AHMEDABAD MFG AND CALICO PRINTING COMPANY LIMITED Vs. UNION OF INDIA

JUDGEMENT

(1.) Heads the petitioners manufacturers of textile goods at Ahmedabad (who have recovered the excise duty from the consumers) win-(and make a windfall profit the dootrine of unjust enrichment notwithstanding)- Tails the consumers who have already suffered the burden of the levy lose. Such are the implications of the problem posed in this group of petitions raising a question which one might be tempted to call a million dollar question but for the fact that it would be a gross understatement. For the question if answered the way desired by the petitioners can cost the Revenue hundreds of millions of rupees (recovered over last several years by way of duty which will have to be refused to the manufactures all over India)

(2.) . For more than 30 years even since the enactment of Excise Act in 1944 manufacturers of goods all over India have been paying excise duty at the prescribed rates. Wherever duty is payble ad valorem it is being paid under section 3 read with sec. 4 or the Excise Act on the valuation made on the basis of the wholesale price fetched by the goods at the factory gate or the price at which the same could reasonably be expected to he sold at the factory gate without protest or demur. A question as to whether the sale price obtained by the manufacturer from the wholesaler determined on the `factory-gate concept should be the basis for computation Or the duty under section 4 of the Excise Act or whether the sale price obtained by the first wholesale purchaser who sold to the second whole sale purchaser or retailer should be the basis arose in A. K. ROY V. VOLTAS LTD. A.I.R. 1973 S. C. 225 (hereafter called the Voltas Case). The Supreme Court declared that the price at which the goods could be sold to the first wholesaler at the factory gate should be the basis. In order to stress the point that price charged by the manufacturer to the first wholesaler alone matter the consequences had to be analysed. The price charged by the manufacturer to the first wholesaler would take care of the cost of the manufacturer as also his profits (if any). The price charged by the wholesaler thereafter would also take into account his profit as well. To bring out this factor the Supreme Court inter alia observed to the effect that excise duty was payable on manufacturing costs plus manufacturing profits and that wholesalers profits cannot be included in the computation the same being postmanufacturing expenses. Drawing inspiration from the phrase manufacturing costs plus manufacturing profits employed by the Supreme Court in the aforesaid context a number of writ Petitions came to be filed in the various High Courts contending that expenses incurred by the manufacturers such as (1) publicity expenses (2) storage expenses (3) expenses pertaining to promotion of Sales etc. required to be deducted from the wholesale sale-price at which goods were sold by the manufacturer at the factory gate or could be expected to be sold by him at the factory gate. Some High Courts upheld the plea. A Division Bench of this High Court negatived it in GOLDEN TOBACCO CO. LTD. BOMBAY V. UNION OF INDIA 1977 E. L. T. (J. 113) (hereinafter referred to as the First Golden Tobacco Case). The view was taken that there was nothing in the Voltas judgment which required any deduction being made from the price at which the goods were sold (or were saleable) to s wholesaler at the factory gate. All that was decided in Voltas case was that the price at which goods were sold or saleable to a wholesaler at the factory gate alone was relevant. And not the price at which such a wholesale purchaser sold to a subsequent purchaser for that would take within its sweep the said wholesalers profits which could not be subjected to duty leviable from the manufacturer under sec. 4 of the Excise Act. Shortly thereafter sec. 4 was amended. The controversy persisted even after the amendment. A Division Bench of this High Court which was presented with the same problem some time later (GOLDEN TOBACCO CO. LTD. V. UNION OF INDIA 1980 E. L. T. 437: 22 G. L. R. 440 referred to as `second Golden Tobacco judgment) took the view that such expenses which were styled as post-manufacturing expenses were not includible in making the computation for the purposes of levy. In view of the earlier Division Bench judgment in First Golden Tobacco case the matter might well have been required to be referred to a larger Bench. The Division Bench presumably did not consider it necessary to do so in view of the fact that sec. 4 of the Excise Act had been amended meanwhile as can be gathered from the fact that the earlier judgment in First Golden Tobacco case was referred to as having been rendered in the context of the unamended provision. Thereafter a number of petitions have been instituted on the premise that expenses of the aforesaid categories (1) publicity expenses (2) storage expenses (3) charges of insurance of finished goods (4) expenses of promotion of sales (5) expenses of marketing and distribution (6) freight charges etc. are not includible in making computation for the purposes of levy. Deduction from the valuation of goods made by the petitioner themselves is claimed in regard to the estimated expenses incurred in this connection as per the computation made by a Chartered Accountant and proportionate refund is claimed in regard to the duty paid on goods cleared during past ten years. direction to compute duty on this basis in respect of goods manufactured in future is also prayed for. So far as the first part of the prayer is concerned refund to the tune of about Rs. 3 crores is claimed in Special Civil Application No. 502 of 1980. Similar claims for different amounts have been made in the allied matters. Such is the backdrop of the problem.

(3.) . We propose to deal with the problem in three phases : (1) Whether expenses of any such categories are deductible in making computation of the value of goods for the purposes of the levy in the context of sec. 4 of the Excise Act prior to its amendment by Act 22 of 1973 with effect from 1/10/1975 (2) Whether after the amendment of sec. 4 the position has been altered and the aforesaid items of expenditure are now deductible. (3) Whether charges in relation to primary and secondary packing are includible under amended sec. 4 even if post- manufacturing expenses are considered to be includible The statutory landscale;