Subbarayan vs The Union of India (UOI) and Another

This Judgment has been overruled by : Union of India and another Vs. The Century Manufacturing Company Ltd., AIR 1992 SC

2055 : (1992) 40 ECC 164 : (1992) 41 ECR 193 : (1992) 60 ELT 3 : (1992) 3 JT 382 : (1992) 1 SCALE 1200 : (1992) 3 SCC 418 :

(1992) 3 SCR 282

K. Veeraswami, C.J.—The appeal is from an order of Ramprasada Rao, J. dismissing a batch of petitions under Article 226 of the

Constitution. We are concerned with only one of them. The appellant questions the legal propriety of the tariff values notified u/s 3(2) of Central

Excises and Salt Act, 1944, as not being in accord with Section 4. The Appellant is the Managing Director of the South India Sugar and Steels

Limited, Madras, which pays every year a large amount by way of excise duty on sugar manufactured and sold by it.

Sugar under Item 1 of the First Schedule to the Act is chargeable to excise duty in terms of Section 3 which is the charging section. It says that

there shall be levied and collected in such manner as may be prescribed duties of excise on all excisable goods produced or manufactured in India

at the rates set forth in the First Schedule. The rates of coarse are settled every year by the relative Finance Act as indicated in column 3 of the first

Item of the First Schedule. The duty is levied and collected on the manufacture of sugar ad valorem and at the rate obtaining for the specific year of

charge. Sub-section (2) of Section 3 empowers the Central Government to fix, by notification in the Official Gazette, for the purpose of levying

excise duty, tariff values enumerated in the First Schedule as chargeable to duty ad valorem and alter any tariff values for the time being in force.

Determination of values for the purpose of duty is done u/s 4 which applies to any article chargeable to duty at the rate dependent on the value of

the Article. Section 4 is as follows :--

Where under this Act, any article is chargeable with duty at a rate dependent on the value of the article, such value shall be deemed to be --

(a) the wholesale cash price for which an article of the like kind and quality is sold or incapable of being sold at the time of the removal of the

article chargeable with duty from the factory or any other premises of manufacture or production for delivery at the place of manufacture or

production, or if a wholesale market does not exist for such article at such place, at the nearest place where such market exists, or (b) where such

price is not ascertainable, the price at which an article of the like kind and quality is sold or is capable of being sold by the manufacturer or

producer, or his agent, at the time of the removal of the article chargeable with duty from such factory or other premises for delivery at the place of

manufacture or production, or if such article is not sold or is not capable of being sold at such place, at any other place nearest thereto."".

We are not concerned with the Explanation in the present case. This procedure envisaged by the section controls, as it seems to us, fixation by the

Central Government of the tariff values under Sub-section (2); That this is so has not been disputed before us.... The contention for the appellant is

that, inasmuch as the tariff values fixed by the Central Government for sugar and notified on September 25, 1970 and May 25, 1971, did not.

conform to the provision of Section 4, they were invalid. In other words, the appellant says that the tariff values so notified were higher than what

was justified by the actual realisation by his factory.

Dealing with that averment, the first respondent in their counter affidavit stated that, as the tariff value reflects the average realisation by sugar

factories in the country during the previous month, it could be higher or lower or even at par with the price prevalent in any particular market or in

any particular factory"". Sugar being a controlled commodity under the Essential Commodities Act, 1955, the Central Government has from time to

time acting under the Sugar Control Order made under that Act, specified the quantum of levy sugar and the price at which the former should be

sold. Elaborate procedure has been adopted by the Central Government for fixing this price. In fact, it is done by a Committee appointed by the

Central Government which from time to time determines the tariff value for free Market sugar, which is guided by the price data and clearances

pertaining to the previous month compiled-by the Indian Sugar Mills Association and certain other officers of the Departments. Before fixing the

price, the Committee also hears the representatives of the Indian Sugar Mills Association and the National Federation of Co-operative Sugar

Factories, who, while equipped with their own data explain the future trends in prices to the Committee. After referring to this matter. the counter

affidavit says : --

As the tariff value for free market sugar is reviewed every month such an elaborate procedure could have justifiably been avoided but as the

Government are keen that the tariff values should be as close to the average actual all India prices as possible this laborious process is being

followed by them."".

It being clear from the statement in the counter affidavit that the tariff values notified u/s 3(2) of the Central Excises and Salt Act were based on

the average realisation by sugar factories in the country during a given period and were approximately close to the average actual all India prices. It

is pressed upon us for the appellant that such fixation of tariff values for free sugar is contrary to Section 4.

We are of opinion that there is force in the appellant''s contention. Section 4 visualises that the wholesale price for an article of the like kind and

quality shall be such wholesale cash price at which such article of the like kind and quality is sold or is capable of being sold at the time of the

removal of the article chargeable to duty from the factory or any other premises of manufacture or production, for delivery at the place of

manufacture or production, or if the wholesale market does not exist for such article at such place, at the nearest place where such market exists.

Where such wholesale cash price is not ascertainable, more or less the same procedure is applied for fixing the tariff values. In other words, the

contributory factors to be taken into account in fixing the tariff value are the kind and quality of the article, the price thereof ex-factory or premises

of manufacture or production at which it is sold or is capable of being sold at the time of the removal of the article therefrom. Such price is for

delivery at the place of manufacture or production or, if the wholesale market does not exist for the article at the factory or premises of

manufacture or production, the nearest place where such market day exists. In substance, the value determined for the purpose of duty has to be

the actual value and not any value arrived at as close to the average actual all India prices.

The notification Nos. 168/70-C.E., dated Sep. 25. 1970 and 54/8/71-CE, dated May 25,1971, which were made u/s 3(2) of the Central

Excises and Salt Act fixed the tariff value at Rs. 130 and Rs. 125 respectively per quintal for sugar falling under sub-item (1) of Item 1 of the First

Schedule to the Act and chargeable to duty ad valorem. The values so fixed being on the average actual all India prices basis, such tariff values are

not fixed in accordance with and as directed by the provisions of Section 4, which have to be followed in fixing the tariff values to be notified u/s

3(2). These notifications cannot, therefore, afford legal basis for levy of duty u/s 3(1) on sugar, the actual price of which even at the control price

under the Essential Commodities Act, 1955, varies from State to State and even place to place.

We, therefore, direct that the tariff value for ad valorem charge on free sugar of the appellant''s factory be fixed in the light of the provisions of

Section 4. On that view, We make no directions on the other prayers in the writ petition. The appellant is entitled to-his costs throughout.

Counsel''s fee Rs. 250.