Case: Central India Spinning, Weaving and Manufacturing Company Limited, Nagpur Vs. Union of India, Ministry of Finance &amp; Others

The petitioner in W.P. No. 2500 of 1982 is a Limited Company registered under the Companies Act, 1956 carrying on its business of spinning, weaving and manufacturing of cloth at Nagpur. It is popularly known as Empress Mills, Nagpur. Since about November 1978 the petitioner established at Nagpur a Division known as paper Division where the petitioner manufactures kraft paper. The kraft paper is classified for the purpose of Central Excise duty under Item 17(2) of the Central Excise Tariff. In exercise of the powers under Rule 8 of the Central Excise Rules, the respondent No. 1 by Notification No. 128/1977 datedexempted certain categories of papers manufactured in paper mills of the type described in the table to the notification from so much of the duty of excise leviable as specified in the schedule.2. On or about 25th September, 1980 the officers of the Central Excise, Preventive Department, Nagpur in the course of their preventive checks onroad intercepted a truck No. MRL 4187 which was loaded with kraft paper. The truck was going from Nagpur towards Kamptee. On investigation it was found that the said truck was transporting 37 packages of kraft paper manufactured by the petitioner and the driver was not carrying the relative gate pass evidencing the clearance of the goods on payment of excise duty. As a follow up action the officers of the preventive department visited the premises of the petitioner Paper Mills for verification and checking of the account. At the premises they noticed another truck No. MHB 3702 loaded with 26 packages of kraft paper. This truck was ready to leave the factory premises while the officers were checking the bondedof the petitioner mills; the said truck No. MHB 3702 also left the factory premises. The officers found that the original of the Gate Pass No. 242 covering the consignments of 37 packages found in truck No. MRL 4187 as also the original of Gate Pass No. 243 covering 26 packages which were in truck No. MHB 3702 were in the gate pass book of the petitioner. The officers of the Central Excise Preventive Department thereafter intercepted the truck No. 3702 on Kamptee road.3. In the course of the investigation it was revealed inter alia that although the petitioner was paying excise duty on kraft paper at the concessional rate they were recovering from the customers the duty at the tariff rate. Consequently a show cause notice was issued to the petitioner by the Assistant Collector of Central Excise alleging the contravention of the various provisions of the Central Excise Rules, 1944 and the Central Excise and Salt Act, 1944 and the petitioner was called upon to show cause why duty amounting to Rs. 1,78,862.91 should not be recovered from it under sectionof the Central Excise and Salt Act, 1944. The petitioner replied the said show cause notice. As desired by the petitioner personal hearing was granted to it by respondent No. 2 the Collector. The Collector held that the petitioner was guilty of violating the various provisions of the Central Excise Rules. The Collector further directed the Company to pay an amount of Rs. 1,78,862.91 under sectionof the Central Excise and Salt Act, 1944 on the excess value during the period from4. The petitioner preferred an appeal before the Central Board of Excise and Customs, New Delhi. The Appellate Authority found favour with the petitioner in respect of various breaches of the Central Excise Rules, 1944 and completely exonerated him in respect of those breaches. It, however, confirmed the finding of the Collector in respect of the payment of the amount of Rs. 1,78,862.91 under sectionof the Act on the excess value. It is this finding which is being challenged before us.

Court's reasoning:
9. It appears to be quite obvious from the above provisions that the Value of excisable goods is the normal price i.e. the price at which the goods are ordinarily sold by the assessee to the buyers in the course of wholesale trade. Therefore, the value for the purpose of excise duty is the normal price but not including the duty of excise payable. Normally the price under the Sale of Goods Act may contain several ingredients. It may consist of the cost of the raw material, cost of labour, cost of advertisement, cost of packing and so on. But excise duty is not levied on these different items. It is levied only on the normal price of the goods. But if such normal price includes excise duty payable then such amount of excise duty is to be excluded from the price for arriving at the value of the goods for the levy of the excise duty. We have already shown above that, from Notification No. 128/1977 datedas also from the explanation to section 4(4)(d)(ii) it is clear that when the effect of exemption notification is a reduction in the rate prescribed in the Act, it is the reduced rate of excise duty which is to be excluded under section 4(4)(d)(ii). The explanation referred to above, in our view makes it clean that the exclusion under section 4(4)(d)(ii) is only of the duty of excise as reduced by the exemption notification. Thus, in our view, the authorities below were justified in holding that what was being collected by the company as excise duty from the customers is not excise duty but the value in substance of the goods. The company is realising from its customers excise duty worked out on tariff rates while it is actually paying duty to Government at concessional rate. It is true that according to section 4(4)(d)(ii) of the Act the value does not include the amount of the duty of excise, if any payable on such goods, but in view of the explanation to section 4(4)(d)(ii) of the Act, the duty of excise means the duty payable in terms of the Central Exercise Tariff read with Exemption Notification issued under Rule 8 of the Central Excise Rules. In this view of the matter, the only deduction that is permissible is of the actual duty paid or payable while fixing the assessable value.Shri Bobde has placed the copy of the judgment of the Karnataka High Court, disposing of Writ Petition No. 3548 of 1978 and Writ Petition No. 4766 of 1981 on 3rd October, 1985. In this case the Collector of Central Excise had issued a Trade notice purporting to clarity the levy of excise duty on goods manufactured by the petitioners as detailed in Exemption Notification No.On the basis of the Trade Notice, duty was demanded from the petitioners, who paid the duty under protest. The Karnataka High Court has expressed thus :"(35) What emerges from the above discussion is that in determining the assessable value of manufactured goods governed by the exemptions granted by the Government either partial or whole, only that amount of duty actually paid or payable by such manufacturer should be excluded and the benefit of such exemptions cannot be denied on the ground that the extent of such exemptions either in whole or in part had not been passed to the customer."The Karnataka High Court has also referred to the decision of this Court in B.K. Paper Mills Pvt. Ltd. (supra) and expressed thus :"We are of the view that this enunciation made by the learned Judge is in accord with what we have expressed earlier. We are of the view that it is unnecessary to examine the other questions that were decided in that case."In view of what we have stated above, it is difficult to appreciate how this decision supports Shri Bobde.12. Lastly, Shri Bobde urged a question of limitation in Writ Petition No. 2250 of 1983 based on the statement of show cause notices (Annexure 11) at Serial Nos. 12 and 13 as barred by limitation under rule 10 of the Rules in force framed under the Central Excise Salt Act, 1944. The authorities below have dealt with this aspect and, in our view, rightly. We see no reason to take a view different from the one that has been taken by the authorities below.