Punjab Tractors Limited vs Union of India

M.L. Koul, J.

The petitioners are carrying on business of manufacturing tractors in a factory situate at Phase IV, SAS Nagar, Mohali, district Ropar and the tractors manufactured by the petitioners are sold under the brand name `Swaraj''.

A writ of certiorari has been preferred by the petitioner to quash the order dated 2.11.1995 issued by the Assistant Commissioner, Central Excise Division, Chandigarh, whereby the petitioners have been called upon to show cause within 30 days of the receipt of the notice as to why (i) Central Excise Duty amounting to Rs. 71,00,129.00 as per details in Annexure `A'' should not be demanded from them under Section 11A of the Central Excise & Sale Act, 1994, and (ii) penal action should not be taken against them under Central Excise Rules, 1944 for the contravention of the provisions of Rules 173C, 173F as mentioned in the notice. The petitioners were further directed to produce at the time of showing cause the whole evidence documentary or otherwise upon which they intend to rely in support of their defence.

Aggrieved of the said show cause notice this writ petition is filed on the ground that the petitioner Company has appointed dealers at various places in different parts of the country with regard to the sale of tractors manufactured by them. These tractors manufactured by the Company are sold by the petitioner Company on principal to principal basis to such dealers. The dealers in turn sell tractors to their respective customers at such price and in such manner as the dealers consider appropriate. The petitioner as far the practice goes recommend the maximum retail price which the dealers are charging from the customers. The agreement in this regard between the Company and the dealers are incorporated in the letters and circulars issued by the Company from time to time. It is contended that the action of the respondents in demanding excise duty based on the price at which the tractors are sold by the dealers to the retail customers is ultra vires of the provisions of the Act and the Constitution.

The respondents in their written statement controverted the averments made in the writ petition basically on the ground that only a show cause notice has been issued to the petitioners to explain their case and the writ petition against the said order is not entertainable. As the proceedings have been initiated under the CESA, 1944, therefore, exercising of the extra ordinary writ jurisdiction by this Court is premature. The petitioner have been given a notice on the basis of principle of natural justice and are at liberty to represent their case before the Excise authorities who have to decide the case after the matter is considered on its merits on the basis of the evidence to be produced by the petitioners.

Heard Mr. M.G. Ramchanderan, learned counsel for the petitioner and also had a thoughtful consideration over the available record on the file.

At the moment no relevant record other than Annexure P7 which is a show cause notice is available on the file to determine as to whether the writ petition in the present from is maintainable or not.

The learned counsel for the petitioners vehemently argued that the amount ranging from Rs. 6490 to Rs. 8500 per tractor is the margin available to the dealers who purchase the tractors from the petitioner Company in wholesale and sell them out in retail to the various customers. According to him, the dealings between the petitioner Company and the dealers are on principal to principal basis and the dealers are not agents of the petitioner Company. In this regard he referred to AIR 1975 SC 960 and contended that the value of the goods for the purpose of excise must take into account only the manufacturing cost and the manufacturing profit and it must not be loaded with post manufacturing profit arising from postmanufacturing operation. The price charged by the manufacturer for sale of the goods in wholesale would, therefore, represent the real value of the goods for the purpose of assessment of excise duty.

The said case law in no way holds any bearing on the merits of this case for in the referred to case the retail prices were to be fixed by the manufacturing Company and the entire production was sold in wholsale to ICI and Atul under agreements entered into between them. It was not the case of the Excise authorities at any time that specially low prices were charged by the manufacturer to ICI and Atul because of extra commercial considerations or that the agreements were anything but fair and reasonable or arrived at on purely commercial basis. It was, therefore, held that the wholesale dealings between the manufacturer and ICI and Atul were purely commercial dealings at arms length and the price charged by the manufacturer for sales in wholesale made to ICI and Atul less trade discount of 18% was, therefore, clearly wholesale cash price within the meaning of Section 4(a) and it did not make any difference that the wholesale dealings of the appellants were confined exclusively to ICI and Atul and apart from these two, no independent buyers could purchase the dye stuffs in wholesale from the appellants.

In the instant case the position is different. There is no agreement entered into between the petitioners and any particular Company or individual that the sale of tractors in wholesale be made to them. From the show cause notice it emerges that the petitioner are selling their entire production through their authorised dealers and allow them a commission ranging from Rs. 6490 to Rs. 8500/ per tractor. Such a disputed factual position of the matter can be ascertained and determined by the authorities after the evidence in the form of documents is produced before them, by the petitioner. It is for the authority to determine whether the said amount is the profit of the company or it is the commission of the dealers and it is not assessable under Central Excise and Salt Act.

Mr. Ramchanderan also referred to 1993 SCC 564 but we are afraid that this case law in any way is helpful to the petitioners. This case law rather supports the case of the respondents to say that the High Court should normally not interfere at the stage to show cause notice but here from the facts it is apparent that there was no material available with the department to doubt the statement on behalf of the respondents and their own officers at every point of time had issued the certificate the correctness of which could not be disputed or doubted except by raising unfounded suspicion or drawing on imagination it would be failing to exercise jurisdiction if the court does not discharge its constitutional obligation of protecting the manufacturers, are in perilous conditions as they are not able to meet their liabilities to pay to financial institutions and various counts and have virtually closed their unit.

The petitioner company is a working unit and one of the prestigious manufacturers of the tractors in the country. No proof is available on the file that at any time of officers of the department have issued the certificate the correctness of which could not be disputed or doubted at the moment and they have accepted the position of the petitioners that amounts raiging from Rs. 6490/ to Rs. 8500/ per tractor are the margins, to the dealers who purchase the tractors from the petitioner company in wholesale and sell the tractors in retail to the various customers. This is a matter to be considered by the authorities while the petitioners appear before them and plead their cause and show that the notice issued to them was wrong and the case was otherwise.

To the same effect learned counsel for the petitioner placed reliance on 1993 (64) ELT 18 (Delhi) and 1993 (63) ELT 232 but in no manner these cases have any bearing on the merit of the case. The petitioners appear to be a defiant company who have not even cared to deposit the 1/4th of the demand tax which they had agreed to deposit before the arguments were made in the case. In spite of opportunity provided to them they failed to do so. This shows that the petitioners have not come with clean intention to the Court and without any basis seek the extra ordinary writ jurisdiction of this Court when a legal remedy is available to them before the competent authority for redressal of their grievance, if any. At present this court in no manner can exercise its writ jurisdiction for no evidence is available with us that the notice issued to them is ultra vires of the Act or the Constitution. The matter as that of a fact and it requires an enquiry to be conducted by the authority after the evidence is led by the petitioner as to whether they are liable to pay the tax as shown in the show cause notice or not. Hence the writ petition fails and is dismissed.