volta's case (AIR 1973 SC 225), there was an amendment of the Central Excise and Salt Act by Act 22 of 1973 by which S.4 was amended. The provisions of the amending Act would be noticed immediately. The new section was brought into force on 1st October 1975 by a notification dated 8th August 1975. Rules were also made on that date called the Central Excise Valuation Rules, 1975. The 4th respondent, namely, the Collector of Customs and Central Excise, Cochin, issued notices to the petitioner to file declaration about the price lists of their goods chargeable with ad valorem duty for determination of value, and in pursuance of the same the petitioner complied, showing the manufacturing cost and the manufacturing profit of their goods. Exts. P-1, P-1(a), P-1(b), and P-1(c) represent these lists, and Ext. P-1(d) is a copy of the covering letter enclosing the lists. Ext. P-2, P-2(a), P-2(b) and P-2(c) are the orders of the respondents disallowing the deduction claimed by the petitioner. The 1st respondent, the Assistant Collector of Central Excise, had allowed only 2.3 per cent out of 6.4 per cent claimed by the petitioner as representing freight, octroi and other taxes. The petitioner claimed six items of post manufacturing expenses, and four of these were disallowed by the 1st respondent. The deduction thus disallowed included 2.8 per cent of the basic price (selling price minus excise duty), representing freight, octroi and other charges, having a direct bearing on the case. The petitioner was directed to file the declaration in Form No. 7 instead of in Form No. 5. The writ petition is to quash Exts. P-2, P-2(a), P-2(6) and P-2(c) as illegal and without jurisdiction.