Case: Britannia Industries Limited Vs. Union Bank of India

( 1 ) THE Petitioner Company carries on business as manufacturers of biscuits. It has a factory at reay Road, Mazagaon, Bombay. The biscuits manufactured at the said factory were excisable goods and they were liable to ad valorem excise duty at the relevant time under the Tariff Item 1c of the First Schedule to the Central Excises and Salt Act, 1944( 2 ) ON 27th October 1980 the Petitioners moved the present Writ Petition, inter alia, challenging the varies of Section 4 of the Central Excises and Salt Act, 1944, which was substituted for the original Section 4 by Act 22 of 1973. They had also prayed for issue of appropriate writs against the Respondents for withdrawing and/or canceling the orders refusing their prayer for refund of the excess excise duty paid from, for approving the price lists submitted by the petitioner Company on 6th August 1980 and to all the Petitioner Company to clear its goods after payment of the excise duty on the basis of the assessable values as declared in the price lists submitted by the Petitioner Company. The Petitioners also prayed for refund of the sum of Rs. 68,29,214. 81 p. which, according to the Petitioner Company, had been illegally collected by the respondents from 1st October 1975 to 31st March 1980 by including in the value of the petitioners productsg costs, expenses and profits. A learned Single Judge of this Court was pleased to issue Rule in terms of prayers (a) to (c) and on the Petitioners through their Advocates undertaking to this Court that in the event of this Petition being dismissed they will pay to the Respondents the differential excise duty in respect of goods cleared by them thereafter on the basis adopted by the Respondents and the amount actually paid within four weeks from the dismissal of the Petition with interest on the differential amount of 17 per cent per annum from the due date and on the Petitioners executing a bond without security in favour of the Respondents to the aforesaid effect, granted interim order in terms of prayer (d) of the petition( 3 ) IN their original Writ Petition the Petitioners had purported to rely mainly upon the decision of the Supreme Court in the case of A. K. Roy v. Voltas Ltd. , A. I. R. 1973 S. C. 225 and the other reported decisions which followed the same and had contended that in order to arrive at the assessable value of the Petitioner Companys products, deduction ought to be made ofg expenses like sales and distribution establishment expenses, interest on deposits from distributors, product advertisements and sales promotion expenses, freight and insurance chargers, general administrative expenses for sales and also( 4 ) WHILE the present Writ Petition was pending, the Supreme Court decided the case of Union of india v. Bombay Tyre International Ltd. , A. I. R. 1984 S. C. 420 = 1983 (14) Excise Law Times 1896 . R. S. Pathak, J. (as he then was) for himself and on behalf of P. N. Bhagwati, J. (as he then was) and A. N. Sen, J. set forth the legal position in respect of various aspects of the levy of excise duty under the Central Excises and Salt Act, 1944, both before its amendment by the central Excises and Salt (Amendment) Act, 1973 (Act 22 of 1973) and after such amendment. In the case of Union of India v. Bombay Tyre International Ltd. (supra) the Court explained the true scope of its earlier decisions in Voltas Ltd. s case [1971 E. L. T. (J 177) = A. I. R. 1973 S. C. 225] and in the case of Atic Industries v. Asstt. Collector, Central Excise, 1978 ELT (J 444) = A. I. R. 1975 S. C. 960, both of which dealt with certain aspects of previous Section 4 of the Central excises and Salt Act. The Court held that in every case fundamental criteria for computing the value of an excisable article was the price at which the excisable article or an article of the like kind and quality was sold or was capable of being sold by the manufacturer and it was not the mere manufacturing cost and manufacturing profit which constituted the basis for determining such value. (Paragraph 30 ). Having discussed various other cases under the previous Section 4 of the Central Excises and Salt Act, the Court had answered in the negative the question whether the value of an article for the purposes of excise duty must be confined to the manufacturing cost and manufacturing profit in respect of an excisable article. The Supreme Court further held that in enacting the new Section 4 in supersession of the previous Section no material departure was intended from the basis scheme of determining the value of an excisable article. In paragraph 48 of their judgment in the case of Union of India v. Bombay Tyre International Ltd. (supra) the true position under the Central Excises and Salt Act, 1944, as amended by Act 22 of 1973 was set forth. The proposition (i) was that the price at which the excisable 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 as defined inn (4) (b) of Section 4 is the basis for determination of the excisable value, provided a buyer is not related person and the price is the sole consideration for the sale. The proposition (iii) was where wholesale price of any excisable goods for delivery at a place of removal is not known and the value thereof is determined with reference to the wholesale price for delivery at a place other than the place of removal, the cost of transportation from the place of removal to the place of delivery should be excluded from such sale. In Bombay tyre International Ltd. s case (supra) the Supreme Court in paragraph 51 of its judgment (A. I. R. report) had, inter alia, observed :now, the price of an article is related to its value (using this term in a general sense), and into that value have poured several components, including those which have enriched its value and given to the article its marketability in the trade. Therefore, the expenses incurred on account of the several factors which have contributed to its value up to the date of sale, which apparently would be the date of delivery, are liable to be included. Consequently, where the sale is effected at the factory gate, expenses incurred by the assessee up to the date of delivery on account of storage charges, outward handling charges, interest on inventories (stocks carried by the manufacturer after clearance), charges for other services after delivery to the buyer, namelys service and marketing and selling organisation expenses including advertisement expenses cannot be deducted. Where the sale in the course of wholesale trade is effected by the assessee through its sales organisation at a place or places outside the factory gate, the expenses incurred by the assessee upto the date of delivery under the aforesaid heads cannot, on the same grounds, be deducted.Thus, the test laid down in the case of Union of India v. Bombay Tyre International Ltd. (supra)was that expenses of elements or constituents which enriched its value and marketability are to be included for determining the value of an excisable article. In other words, not only manufacturing expenses but alsog expenses which contribute to the marketability must be considered to be part of the wholesale price at the place of removal. By the same logic the assessee will be entitled to deduction on account of the cost of transportation of the excisable articles from the factory gate to the place or places where its products are sold. According to the Supreme Court, the cost of transportation will include the cost of insurance of the freight for transportation of the goods from the factory gate to the place or places of delivery. In paragraph 52 of its judgment in Bombay Tyre International Ltd. s case (supra) the Supreme court had referred to cases where freight is average and the average freight is included in the wholesale case price in order to have same wholesale cash price at the factory gate and elsewhere. In paragraph 53 of its judgment in Bombay Tyre international Ltd. s case (supra) the supreme Court had interpreted Section 4 (4) (d) (i) by holding that the packing of which the cost is included in the value of excisable goods was that packing in which goods are ordinarily sold in the course of wholesale trade to the wholesale buyer, i. e. the packing in which the article is made marketable without being ordinarily consumed. With reference to secondary packing in Bombay tyre International Ltd. s case (supra) the Supreme Court had observed that when secondary packing is necessary for putting excisable article in the condition in which it is generally sold in the wholesale market at the factory gate, cost of the same is to be included in the value for the purposes of excise duty. if any special secondary packing is provided by the assessee at the instance of a wholesale buyer which is not generally provided as a normal feature of the wholesale trade, the cost of such packaging shall be deducted from the wholesale cash price.vide paragraph 54 of the judgment in the case of union of India v. Bombay Tyre International ltd. (A. I. R. report )( 5 ) ON December 5, 1983, the present Writ Petition came up before Pendse, J. The learned Judge, in accordance with the directions given by the Supreme Court on November 25, 1983, passed an interim order in the following terms. In paragraph 3 of his order Pendse, J. made it clear that the petitioners were no longer entitled to relief in terms of prayer (a) and were also not entitled to claim deduction ofg expenses mentioned by him. Pendse, J. ordered the assessing authorities to permit the assessees to submit their statement of deductions/amendments in respect of the price list already filed for proper determination of excise duty liability in respect of the deductions claimed under the headings (i) interest on deposit from distributors and (ii)freight of and insurance charges together with further claims, deductions or heads of expenditure beyond those dealt with in the judgment of the Supreme Court, if otherwise admissible. Such statements were to be filed with the authorities within the time mentioned by the learned Judge( 6 ) THE second direction of Pendse, J. was upon the Petitioners filing the revised price lists within january 9, 1984, the authorities were to finalise the price lists within six weeks thereafter, after giving opportunity to the assessees. The assessments were to be finalised on the basis of the determination made by the authorities and the quantum of the final assessed figures would be indicated in the decision of the assessing authority. The amounts admittedly payable by the petitioners on the basis of the revised statements were to be paid by the assessees together with interest at the rate of 17 per cent subject to the assessees right to approach the High Court. Under the order of Pendse, J. all final orders including orders for payment of the demands and the time within which the amounts are to be paid and all incidental, consequential and supplementary matters (including payment of interest) will be determined and decided by this court in each case.Liberty was given to the respective parties to make their appropriate submissions( 7 ) PURSUANT to the aforesaid directions dated 5th December 1983, the Petitioner Company had filed with Respondent No. 6 three statement of deductions. The Company had also filed revised price list for the period 12th August 1980 to 23rd December 1983. By another letter the petitioner Company had made revised refund claims amounting to Rs. 25,74,740. 23 p. for the period 1st April 1971 to 6th August, 1980. According to the Petitioners, for the period covered by the Writ Petition, i. e. from 1st October 1975 to 6th August 1980, the Petitioner Company was entitled to refund amounting to Rs. 16,20,485. 82 p. under the following headings :(1) Carriage and freight. (2) Transit insurance. (3) Interest on distributors advances. (4) Surcharge on sales tax. (5) Packing and( 8 ) THEREAFTER various correspondence ensured between the Petitioner Company and Respondent no. 6 According to the Petitioners, Respondent No. 6 had also deputed his representative to examine and verify the books and documents of the Petitioner Company. After giving a personal hearing to the Petitioner Company on 13th March 1984, on 19th March 1984 Respondent No. 6 passed an order which was, however, withdrawn pursuant to the order of this Court dated 18th june 1984( 9 ) ON 9th July 1984 personal hearing was again granted to the Petitioner Company. During the said personal hearing, the Petitioner Company claimed to have submitted copies of price lists. The Petitioner Company also submitted two invoices, two transport bills and a copy of an argument between the petitioner Company and the authorised wholesalers( 10 ) BY his order dated 10th August 1984, Respondent No. 6 had upheld the Petitioners claim for deduction in respect of transit insurance and surcharge on sales tax but had disallowed the claim for deduction in respect of carriage and freight, interest on distributors advances and packing andboxes. By his said order, Respondents No. 6 had assessed the sum of Rs. 35,92,599. 61 p. as excise duty payable by the Petitioners for the period in question( 11 ) ON 25th March 1985 Respondent No. 6 had given further personal hearing to the Petitioner company. At the said hearing the Petitioner submitted a revised refund claim. Respondent No. 6, by his order dated 25th March 1985 allowed the Petitioners refund amounting to Rs.n respect of transit insurance and surcharge on sales tax for the period 1st October 1975 to 6th august 1980. Respondent No. 6, however, rejected the claim for deduction in respect of carriage and freight, interest on distributors advances and packing and( 12 ) THEREAFTER, the Petitioners, after obtaining leave, amended their Writ Petition by adding, inter alia, paragraphs 13 (A) to 13 (M ). An additional prayer was also inserted. The Respondents filed an affidavit in reply for contesting the Petitioners claims and contentions in respect of the determination of the value, price lists, assessment of duty and refund( 13 ) IN view of the decision of the Supreme Court in the case of Union of India v. Bombay Tyres international Ltd. (supra) and the interim order dated 5th December 1983 of Pendse, J. , the scope of the present Writ Petition has become much narrower than that of the original writ petition.

Court's reasoning:
It was not accepted that the cash monies in the form of these deposits available to the assessee company were allowed to lie idle and borrowings were made from other sources at higher market rate. The assessees did not adduce evidence to show that the said amounts were not at all utilised as capital. Liability to pay interest on these deposits was to be discharged out of the miscellaneous income arising, if any, by way of deposits and not out of the sale price of goods( 17 ) IN our view, the Assistant Collector of Central Excise, Respondent No. 6, did not commit any jurisdictional error in rejecting the Petitioner Companys claim for deduction on account of such interest payments on deposits from its wholesalers. It was not very material that in the books of account of the Petitioner Company interest paid on the said deposits was separately shown. Prior to the filing of this Writ Petition, the Petitioners at no earlier stage of the proceedings had claimed deduction of such interest payments entered in their books of account for the purposes of fixation of price lists for their products sold to wholesalers. Secondly, payments of interest are made for use of money borrowed, lent or advanced. We see no reason why the said interest payments upon deposits received by the Petitioner Company are to be deducted in assessing the wholesale price under Section 4 of the Act merely because the persons who made the said deposits of money happened to be wholesale buyers of the Petitioners products. Therefore, the petitioner companys claim for deduction on account of interest payments upon the deposits made by its wholesale distributors ought to failIn his order dated 10th august 1984 the Assistant Collector mentioned two invoices and transport bills produced by the petitioner Company in order to show payments of transport charges. The Assistant Collector had referred to clause 5 of the agreement between Messrs. Britannia Industries Ltd. and their authorised wholesalers and interpreted the same by holding that all the expenses including transport demurrage/wharfages had to be borne by the wholesale dealer. Therefore, the assessees claim that it incurred transport charges was not acceptable and anything contrary to the provisions of clause 5 of the agreement had not been brought forward. The Assistant Collector observed that the sale of biscuits by the Petitioner was on the basis of different regions and the prices of biscuits manufactured by the Petitioner Company in Bombay city and suburbs and always remained lower than the prices of the same biscuits sold in the regions outside Bombay city and suburbs. The differences in prices in the different regions was due to the delivery charges payable on account of carriage of the goods for delivery over longer distances. The further finding of the Assistant Collector was that in the case before him freight paid was not averaged in order to make the wholesale cash prices of the biscuits same everywhereWhether transport charges had entered into the prices payable by the wholesalers was a question of fact.We, however, cannot subscribe to the extreme view canvassed on behalf of the respondents that the price charged by the manufacturer at the factory gate can never include transport charges. In case excise duty levied under Section 3 of the Central Excises and Salt Act is to be collected with reference to the value of excisable articles, such value is to be determined in terms of Section 4 of the Act. Such value under Section 4 (1) (a) is deemed to be the normal price, i. e. the price at which such goods are ordinarily sold by the assessee to a buyer in the course of at wholesale trade. It is possible to visualize cases in which the price payable by a wholesaler at the factory gate includes charges and payments which do not enrich or add the value of the product at the time and place of removal. In view of the observations of the Supreme court in paragraph 49 of its judgment in the case of Union of India v. Bombay Tyre International ltd. (supra), the price of an article is related to its value and into that value is added the expenses incurred on account of the factors which have contributed to the value up to the date of the sale. In case the freight is averaged in order to have uniform wholesale cash price at the factory gate and elsewhere, the price charged at the factory gate would be loaded, i. e. the wholesale cash price at the factory gate and at the place of delivery elsewhere made the same. The cost of transportation may be equalised and included and one averaged figure may be added to the priceAccording to the Petitioner, the price list submitted by it mentioned they prices. Only in its subsequent price list dated 6th August 1980 the Petitioner Company had first time filled up the columns relating to other deductions claimed from the price under Section 4 (2) and Section 4 (4) (d) of the Act. According to the Petitioners themselves, since 1968, the Petitioner Companys products were being sold by followingl procedure laid down in Chapter VIIA of the central Excise Rules. In the original Writ Petition the Petitioner Company did not mention the amount of deduction claimed towards freight charges. We have already mentioned that in his orders dated 10th August 1984 and 30th March 1985 the Assistant Collector had, inter alia, held that the Petitioner Company had failed to satisfy him that the Company had incurred transport charges and the same had been added to the wholesale cash prices, on the basis of which excise duties were leviedFrom the extracts of profit and loss account of the Petitioner Company produced before the Excise authorities it is not possible for this Court to say how much of these transport charges were incurred for carriage of the raw materials or of the bread which were not excisable articles. In the above view, it is not possible to hold that upon the material produced before the Central excise authorities the Assistant Collector had committed any error apparent on the face of the record in rejecting the deduction claimed on account of transport and freight charges in order to arrive at the normal wholesale price during the period 1st October 1975 to the date of the issue of the present Rule. We are not inclined to further protract the proceedings by remitting the matter back to the Central Excise authorities. The Petitioner Company has been already given ample opportunity to establish its claim for refund on account of deductions towards transport charges. Under orders of this Court, the Assistant Collector, even after issue of the Rule, twice considered whether the Petitioner Company was entitled to deduction on account of transport charges but had come to the conclusion that the Petitioner Company had failed to prove the same by producing necessary material. Therefore, the matter cannot be again remitted back and the petitioners contention for deduction on account of freight and carriage costs ought to stand rejected( 26 ) THE third head of deduction was the costs of special secondary packing from the assessable value of the biscuits. Under Section 4 (4) (d), the value in relation to excisable articles included the cost of packing except the cost of packing which is of a durable nature and is returnable by the buyer to the assessee. In the present case, the Petitioner Company had initially claimed that some of its manufactured goods were packed materials which were durable in nature and returnable by the buyer. The Petitioner Company failed to prove the same( 32 ) IN our view, the Assistant Collector had rightly rejected the claim for deduction on account of wooden packing used for supply of biscuits to Canteen Stores Department. No particulars of purchase of wood, use of wooden packing and the total quantity of biscuits sold to the Canteen stores Department were placed before the Assistant Collector. Therefore, no sufficient material in this behalf was placed before the Assistant Collector. Upon Appraisal of the evidence, the assistant Collector had rejected the Petitioners claim for deduction on account of wooden boxes( 33 ) IN our view, these findings of fact regarding (i) the nature of packing and (ii) the reasons for such packing cannot be assailed in Writ Court. The Assistant Collector found that the packings in question were necessary for marketing biscuits. The claim of the Petitioner Company to the effect that the wholesalers themselves had made request was not substantiated by evidenceWe are unable to decide the case on the basis of the demonstration given before us about the nature of the packing for sale at the factory gate and elsewhere of the biscuits manufactured by the Petitioner Company. The relevant period of the refund claimed was between 1st October 1975 to the date of filing of the Writ Petition. Secondly, how the biscuits manufactured by the Petitioner Company were despatched upcountry is a matter entirely one of fact. The Petitioner did not place any material before us in order to substantiate its contention. The Collectors finding that the packing in question was normal packing and not additional or special packing is one of fact. As already stated, before filing the Writ Petition, such a claim for deduction on account of special packing charges was not made. Even during the heading of the matter before him, according to the assistant Collector, the evidence adduced was not sufficient to prove the Petitioners claim. The petitioner Companys profit and loss account or the certificate granted by its auditors did not indicate separately the costs of normal packing and the costs of special packing made either at the request of the party or for facilitating delivery in Mofussil. It is not at all clear whether the petitioner Company had claimed deduction of entire packing costs or only the costs of packing in corrugatedboxes. It has been pointed out before us that the sale invoices of the petitioner did not also mention such packingIn the present case before us also, the Assistant Collector found as a fact that secondary packing of the Petitioners biscuits in tin boxes and corrugatedwas not special packing done at the request of the wholesale buyer but was part of the normal packing for marketing these goods. This view about the nature of packing of biscuits is supported by the division Bench decision of this Court in Sathe Biscuits case (supra )( 36 ) FOR the foregoing reasons, we conclude that the Petitioners claim for deduction on account of special packing was rightly rejected by the Assistant Collector. Even if the Petitioners can legitimately contend that the law relating to deduction on account of special packing had developed only after, pronouncements made by the Supreme Court in Bombay Tyre International ltd. s case (supra), the Petitioners must still fail because even after being given further opportunities under the order of the learned Single Judge dated 5th December 1983, the materials produced by them were not believed by the Assistant Collector. In rejecting the petitioners said case regarding special packing, the Assistant Collector did not commit any error of law or fact apparent on the face of the record which would warrant interference under Article 226 of the Constitution. After giving reasons, the Assistant Collector had disbelieved the petitioners case. He found the packings to be normal or usual packings. Therefore, we are unable to interfere with the order of the Assistant Collector rejecting the claim for deduction on account of special packingWe find no substance in the preliminary objection by which, in effect, the learned Counsel attempted to shut out submissions made on behalf of the Respondents. The orders in question of the Assistant collector were quasi judicial in nature. The Assistant Collector had given several reasons in his two orders dated 10th August 1984 and 30th March 1985. Even if it is assumed that some of his reasons are erroneous, in the event this Court is unable to strike down the rest of the reasons contained in the orders of the Assistant Collector, this Court under Article 226 of the constitution cannot quash such quasi judicial order of the Assistant Collector. The Petitioners accordingly are bound to fail. Amongst other reasons, on facts, the Assistant Collector had disbelieved the claim of the Petitioner Company that it had in fact incurred transport costs and that such costs were included in the price charged to its wholesalers. The Assistant Collector also disbelieved that any special packing was used by the Petitioner Company. The secondary packing were found upon the facts to be part of the normal packing for making the petitioner companys goods marketable. These findings were sufficient for rejecting the Petitioners claim for deduction under the heads of freight and transport charges and costs of special packing( 38 ) IN the instant case, by the format order dated 5th December 1983 Pendse, J. had directed the assistant Collector to pass orders subject to final orders of this Court. Therefore, at the final hearing, in order to support the orders passed by the Assistant Collector, the Respondents were entitled to make all appropriate submissions on points of law which did not require further investigation of facts and which related to the question of jurisdiction of the Assistant CollectorWe have already dealt with the decision in godfrey Philips India Ltds case (supra ). Therefore, we consider it unnecessary to separately deal with the decisions which had only applied the law laid down in Godfrey Philips India Ltd. s case (supra) and Madras Rubber Factorys case (supra) to the particular fact( 40 ) IN the above view, we are unable to interfere with the order of the Assistant Collector demanding balance excise duty payable by the Petitioner Company. He has already given credit for deductions to be made on account of freight insurance and surcharge on sale tax. The petitioners have failed to make out any case for refund under any other head. We have already noticed that in the present case the Petitioners ultimately did not urge their claim for refund for any period prior to 1st October 1975. The same isr of a separate Writ Petition. It is, therefore, unnecessary to any longer consider the submission of the learned Counsel on both sides regarding the extent of the Writ Courts power to order refund of duties paid in excess of the amount lawfully recoverable. In the present case, the question of unjust enrichment was not taken in the affidavit. We, therefore, need not decide the said point also.