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Sushil Kumar Chakraborty Vs. Collector of Central Excises and ors. - Court Judgment

SooperKanoon Citation
SubjectExcise
CourtKolkata High Court
Decided On
Case NumberCivil Rule No. 6100 (w)/72
Judge
Reported in1978(2)ELT96(Cal)
ActsCentral Excises Act, 1944 - Section 4 and 4A; ;Central Excise Rules, 1944 - Rule 9B and 9B(5)
AppellantSushil Kumar Chakraborty
RespondentCollector of Central Excises and ors.
Cases ReferredA.K. Roy v. Voltas Limited
Excerpt:
- .....goods manufactured in his factory by submitting application in form a.r.i, and after payments of excise duty calculated on the basis of price of articles declared by him. on december 13, 1967 he as the proprietor of messrs s.k. rubber works executed a general bond with security for provisional assessment of his goods to excise duty in favour of the president of india. the said bond was signed on may 8, 1968. with effect from june 1, 1968 special procedure under chapter viii of the central excise rules, 1944 began to apply in case of rubber products. since june 1, 1968 the petitioner had been clearing goods from his factory under the gate passes in the prescribed forms and by submitting monthly returns in form r.t. 12. he had paid the above excise duty on the basis of the price lists.....
Judgment:

C. Mookerjee, J.

1. At the material time the petitioner used to manufacture rubber products including Radiator Nose pipes in his factory, named Messrs. S.K. Rubber Works at 23, Prince Anwar Shah Road, Calcutta. With effect from the 26th May, 1967, the Central Excise duties became leviable on rubber products including pipes and tubes of unbardened volcanised rubber under sub-item No. 3 of item No 16A of the 1st Schedule to the Central Excises and Salt Act, 1944.

2. During the [period May 26, 1967 to May 31, 1968, the petitioner had removed goods manufactured in his factory by submitting application in Form A.R.I, and after payments of excise duty calculated on the basis of price of articles declared by him. On December 13, 1967 he as the proprietor of Messrs S.K. Rubber Works executed a General Bond with security for provisional assessment of his goods to excise duty in favour of the President of India. The said Bond was signed on May 8, 1968. With effect from June 1, 1968 special procedure under Chapter VIII of the Central Excise Rules, 1944 began to apply in case of rubber products. Since June 1, 1968 the petitioner had been clearing goods from his factory under the Gate Passes in the prescribed forms and by submitting monthly returns in Form R.T. 12. He had paid the above excise duty on the basis of the price lists submitted by him from time to time.

3. The subject matters of the challenge in the present Rule are : (a) the show cause notice, dated the 26th October, 1968 issued by the Assistant Collector, Central Excise, Calcutta VI Division, C. No. V (16A) 18/11-Cal. VI/68/3516; (b) the letter of the Assistant Collector, Central Excise, Calcutta VI Division No. C. No. V(16-A)/18/11/Cal. VI/68/ 4565, dated the 27th November, 1968; and(c) Order No. 1 (16A) A.C. 1071, dated the 26th May, 1971 passed by the Assistant Collector, Central Excise, Calcutta VI Division. The Assistant Collector by the above show cause notice, dated the 26th October, 1968 had called upon the petitioner above concern to show cause why the assessable value of hose pipes manufactured by it with the Dunlop Trade Mark should not be fixed at the wholesale cost price at which the same and similar kinds of hose pipes with the said trade mark were sold by the Dunlop Rubber Company (India) Limited.

4. The Assistant Collector by the said show cause notice, dated the 26th October, 1968 had called upon the petitioner's concern to show cause against the said determination of value of its production for the purpose of levy of Central Excise Duty and why differential duty shall not be paid by the said concern in terms of Rule 9B(5) of the Central Excise Rules, 1944. The Assistant Collector by this aforesaid letter, dated the 27th November, 1968 had supplied to the petitioner the wholesale price found on enquiry in respect of articles manufactured and sold by the petitioner's concern with Dunlop and Mansfield trade marks. The Assistant Collector, Central Excise also had informed that calculation on the basis of the wholesale cash price in terms of Section 4 of the Central Excises and Salt Act, 1944, would be Rs. 64,180.48 (Rs. 53,483.73 paise Basic Excise Duty plus Rs. 10,696,75 paise special excise). The Assistant Collector, Central Excise, Calcutta VI Division by his assessment order, dated the 26th May, 1971 held that the petitioner's concern Messrs S.K. Rubber Works was liable to pay a sum of Rs. 60,271.52 (Basic Rs. 50,226.27 paise, special Excise Rs. 10,045,25 paise) being the difference between the duty paid on the basis of the price declared by the firm and the duty payable by the firm on the basis of the wholesale price now fixed as aforesaid in respect of the said goods cleared by the firm during the period from the 26th May, 1967 to the 31st October, 1968 as per calculations shown in the Annexure 'B' to the said order.

5. The questions arise for consideration in this Rule. In the first place, whether the excise duty paid by the petitioner at the time of removal of goods from his factory were provisional or final. In other words, whether the Central Excise Authorities are now attempting to re-open final assessments made at the time of removal of the goods or they are now really making final assessments of excise duty on goods which were removed after payment of provisional excise duty. The other point in this Rule is whether the determination of the wholesale cash price made by the Assistant Collector by his aforesaid order, dated the 26th May, 1971, was valid and in accordance with law.

* * * *

6. The Assistant Collector, Central Excise, Calcutta VI Division in his order, dated the 26th May, 1971, has referred to the special procedure under Chapter VIIA of the Central Excise Rules, 1944 according to which the manufacturer determined the duty on the basis of the value approved by the Central Excise Authority and cleared the| goods on payment of the duty so determined under proper Gate Pass. At the end of each month, the manufacturer submitted a return to the proper Central Excise Officer showing therein the details of the goods cleared during the month of payment of duty. The Central Excise Officer then assessed the duty on the goods after such enquiry as he might consider necessary. The Assisstant Collector himself has mentioned that such special procedure has become applicable to rubber products under Item No. 10A of the Central Excise Tariff with effect from the 1st June, 1968.

7. The Assistant Collector in his said order has also mentioned about the practice according to which manufacturer submit advance price list of the products for each quarter of a year before the Central Excise Authority. According to the Assistant Collector a provisional approval is given to the price list by the Central Excise authority subject to final approval later after necessary verification of the price. The assessable value declared by the manufacturers in the A.R. 1 application, or in the Gate Passes and monthly returns under the special procedure, represents the value provisionally approved and the duty is assessed by the Central Excise Officer provisionally subject to final assessment after necessary verification of the price. The Assistant Collector also relied upon rule 9B for justifying the case that when goods cleared from the petitioner's factory premises by making applications in Form A.R. 1 the same was only provisionally assessed.

8. The Assistant Collector by his order dated the 26th May, 1971, also purported to determine the said wholesale cash price. The Assistant Collector held that the Radiator Hose pipes manufactured by the petitioner's concerned were impressed with the mark 'Dunlop' and Mansfield' which were trade marks of Messrs Dunlop (India) Limited and Madras Rubber Factory Limited respectively. The petitioner had supplied the said goods to Messrs Dualop (India) Limited through Associated Rubber Works of 83/6, Ballygunge place, while Messrs Rubber Company of 42/D, Syed Amiar AH Avenue. The petitioner for the purpose of supplying of Hose pipes marked 'Mansfild' to Messs. Madras Rubber Factory Limited. The question whether the Associated Rubber Works and the Rub Company were independent wholesaler's or really concerns owned by the petitioner was one of fact. The Assistant Collector disbelieved the case of the petitioner and held that he was the owner of the said two concerns. The Assistant Collector in his impugned order and also in the affidavit filed in this court claimed that the Associated Rubber works was owned by the petitioner and Smt. Bela Chakraborty, who was shown as the owner of the Rub Company was the petitioner's wife. The petitioner did not admit that Smt. Bela Chakraborty was his wife. The respondents in this connection, relied upon the report of Sri H. D. Bose, Inspector of Central Excise, Legal Section, Calcutta and Orissa Collectorate who claimed that upon enquiry he had come to know that Smt. Bela Chakraborty was the wife of the petitioner. The respondents also relied upon the earlier years' entries in the Demand Registrar of Trade and Profession of Tax of the Calcutta Corporation which showed that Smt. Bela Chakraborty was the wife of Sushil Chakraborty and subsequently the said entry was altered to show the name of father of Bela Chakraborty instead of her alleged husband (vide Annexure 'E' to the affidavit-in-opposition).

9. In view, the petitioner is not entitle to challenge in this writ application the above finding of fact of the Assistant Collector that he was really the owner of the two businesses, named Messrs. Associated Rubber Works and the Rub Company. The Assistant Collector had undoubtedly jurisdiction to record the finding on this point of fact. He purported to rely upon some materials and arrived at his findings essentially of fact. The writ court does exercise the appellate or revisional powers or powers of the Assistant Collector of Central Excise. Therefore, I cannot review the evidence in order to decide whether the above findings of the Assistant Collector about the ownership of Messrss. Associated Rubber Works and Rub Company were correct or not.

10. The last point is whether the Associated Rubber Works was justified in taking the sale price charged by Messrs. Dunlop (India) Limited as the wholesale price of the petitioner's goods.

11. Mr. Dutt, learned Advocate for the petitioner has cited large number of authorities which lay down that excise duty is primarily a duty levied upon a manufacturer or producer in respect of the com-modity manufactured or produced. It is a tax upon goods no and upon sales or the proceeds of sale of goods (See. Federal Court decision in the Province of Madras v. Messrs. Beddu Paidanna and sons, (A.I.R. 1942 F.C. 33) approved by the Privy Council decision in Governor General in Council v. Province of Madras. (A.I.R. 1945 P.C. 98).

12. Similarly, the Supreme Court in Union of India and Anr. v. Delhi Cloth and General Mills Co., Ltd. and Ors., [1977 E.L.T. (J 199)] pointed out that the 'Excise duty is on the manufacture of goods and not on sale. In the said case, the Supreme Court held that 'if in the manufacture of hydrogenated oils known as vanaspati from the raw materials, new substarce has been brought into existence by the application of processes one or more of which are with the aid of power and that substance is the same as 'refined oil' as known to the market, an excise duty may be leviable under Item 23 (the present Item 12). As the raw oil though purified in the process of manufacturing vanaspati, is not deodorised before its hydrogeneration, it does not become at any stage 'refined oil' as is known to the consumers and the commercial community and no excise duty is leviable on it under Item 12 (old Item 23) of Schedule 1 as 'refined oil'.

13. Mr. Dutt, learned Advocate for the petitioner also cited the Supreme Court decision in Orient Paper Mills Ltd. v. Union of India (U.O.I.) (A.I.R. 1967 S.C. 1964). The Supreme Court in the said case held that 'in case of manufactured goods the payment of duty and the clearance of goods may be synchronous or the payment may be postponed although the goods may be removed. This sets up two kinds of cases in respect of manufactured goods. 'The critical time, is therefore, removing from factory or warehouse, but if payment of duty is made before the removal then the critical time is the payment of duty. In the facts of the case before the Supreme Court, it was hold that payment of duty synchronised with the clearance of goods. Hence goods had become free of enhanced duty. Recovery of enhanced duty was hold to be erroneous.

14. Recently the Supreme Court in A.K. Roy and Anr. v. Voltas Limited, 1977 E.L.T. (J 177) pointed out the relevant factors for determination of wholesale cash price within the meaning of Section 4A of the Central Excises and Salt Act, 1944. Mathew, J. in paragraphs 20 and 21 of his judgment considered the question what exactly the meaning of the term 'wholesale cash price'. Reference was made to the Privy Council decision in Vaccum Oil Company v. Secretary of State for India in Council, (A.I.R. 1932 P.C. 168) which held:

'that the term means the price paid by retail traders on wholesale purchase. The essence of the idea is that the purchase must be a wholesale purchase and not a retail one. In other words, the same must be wholesale and not a retail one in order that the price retailsed may be termed the 'wholesale cash price.'

Methew, J further 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 profits and that the real value can include only the manufacturing cost and the manufacturing profit. The section makes it clear that excise duty is levied only on the amount representing the manufacturing cost plus the manufacturing profit and excludes post-manufacturing cost and 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 eleminating freight, octroi and other charges involved in the transport of the articles.'

Methew, J. in A.K. Roy v. Voltas Limited (supra) did not agree will the Judicial pronouncement made in National Tobacco Co. of India Ltd. v. Collector of Central Excise and Ors. : AIR1961Cal477 and several other reported cases that price of sales to wholesale dealers would not represent the wholesale price for the purpose of section 4(a) of the Act, merely because the manufacture had entered into an agreement with them stipulating for commercial advantages. Mathew, J. observed that 'if a manufacturer entered into agreement with the dealers for wholesale sale of the articles manufactured on certain terms and conditions, it would not follow from that alone that the price for those sales would not be the 'wholesale cash price, for the purpose of Section 4(a) of the Act if the agreements were made at arms length and in the usual course of business. But where there was a special or favoured buyer to whom a specially low price is charged because of extra-commercial considerations, e.g., because he is relative of the manufacturer, the price charged for those sales would not be the 'wholesale cash price'. Once wholesale dealings at arms length are established, the determination of the wholesale cash price for the purpose of Section 4(a) of the Act may not depend upon the number of such whole sale dealings'. A sole distributor might or might not be a favoured buyer accordingly as terms of the agreement with him are fair and reasonable and are arrived at on purely commercial basis. Once wholesale dealings at arms length are established, the determination of the 'wholesale cash price' for the purpose of Section 4(a) of the Act may not depend upon the number of such wholesale dealings. The fact that a manufacturer sold 90 to 95% of the articles manufactured to consumers direct would not make the price of the wholesale sales of the rest of the articles any less the 'wholesale cash price' for the purpose of Section 4(a), even if these sales were made pursuant to agreements stipulating for certain commercial advantages, provided the agreements were entered into an arms length and in the ordinary course of business.'

15. In the instant case, the Assistant Collector in his impugned order has held that the petitioner himself was the owner of the two concerns Rub Company and the Associated Rubber works through whom bulk of the rubber hose were sold. Substance of the finding of the Assistant Collector that the transaction between the petitioner and the said selling agencies were not at arms length and the price paid by Associated Rubber works and Rub Company to the petitioner did not represent the wholesale cash price of the goods. Accordingly, it was open to the excise authorities to determine the wholesale cash price of the goods manufactured in the petitioner's factory after taking into consideration the relevant factors.

16. Further the Assistant Collector, Central Excise purported to accept the wholesale price charged by Messrs. Dunlop Rubber (India) Limited to its dealers as the wholesale cash price of the goods manufactured by the petitioner. The Assistant Collector in his impugned order of assessment held that the petitioner was really the owner of Associated Rubber works and Rub Company and that he had special relationship with Messrs. Dunlop (India) Limited and Madras Rubber Factory Limited. His concept of the wholesale cash price was not in accordance with the above pronouncements of the Supreme Court in A.K. Roy v. Voltas Limited (Supra). According to the Assistant Collector the said two companies were favoured buyers and not independent wholesale dealers. But the Assistant Collector in his impugned order did not record any finding as to whether or not the petitioner through his selling agencies had charged them low price because of any extra commercial considerations. The Assistant Collector without applying the tests laid down by the Supreme Court in A.K. Roy v. Voltas Limited (Supra) refused to accept the price paid by Dunlop India Limited and Madras Rubber Factory Limited Co. to the Messrs Associated Rubber Products and Rub Company respectively. There is also no clear finding whether the petitioner's dealing with the said two companies were in usual course of business in the manner indicated in the above judgment of the Supreme Court in A.K. Roy v. Voltas Limited (Supra). There is no material on record to decide whether the price charged by Messrs Dunlop (India) Limited was equivalent to manufacturing cost of the petitioner plus manufacturing profit. The Assistant Collector in his order did not apply his 'mind to the point whether post-manufacturing cpst and profits arising from such post manufacturing operation on the part of Messrs Dunlop (India) Limited were included in the wholesale price charged by Messrs Dunlop (India) Limited. The assessment order made by the Assistant Collector, in my view, should be quashed as the Assistant Collector, made an error apparent on the face of the record by not eleminating the cost and profits arising from post-manufacturing operation of the goods manufactured in the petitioner's factory. He did not determine the wholesale cash price after eleminating such cost profits. But I have hold that the Assistant Collector undoubtedly have the jurisdiction to finally determine the wholesale cash price and demand excise duty on the basis thereof.

17. Therefore, the order in this Rule would be without prejudice to the authority of the Assistant Collector, Central Excise, Calcutta VI Division to make fresh determination of the wholesale cash price and again make an assessment for the period commencing from September 1967 in accordance with law.

18. I accordingly made the Rule absolute in pArticle I quash the assessment order, dated the 25th May, 1971 of the Assistant Collector, Central Excise (Annexure 'V'). Let a writ of Mandamus issue commanding the respondents from making any fresh assessment of excise duty in respect of goods covered by A.R. Nos. 5/SK/67-68, dated the 12th July, 1967, 7/SK/67-68, dated the 26th August, 1967. The respondents would be at liberty to make fresh assessment of excise duty on the goods covered by remaining A.R. Form I and RT/8 Forms in accordance with law.

19. There will be no order as to costs.


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