Union of India, New Delhi vs Jyoti Limited, Baroda

J.M. Sheth, J.—This appeal arises out of the judgment and decree passed by the learned Civil Judge, Senior Division, Baroda, dated 16th

February, 1968, in Special Suit No. 25 of 1967, filed by respondent against the appellant-Union of India.

The suit was for a declaration that the action of the defendant (appellant) in refusing to allow the plaintiff - respondent to clear the electric

motors. Without payment of excise duty on the amount of trade discount is illegal, ultra vires, malafide and outside their powers and jurisdiction,

and for a declaration that the action of the appellant-defendant in levying and charging excise duty on the amount of trade discount is illegal,

unauthorised and in contravention of the provisions of the Central Excise and Salt Act, 1944 (which will be hereinafter referred to as ''the Act'')

and for a permanent injunction restraining the Union of India and its officers and servants from collecting excise duty from the plaintiff-respondent

on the amount of trade discount allowed by the plaintiff to its dealers and distributors. Plaintiff also prayed for the recovery of a sum of Rs.

89,246.70 paise, wrongly collected from the plaintiff along with interest at 9 per cent per annum and the costs of the suit.

* * *

The learned trial Judge has passed the following decree :

The plaintiff do recover from the defendant Rs. 82,571.10 paise with the full costs of the suit and running interest at 6 per cent. on the principal

amount of Rs. 75,742/- from the date of suit till realisation. Further, it is hereby declared that action of the Excise authorities and officers of the

Union of India in refusing to allow the plaintiff to clear the electric motors without payment of duty on the amount of trade discount is illegal, ultra

vires, mala fide and outside their powers and jurisdiction. It is further declared that the action of the Excise authorities and officers of the Union of

India in levying and charging Excise duty on the amount of trade discount is illegal, unauthorised and in contravention of the provisions of the

Central Excise and Salt Act, 1944. The defendant, its officers, servants, agents are hereby restrained from collecting Excise duty from the plaintiff

on the amount of trade discount allowed by the plaintiff to its dealers and distributors. The defendant should bear its own costs and pay the costs

of the plaintiff.

The Union of India being dissatisfied with the decree, has preferred the present appeal to this Court.

To understand and appreciate the rival contentions urged at the Bar, it is necessary to state the averments made in the plaint by the plaintiff and

the averments made by the defendant in the written statement filed by the defendant at Ex. 8.

The plaintiff - company is doing manufacture of pumps of various sizes, electric motors, switch-gears and other electric equipments.

By the Finance Bill of 1960, the excise duty was levied on ""electric motors, all sorts and parts thereof"" under item No. 30 of the First Schedule

to the Act. It was to be levied on the value of the said goods at a certain percentage prescribed against item No. 30 of the said Schedule.

According to the plaintiff, in view of the explanation to section 4 of the Act, while determining the value of the goods in question, deduction had to

be made for the trade discount.

The plaintiff - company manufactures electric motors of various sizes. Its regular and standard production consists of electric motors ranging

from 0.5 Horse Power to 125 Horse Power. That production constitutes almost 90 per cent. of the total production of electric motors. In addition

to that standard production, it is also required to manufacture special types of electric motors according to the specifications and requirements of

some of its big and special consumers. Naturally, the prices as well as trade discount allowed on these special motors are non-standard, that is,

they vary with the type, demand and other trade factors.

All the electric motors manufactured by the plaintiff excepting those which are fitted (coupled) with the pumps, are sold by it through its sole

selling agents, v. M/s. Jyoti Calor Engg. Ltd. Those which are fitted with the pumps manufactured by the plaintiff - company are sold directly. On

all these electric motors of the standard type, ranging from 0.5 Horse Power to 125 Horse Power, whether sold through the aforesaid sole selling

agents or by the plaintiff itself directly, the trade discount at the uniform rate of 15 per cent. is invariably given to its appointed dealers and

distributors. In case of electric motors sold through the plaintiff''s sole-selling agents, referred to above, the trade discount at uniform rate of 18 1/2

per cent. is allowed to them, i.e. M/s. Jyoti Calor Engg. Ltd. with condition that out of the said 18 1/2 per cent. they have to pass on 15 per cent.

discount to the dealers and distributors, and that is invariably done.

According to the plaintiff - company, in view of the clear provisions of section 4 of the Act, the prices at which electric motors are sold by it to

M/s. Jyoti Calor-Engg. Ltd. less 18 1/2 per cent, should be taken as the value for the purpose of computing the excise duty payable. Alternatively,

in any case, all the standard electric motors, whether sold by M/s. Jyoti Calor-Engg. or by the plaintiff itself to their dealers and distributors, are

sold at fixed price determined by the plaintiff company from time to time less 15 per cent, trade discount uniformly. Therefore, assuming without

admitting that rebate of 18 1/2 per cent, allowed as trade discount to their sole-selling agents, is not deducted of at least 15 per cent. which is the

uniform trade discount allowed to all the dealers and distributors, either of M/s. Jyoti Calor-Engg. Ltd. or of the plaintiff-company, be deducted.

In spite of this clear position having been explained to the Central Excise authorities at Baroda repeatedly, they insist on charging duty from the

plaintiff on the value declared by it to the Department without allowing a deduction of trade discount of 15 per cent. This is clearly in excess of their

power, as duty is to be charged on the sale price that goes into the pocket of the manufacturer and not on the trade discount that is allowed and

which goes into the pockets of dealers and distributors. The action of the Excise authorities in charging excise duty on the amount of trade discount

clearly amounts to contravention of the provisions of section 4 of the Act and also the policy and concept of the Act.

In spite of this clear provision having been pointed out, the excise authorities do not allow such deduction in respect of trade discount on the

ground that the trade discount is to be deducted for the purposes of duty only if it is uniformly allowed. It is an invention of the said authorities

unwarranted by the provisions of the Act or the Central Excise, Rules, 1944 (which will be hereinafter referred to as ""the Rules""). It reiterates that

trade discount of 15 per cent, to all the dealers and distributors is uniformly allowed on all the sales of electric motors made through it. Even on the

special and non-standard electric motors made to the order and specifications of the customers, it allows trade discount at varying rates. It states

that the action of the Central Excise authorities and the officers of the Union of India in charging duty on the total price of the plaintiff-company

inclusive of the trade discount (which is invariably paid to the dealers and distributors) is in clear contravention of the provisions of the Act and is

beyond their powers and jurisdiction.

As highly specialised in the manufacture of electric motors, the plaintiff-company manufactures them on occasions when a particular customer

or customers would like to have electric motors of their own specifications and requirements. In such cases, it quotes a special price and a special

trade discount. The said special price is normally higher than the price of the standard motors. The Central Excise Department, for the purpose of

charging excise duty does accept those special prices which are always higher than the prices of the standard motors. But at the same time, they do

not allow deduction of the trade discount for the purposes of duty. Not only that, but utilising it as a lever, the Central Excise Department goes to

the length of disallowing deduction of 15 per cent. trade discount, which is invariably given to all the dealers and distributors.

The plaintiff company had represented the matter to the Collector of Central Excise, Baroda and also to the Central Board of Revenue, New

Delhi. The Central Government has accepted in principle that 15 per cent. trade discount should be deducted for the purpose of duty vide their

letter dated 24th March, 1965, Ex. 28. However, as the Central Excise authorities at Baroda insisted on not allowing deduction on trade discount,

the matter was again represented by plaintiff to the Collector of Central Excise, Baroda, by its letter, dated 27th August, 1966. It having been

rejected on 14-10-1966, the plaintiff company has been obliged to file the present suit for the aforesaid relief, after giving a statutory notice, as

required u/s 18 of the Act.

The defendant, by its written statement, Ex. 8 contended inter alia, in para 7 that the plaintiff-company cannot parting discount uniformly in

respect of electric motors which are assessed on ad valorem basis. In para 8, it is averred that the plaintiff was not giving trade discount at the

uniform rate of 15 per cent invariably to all the dealers and distributors and others. Interpretation of section 4 of the Act put by the plaintiff is not

correct. The explanation to section 4 of the Act allowed abatement of trade discount. The main provision of section 4(a) of the Act, is, that

wholesale cash price is a deciding factor for the purposes of arriving at assessable value. Discount which is not uniform implied that full wholesale

cash price is not being recovered as compared to one which can and has been recovered in certain other transactions. It is this element of non-

uniformity in allowing discount that makes such discount inadmissible for the purpose of arriving at a correct assessable value. The decision to

disallow discount has been taken in accordance with law and as per the requirements of section 4 of the Act, which describes method of

calculation of assessable value for the purpose of assessment on ad-valorem basis. Plaintiff-company had admitted that discounts parted by them

were not uniform, and hence, it was not entitled to abatement of such discount. The letter of the Government is also not properly interpreted by the

plaintiff. It is laid down therein that a 15 per cent deduction on account of trade discount shall be allowed, so long as such or higher discount is

actually being granted uniformly on all the sales in wholesale lots to the distributors, dealers etc. by the sole-selling agents. Plaintiff has not granted

discount at uniform rates to the distributor, sub-dealers and others, and hence, it is not entitled to any trade discount. By the amendment in the

written statement, question relating to jurisdiction of the civil Court was also raised by the defendant in the trial Court.

The learned trial Judge, on consideration of the evidence, recorded a clear finding that there is not much force in the contention of defendant

that the plaintiff was not giving the trade discount at the uniform rate of 15 per cent. invariably to all dealers and distributors. After referring to Ex.

24, 31, 40 and 41, relied upon by the plaintiff, to which we will make reference at an appropriate stage, the learned trial Judge has observed :

.... It is clear from both these statements at Ex. 24, and 41, that the plaintiff company gives the trade discount uniformly to all its dealers at the rate

of 15 cent. in case of standard motors. It is also clear that in case of special motors, the plaintiff company gives discount to its dealers, as mutually

agreed upon. Thus, it can safely be stated that the plaintiff-company gives trade discount uniformly to all its dealers at the rate of 15 per cent, in

case of standard electric motors and thus even if we accept the interpretation put up by the defendant, the action of the Central Excise Officers in

not allowing deduction of trade discount at 15 per cent. is illegal.

The learned trial Judge has further observed that there was nothing in section 4 of the Act of indicate that the excise is not to be charged on trade

discount only if it is uniformly given. According to the learned trial Judge, reading of such a condition in section 4 of the Act which is not there, is

clearly indicative of the position that the act of Excise authorities is in contravention of the provisions of the Act and, therefore, non-compliance

with the provisions of the Act make their acts in excess of their powers and in excess of their jurisdiction. The order, therefore, becomes invalid

and inoperative. Question regarding limitation was also raised by the defendant. That contention is negatived. Contention regarding interest which

was claimed by way of damages has been decided in favour of the plaintiff. In view of these findings in favour of the plaintiff, the learned trial Judge

has decreed the plaintiff''s suit.

Mr. G. N. Desai, learned Government Pleader, appearing for the appellant Union of India, has made the following submissions :-

(1) The Civil Court has no jurisdiction to entertain this suit in view of the Central Excises and Salt Act, 1944, being a complete Code, providing for

adequate machinery to get the relief prayed for.

(2) In the alternative in respect of a claim which is for a period beyond three years from the date of the institution of suit, viz. 31-3-1967, the suit is

barred.

(3) The claim for interest allowed by the trial Court is not in accordance with law.

(4) On a true construction of section 4 of the Act, the amount of trade discount claimed in this suit as deduction from the wholesale cash price is

not allowable (maintainable).

(a) As the wholesale cash price, as defined in section 4(a) of the Act means price for which an article is capable of being sold.

(b) Trade discount being not uniformly given proves that the article could have been sold at the price list value without the deduction of the trade

discount.

(c) The expression ""trade discount"" as used by the plaintiff-company is not real and genuine discount.

To understand the problem that is posed before us in the proper perspective, we feel that it is first necessary to understand the provisions of

section 4 and to find out, what is the real grievance of the plaintiff and what is the real case of the defendant and what has moved the Excise

authorities in not giving deduction for the trade discount while determining the value of the goods in question for the purpose of levying the excise

duty.

Section 3 of the Act is a charging section Section 2(c) of the Act defines ''excisable goods''. It is not in dispute that the goods are excisable

goods. The expression ''manufacture'' has been defined in clause (f) of section 2 of the Act. Chapter II deals with ''Levy and Collection of Duty''.

The relevant part of section 3 of the Act reads :

(1) There shall be levied and collected in such manner as may be prescribed duties of excise on all excisable goods other than salt which are

produced or manufactured in India and duty on salt manufactured it, or imported by land into, any part of India as, and at the rates, set forth in the

First Schedule.

The relevant item in the First Schedule with which we are concerned is Item No. 30, and the description of goods, referred to therein, is electric

motors, all sort and parts thereof, and the duty is to be levied at 15 per cent ad valorem.

section 4 of the Act, which was substituted by Act No. 15 of 1955, and which is material for our purposes, reads :

* * * *

The Explanation to this section 4 of the Act, which is most material for the purpose of this appeal, reads :

In determining the price of any article under this section, no abatement or deduction shall be allowed except in respect of trade discount and the

amount of duty payable at the time of the removal of the article chargeable with duty from the factory or other premises aforesaid.

The marginal note to this section is, ""Determination of value for the purposes of duty. This section clearly indicates that the legislature has

introduced a deeming fiction for determination of the value for the purpose of duty. Where any article is chargeable with duty a rate dependent on

the value of the article, in a case like the present case, such value is to be deemed to be value as that could be ascertained by following the

provisions contained in clause (a) or (b). The Explanation will govern both the clauses. The provisions of this section in unmistaken terms indicate

that in such a case excise duty is to be levied on wholesale cash price and not on the retail price. Explanation in terms states that in determining the

price of any article u/s 4, no abatement or deduction shall be allowed except in respect of trade discount and the amount of duty payable at the

time of the removal of the article chargeable with duty from factory or other premises aforesaid.

Mr. G. N. Desai, learned Government Pleader, appearing for the appellant, has submitted that the mandate given by the legislature is that no

deduction shall be given except in respect of trade discount and the amount of duty payable at the time of the removal of the article chargeable with

duty from the factory or the premises. Prohibition is in respect of giving other deductions. It does not mean, submitted Mr. Desai, that the

legislature has given a mandate that deduction shall be given in case of trade discount and the amount of excise duty payable. Mr. Desai has

submitted that it has been left to the volition of the excise authorities to give such deduction or not. There is no mandate that they shall given

deductions in respect of trade discount and excise duty. Mr. Desai has submitted that it is only an enabling provision and in effect it is a prohibitory

provision. It prohibits deduction other than two deductions referred to above. There is no positive provision for deduction of trade discount and

the amount of excise duty payable. According to him, if the assessing authority, in a given case, does not give deduction of trade discount, it does

not amount to non-compliance with the provisions of the Act and as a necessary corolluy same will be the position in case dedication is not given

for the amount of excise duty payable. According to him, such an assessment may be an erroneous assessment and nothing higher than, it. It may

be erroneous, submitted Mr. Desai, because the excise duty is a duty on the value of the manufactured goods, that is, cost of manufactured goods

inclusive of manufacturing profit. Mr. Desai has submitted that if any deduction other than the aforesaid deduction is given, it will be non-

compliance with the provisions of the Act, but if any of those two deductions is not given, it will not be a case of non-compliance with the

provisions of the Act.

20.The second limb of Mr. Desai''s submission was, that the expression ''trade discount'' will indicate that it is a discount given in trade or business.

If such a discount is given, in the trade, it will not be manufacturer''s profit. It is a discount given in trade or business, indicating the pattern. For the

purpose of trade, it becomes necessary to pay such amounts in cases of bulk purchase. Mr. Desai has submitted that it is what ''A'' or ''B'' pays is

material, but it is the amount which is usually paid in such trade, that is material. It is not the nomenclature that the trader or manufacturer

concerned gives to it, is material. It is not the nomenclature that the trader or manufacturer concerned gives to it, is material. It should be construed

or it is capable of construction that the discount given should be pattern indicated in the trade regarding the amount given by the manufacturer to

the wholesaler. In short, his submission was that it was the discount given as a result of practice followed in that particular trade that would amount

of trade discount. Mr. Desai has submitted that if such a view is taken by the taxing authority, could it be said that it was unreasonable of manifestly

perverse. The taxing authority in the instant case says, submitted Mr. Desai, ''in your own trade'' you have not uniformly given the discount apart

from the trade in general. If such factor is taken into account, viz. that there is no uniformity, it cannot be said to be an irrelevant consideration.

* * * *

Mr. Kaji, appearing for the respondent-company, has urged that the whole concept of excise duty is, that it is levy on the manufacturer on the

manufacturing price plus the manufacturing profit which be after deducting trade discount from the price list. In support of that submission of his, he

has relied upon the decision of the Supreme Court to which we will make reference at an appropriate stage.

Mr. Kaji has submitted that the test is what goes to the manufacturer''s pocket and not what goes to the pocket of intermediary. Mr. Kaji has

submitted that it is pertinent to note in the instant case that it is no one''s case that there is any collusion between parties or that the transactions are

not at arm''s length or there is any secret arrangement.

It is an admitted position that at the stage the excise authorities came to make orders in this case, or in the pleading or in the evidence, no

suggestion is made or there is no indication that the trade discount on which deduction is claimed was not given or was not genuine. All along, their

case, is that such a deduction cannot be allowed as it is not uniformly given. Provisions of section 4 of the Act, to which we have made reference,

clearly support the submission made by Mr. Kaji that the ""trade discount"" contemplated in the Explanation to section 4 of the Act is the ""trade

discount"" given to the wholesalers i.e. wholesale dealers and distributors and not any discount given to the consumers or retailers. It is significant to

note that the excise authorities had examined 4,000 to 5,000 invoices of the plaintiff company and have filed statement. Ex. 41, indicating cases, in

some of which 15 per cent, discount was not given. There are only 65 such cases. Plaintiff-company replied by Ex. 24 explaining each and every

of those cases referred to. The analysis of it shows that there are six categories of cases. The first category of cases is consumers. The second

category of cases is of dealers and distributors where some discount is given to the consumers and the balance to the distributors (at the request of

the distributors in cases were the goods are sold to the consumers through the distributors. The third category of cases is of contracts with the

Government local bodies and public authorities, where special deduction to the price is given by 10 per cent, and discount of 10 per cent is given

to the dealers in those cases. The fourth category of cases is in respect of orders received through the branches of the plaintiff-company. They are

cases of retail sales and in those cases nominal discount is given to the consumers. The fifty category of cases is in respect of some Government

contract without reduction in price or giving of discount. They are in the category of the consumers. In the sixth category of cases, there are two

instances in the list, and they are persons who are non-authorises distributors. Such strey cases are to negligible extent. Not a single instance has

been pointed out where 15 per cent trade discount is not given to a wholesale dealer and distributors.

In this behalf, plaintiff has examined Vasudeo Parsuram Bapat at Ex. 42 who was working as a section officer in the Sales Department, in

charge of Central Excise Section. The averments made in the plaint, which have been referred to by us in extenso, have been deposed to, by him in

his evidence and there is nothing brought out in his evidence to doubt his testimony. He has explained the particulars marked at Serial Nos. 1, 4, 6,

8, 9, 10, 11, 16, 18, 20, 23, 28, 33, 36, 42, 43 and 44 in Ex. 24, stating that the particulars marked at those serial numbers in Ex. 24 are not their

dealers, but they are their consumers to whom the goods were sold. Consumers mean those parties who buy for their own case and not for sale.

Nil discount is shown against the sales to Government in Ex. 24, credit note mentioned in the ''Remarks'' column in Ex. 24, means the balance of

trade discount credited to the account of the dealers. Such credit notes are passed at Exs. 31 to 40. After explaining those cases, on which

reliance was placed by the excise authorities for the purpose of showing that uniform trade discount was not given, witness has stated :

... We give trade discount uniformly to all our dealers and also at the rate of 5 per cent in case of standard motors to the dealers. In case of

special motors, we give trade discount to our dealers as mutually agreed upon. The excise duty charged from the plaintiff company is on the prices

inclusive of trade discount. This trade discount does not go into the pocket of the plaintiff but it goes to the dealers.

In para 5 of his deposition, he has made positive assertion :

We give trade discount to our sole-selling agents at the rate of 3 1/2 per cent on which refund of excise duty is not claimed.

It is thus evidence that they have not claimed this additional amount of trade discount which they give to their sole selling agents. He has in terms

stated that the said trade discount is given to their sole-selling agents over and above 15 per cent allowed. He has also stated, where the dealings

are directly with the consumers, the rate of trade discount may not be uniform. In para 9, he has stated :

... It is true that in respect of item at Serial No. 62, we have given the same dealer 15 + 2 1/2 per cent. For items at Serial Nos. 14, 30, 37, 38,

45, 51 and 62 Explanations have been given in the remarks column for giving those rates to the dealers, and those remarks are correct. These

remarks indicate that actual discount passed by the plaintiff-company is more than 15 per cent. It is true that the particulars mentioned in Serial

Nos. 37 to 41 are all our dealers. It is true that uniform rates of discount are not given to them for the reasons stated in the remarks column which

work out discount more than 15 per cent. The word ""agreement"" used in Ex. 24 means written agreement.

It has been also made clear in this para 9 of his deposition that in Item No. 54, the order is by Government directly and hence no discount has

been given. In para 10, it is made clear that it was true that 4,000 to 5,000 invoices mentioned by him include the invoices of motors for which the

Govt. has fixed tariff value and for which they are not fixed. Not a single motor sold by the tariff value is included in the suit claim.

This evidence of the plaintiff''s witness and the documents brought on the record, on close scrutiny, clearly support the finding arrived at by the

learned trial Judge, referred to, by us earlier. In para 9, in this behalf, the learned trial Judge has observed :

Thus it can safely be stated that the plaintiff-company gives trade discount uniformly to all their dealers at the rate of 15 per cent. In case of

standard electric motors ...

As said earlier by us, not a single instance has been pointed out, where 15 per cent deduction is not given to any wholesale dealer and distributor.

It is significant to note that what is material is discount given to wholesale dealers. It is wholesale cash price that is to be determined and excise

duty is to be levied on the wholesale cash price and not on the retail price.

* * * *

In the instant case also, it is significant to note that it was no where stated by the Excise authorities that this was not a ''trade discount'' what

was contended was that deduction for it cannot be allowed as it was not given uniformly to all. It is further observed by the Supreme Court in this

very para 22.

A ''trade discount'' is a percentage deduction from the regular list of catalogue price of goods. As there was no case for the appellants that there

was any secret arrangement between the wholesale dealers and the respondent in respect of the sales to them or that the price of the articles was

understated in the agreement or that any extra commercial advantages to the dealers were taken into account in fixing the price, we do not think

that we should go into the question whether the discount allowed to the wholesale dealers was ''trade discount'' or not for the purpose of the

Explanation.

In the instant case also, there was no such averments made. This decision, in our opinion, is a complete answer to the arguments advanced by

Mr. Desai in this behalf.

As said by us earlier, there is a clear finding arrived at by the learned trial Judge, which is supported by the evidence to which we have also

made reference, that there is not a single case of wholesale transaction pointed out where trade discount given is less than 15 per cent. The excise

duty is to be levied on the wholesale cash price in view of the clear provisions contained in section 4 and Explanation given to it. The legislature has

given a clear mandate that deduction has to be given for such trade discount as well as the amount of excise duty payable. No other deduction is to

be given, which clearly and by necessary implication indicates that deductions have to be given in respect of two items referred to in that

Explanation.

Interpretation put by Mr. Desai that it is only within the discretion of the excise authorities to give such deduction is not a correct interpretation.

It is not at all warranted by the language of the Explanation. It is clearly against the provisions of the Act. It is significant to note this context that

prior to the substitution of this section 4, as it stood in the Central Excises and Salt, 1944, was -

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 the

wholesale cash price for which an article of the like kind and quality is sold or is capable to being sold for delivery at the place of manufacture and

at the time of its removal therefore without any abatement of deduction whatever except trade discount and the amount of duty then payable.

It is thus evident that even in section 4 as it stood earlier also, such deductions, viz. deduction in respect of trade discount and the amount of

excise duty payable, had to be given. That was the position as stated by the Privy Council even when the provisions of Sea Customs Act were

applicable.

There is nothing to warrant that such trade discount is to be given only if it is unfortunately given. What is material is a determination of the

wholesale cash price. Mr. Kaji, in our opinion, is right in his submission that the test is, what goes to the pocket of the manufacturer and not what

goes to the pocket of intermediates. Trade discount contemplated in the Explanation is the trade discount given to the wholesalers and not any

discount given to the consumers or the retailers. It is the wholesale cash price that is to be determined for the purpose of levying the excise duty

and not the retail price. Mr. Kaji is right in his submissions that trade discount is bound to vary, if some dealers take guarantee of selling larger

bulk. Different percentages may be given for various reasons. What is necessary is to determine the wholesale cash price i.e. what is the

manufacturing price, and the manufacturing profit. Any post-manufacturing profit cannot be taken into account. Trading profit has got to be

segregated. The learned trial Judge has in our opinion rightly reached the conclusion that in view of the clear mandate given by the legislature,

deduction for such trade discount has got to be given. There is no condition and down by the legislature in the Act that it is to be given only if it

uniformly given. As said earlier, from the facts of the case also, it is clear that 15 per cent deduction has given to the wholesale dealers and that is

the material factor to be taken into account for determining the real value of the goods, i.e. the wholesale cash price, and it is on the basis of this

determination of the value that the excise duty is to be levied.

The whole question, therefore, that boils down is, if on these grounds the excise authorities have not given deduction of trade discount can it be

said that their action amounts to non-compliance with the provisions of the Act and that the act of theirs would amount to a nullity, i.e. their order

on that ground will become inoperative and invalid. It is in this context, one has to find out, whether the Civil Court has jurisdiction to entertain such

a suit and grant the relief.

Before we consider the submission made at the Bar in regard to the jurisdiction and consider the authorities cited at the Bar, it is significant to

note that in the Act with which we are concerned, there is no ouster or exclusion section ousting the jurisdiction of the Civil Court. It is, therefore,

evident that the question of jurisdiction is not to be determined on the basis of interpretation of that exclusion section. It is equally true that the

liability to pay excise duty is created under this special Act.

It is also true that remedies have been provided in that Act. Relevant sections for that purpose are sections 35 and 36 of the Act. Section 35

reads :

* * * *

It is on account of that finality given the order passed in appeal which is only subject to the power of revision conferred by section 36 of the Act,

an argument is advanced that, by necessary implication the Civil Court will have no jurisdiction to hear such a suit, the submission being that it is

authority referred to, in this section which has been given power to assess or to determine the real value and to levy the excise duty. If any body

has grievance against it, he has to resort to the remedy provided in section 35 of the Act, and in case there is grievance against the order of the

authority referred to therein. He has to resort to the remedy provided in section 36 of the Act, which reads :

* * * *

It is, therefore, urged on behalf of the appellant by the learned Government Pleader that the Act is a self-contained Act. Liability is created under

the Act. Remedy is also provided. There is adequate machinery provided for getting a relief which the Court can give, and so, by necessary

implication, the Civil Court''s jurisdiction is ousted.

It is further contended that the present case will be a case where at the most it may be said that the decision of the Excise authority was an

erroneous decision. But it was decision within its power and jurisdiction. It had jurisdiction to embark upon the inquiry in questing and even if it has

committed a mistake in reaching its conclusion, it will be a mistake committed by it in exercise of its jurisdiction. It cannot, therefore, be said that

the authority acted in excess of its power and jurisdiction, it is only where the authority had no jurisdiction to embark upon such inquiry and had

embarked upon such inquiry and had arrived at the decision, that decision could be said to be a decision given without jurisdiction, submitted Mr.

Desai.

Before we consider the authorities cited at the Bar, it is significant to note that in the instant case, the Act provides for appeals or revision to the

revenue authority. There is no exclusion section, the interpretation of which has to be made for feeding, whether the jurisdiction of the Civil Court is

ousted or not. Question arose at the stage when the determination of wholesale cash price was to be made. It is on the determination of it, one can

decide about the quantum of excise duty payable.

* * * *

The learned Government Pleader, relying upon certain decisions of the Supreme Court, to which we will make reference presently, has urged

that the non-compliance with the provisions of the Act would be, when the authority concerned had no jurisdiction to embark upon the enquiry,

meaning there by, that certain question may not be remitted to that authority and in respect of it, that authority may embark upon that enquiry and

decide it, the authority may not be competent to decide such question and a still it may decide it, submitted Mr. Desai would fall within the purview

of those observations.

Mr. Desai has submitted that the question that arises for decision is, whether the act complained of, in the instant case, is an act of assessing

and collecting excise duty on the amount of the alleged trade discount or is an act which is in non-compliance with the provisions of the Act. The

latter expression is explained by the Supreme Court in Firm and Illuri Subbayya Chetty and Sons Vs. The State of Andhra Pradesh, and again

affirmed in Dhulabhai and Others Vs. The State of Madhya Pradesh and Another, . According to his submission, the non-compliance with the

provisions of the Act. We agree with the submission that non-compliance with the provisions of the Act can be said to be synonymous with the

violation of the provisions of the Act.

* * * *

In Dhulabhai and Others Vs. The State of Madhya Pradesh and Another, , most of these decisions have been specifically referred to, and the

ratio laid down in each of these cases has been referred to by the Supreme Court. Basappa''s case has been referred to therein in para 23, at page

86 and in that behalf it is observed :

* * * *

In para 32 at page 99, the significant observations made are :

... Neither of the two cases of Firm and Illuri Subbayya Chetty and Sons Vs. The State of Andhra Pradesh, or Kamala Mills Ltd. Vs. State of

Bombay, can be said to run counter to the series of cases earlier notified. The result of this inquiry into the diverse views expressed in this Court

may be stated as follows :

(1) Where the statute given finality to the orders of the Special Tribunal the Civil Court''s jurisdiction must be help to be excluded if there is

adequate remedy to do what the Civil Courts would normally do in a suit. Such provisions, however, does not exclude those cases where the

provisions of the particular Act have not been complied with or the statutory tribunal has not acted in conformity with the fundamental principles of

the judicial procedure.

(2) Where there is an express bar of the jurisdiction of the Court, an examination of the scheme of the particular Act to find the adequacy or the

sufficiency of the remedies provided may be relevant but is not decisive to sustain the jurisdiction of the Civil Court.

Where there is no express exclusion the examination of the remedies and the scheme of the particular Act to find out the interdment becomes

necessary and the result of the inquiry may be decisive. In the latter case it is necessary to see if the statute created a special right or a liability and

provides for the determination of the right or liability and further lays down that all questions about the said right and liability shall be determined by

the Tribunals so constituted, and whether remedies normally associated with actions in Civil Courts are prescribed by the said statute or not.

(3) Challenge to the provisions of the particular Act as ultra vires cannot be brought before Tribunals constituted under that Act.

Even the High Court cannot go into that question on a revision or reference from the decision of the Tribunals.

(4) When a provision is already declared unconstitutional or the constitutionality of any provision is to be challenged, a suit is open. A writ of

certiorari may include a direction for refund if the claim in clearly within the time prescribed by the Limitation Act but it is not a compulsory remedy

to replace a suit.

(5) Where the particular Act contains no machinery for refund of tax collected in excess of constitutional limits or illegally collected a suit lies.

(6) Question of correctness of the assessment apart from its constitutionality are for the decision of the authorities and a civil suit does not lie if the

orders of the authorities are declared to be final or there is an express prohibition in the particular Act. In either case the scheme of the particular

Act must be examined because it is a relevant enquiry.

(7) An exclusion of the jurisdiction of the Civil Court is not readily to be inferred unless the conditions above set down apply.

It is thus evident that the scrutiny of this decision of the Supreme Court also indicates that the submissions made by Mr. Desai, relying upon the

observations made in Illuri''s case and Kamla Mill''s case that the observations made by the Privy Council is Mask''s case in any manner have been

watered down, are not well founded. It is true that in this particular case, the Supreme Court had to deal with a case where there was breach of

the constitutional provisions contained in Article 301. But this decision in terms lays down the categories of cases, when the Civil Court can

entertain a suit.

In Union of India (UOI) Vs. A.V. Narasimhalu, , question was regarding consideration of Item No. 44 of the Customs Tariff, relating to

newsprint. It has been held by the Supreme Court :

... The jurisdiction of the Civil Court to entertain a suit challenging the validity of the imposition of the duty customs being excluded, the plaintiff''s

(respondent''s) suit must fall (the Supreme Court had to consider the provisions of sections 188 and 191 of the Sea Customs Act, 1878). Liability

to pay a duty of customs is not a common law liability, it arises by virtue of the Sea Customs Act, in respect of any grievance arising in

consequence of enforcement of that liability, machinery has been provided by the Act. Having regard to the complicated nature of the questions

which arise in the determination of the liability to pay duty of customs the legislature had invested the power of determining liability and the manner

of enforcement thereof upon a specially authorised hierarchy of tribunals. An appeal lies against the order of the Assistant Collector of customs

against an order imposing duty as well as order refusing to refund duty and the grievance may be carried to the Board of Revenue. The jurisdiction

of the Civil Court is by clear implication of the statute excluded.

Considerable reliance has been placed by Mr. Desai in support of his submission on these observations made by the Supreme Court in this

decision. But it is significant to note the observations made by the Supreme Court in this very decision which follow thereafter. They are :

Civil Courts have jurisdiction to examine cases in which the Customs Authority has not complied with the provisions of the statute or the officer of

customs has not acted in conformity with the fundamental principles of judicial procedure or the authority had acted in violation of the fundamental

principles of judicial procedure or he has made an order which is not within his competence or the statute which imposes liability is unconstitutional

or where the order is alleged to be mala fide.

It is thus evident that the Supreme Court in this case had clearly laid down that the Civil Courts have jurisdiction to examine cases in which the

Customs Authority has not complied with the provisions of the statute or the Officer of Customs has not acted in conformity with the fundamental

principles of judicial procedure or the authority has acted in violation of the fundamental principles of judicial case.

* * * *

Keeping in mind the ratio of the Supreme Court in Union of India (UOI) Vs. Tarachand Gupta and Bros, the present case will undoubtedly fall

in the first part of the first category of cases referred to in Dhulabhai''s case in para 32, at page 89. It is significant to note that the present case is

not a case where it is sought to be urged that were erroneous order passed by the Taxing Authority attracts the jurisdiction of the Civil Court. But

what is contended, is that the order is a nullity, is invalid and inoperative and that is why it attracts the jurisdiction of the Civil Court. It is also

admitted by Mr. Kaji that if two views are possible, it cannot be agitated even in an writ jurisdiction much less in a suit. But in the instant case, it is

the mandatory provision of the Act that is not being complied with and the qualification is sought to be imposed where the Act contemplates none.

It is significant to note that the provisions of section 4 of the Act clearly indicate that time and place are material factors. Excise duty is to be

levied in a case at a rate dependent on the value of the article and in such a case where it is subject to ad valorem, the duty is to be levied on the

wholesale cash price. Time and place are both material factors as seen from the provisions of section 4 of the Act. Explanation to this section in

terms states that in determining the price of any article under this section, no abatement or deduction shall be allowed except in respect of trade

discount and the amount of duty payable at the time of the removal of the article chargeable with duty from the factory or other premises aforesaid.

There is no qualification made that such trade discount would be allowed by way of deduction only if it is uniformly given. It is the wholesale cash

price that is to be determined and not the retail cash price. The net result of the decision of the taxing authority is that excise duty is levied on the

retail price and not on the wholesale cash price. The present case is a case which stands on a stronger footing than even Voltas'' case. In Voltas''

case 90 to 95 per cent sales were retail sales. In the instant case there are only a few retail sales. The legislature has laid down the criteria for

determining the wholesale cash price on the basis of which the excise duty is to be levied in such cases. If there is non-compliance with such

provisions, and the taxing authority acts by introducing qualification therein, which is not warranted, it would necessarily mean that there is non-

compliance with the fundamental provisions of the Act. It is case where the taxing authority had jurisdiction to embark upon the enquiry. The

enquiry is to be made for the determination of wholesale cash price. But in process of that decision making, it deviated and took into account as

extraneous considering and over-stepped its limit. The moment the authority acts beyond the legislative mandate, that act will be invalid and

inoperative, it being in excess of its power and jurisdiction. It be comes non-est. Once the order is nullity, no question of bar of jurisdiction of Civil

Court can arise and it will be more so in a case like the present case as there is no exclusion or ouster section. It cannot be excluded on any

principles known to law.

It is significant to note that it is as admitted position that trade discount is paid by the plaintiff-company. It was nowhere challenged that it was

not a trade discount. Exhibit 25 is a letter written by the plaintiff-company, dated 2-4-1962, to Central Excise Collector, Baroda, after the

Assistant Collector decided against it. Exhibit 26 is the order of Central Excise Collector, Baroda. Exhibit 27 is a revision memo and Exhibit 28 is

an order of the revisional authority. We will only, in brief, note the order of their revisional authority, which is final. It is stated therein :

... Considering the fact that the price at which the goods are being sold by the petitioners to their sole selling Agents, M/s. Jyoti Calor Engg. Ltd.,

Baroda, are not the price at which they are sold to an independent buyer under fully open market conditions, these prices cannot be accepted as

the assessable value as defined in section 4 of the Central Excises and Salt Act, 1944. The basis of the assessment should, therefore, be the sale

price of the sold selling Agents to the Distributors, sub-dealers, etc. and on these, a 15 per cent reduction on account of trade discount shall be

allowed, so long as such or higher discount is actually being granted uniformly, on all the sales in wholesale lots to the Distributors, sole-dealers,

etc. by the sole-selling agents.

The basis of assessment set out herein shall hold good only so long as there is no basic change in the system of distribution and discount and other

terms and conditions of sale taken as the basis of this order and as stated in their application referred to above.

In the instant case, it has been found, as stated earlier, the wholesale dealers, discount given is not less then 15 per cent and it is the wholesale cash

price that is to be determined in view of the clear provisions of the Act. We, therefore, hold that the present case is a clear case where there is

non-compliance with the fundamental provisions of the Act; and hence, this order is a nullity, it is invalid and inoperative. It, therefore, clearly falls

within the ratio of the Supreme Court cases referred to above.

* * * *

Estates Land (Reduction of Rent) Act, 1949, exclusively on the basis of the recommendation of the special officer must in consequence held to be

not in conformity with the provisions of the Reduction of Rent Act, and, therefore, outside the purview of section 3(2) of that Act. Section 8(1)

would accordingly be inapplicable and the jurisdiction of Civil Courts cannot be excluded to entertain and decide suit questioning the legality of the

notification dated 2-1-1948 reducing the rates of rent is of village (village Kalipatnan) u/s 3(2).

In our opinion, the present case also will fall within the second part of the first category of cases referred to in Dhulabhai''s case.

Mr. Kaji has also submitted that it will also fall within number five category of case referred to in Dhulabhai''s case. The category referred to

therein is, where the particular Act contains no machinery for refund of tax collected in excess of constitutional limits or illegally collected, suit lies.

Mr. Kaji has contended that rule 11 of the Rules provides for refund where such amount have been paid through inadvertence, error or

misconstruction. In our opinion, the present case will not fall under category No. 5. There are certain Tribunals which are invested with certain

powers, but they have no power to refund the amounts paid even if they find that the rates charged were not in accordance with law or were

excessive. We illustrate this case by taking an instance of the Tribunal constituted under the relevant provisions of Indian Railways Act, 1890.

Section 41 of the Indian Railways Act, 1890 lays down that any complaint that a railway administration is contravening the provisions of section

28, or is charging for the carriage of any commodity between two stations a rate which is unreasonable, or is levying any other charge which is

unreasonable may be made to the Tribunal, and the Tribunal shall hear and decide any such complaint in accordance with the provisions of that

Chapter. But the Tribunals have not been given any power to refund. The Supreme Court has, in some cases, held that for refund of such money,

civil suit is maintainable in any Civil Court. In our opinion, it would be probably such cases that would fall within that category No. 5.

* * * *

We, therefore, hold that learned trial Judge had rightly reached the conclusion that the Civil Court had jurisdiction to entertain such a suit and

give the appropriate relief, submission No. 1 made by Mr. Desai, therefore, fails submission No. 4 also, we have dealt with, and we hold that the

submission made by Mr. Desai is that behalf is also not well-founded, and the learned trial Judge has rightly held that the order in question of not

allowing deduction for trade discount is a nullity on the grounds stated by us earlier.

Coming next to submission No. 2 of Mr. Desai, i.e. the question of of limitation, the learned trial Judge had held that the suit for declaration and

injunction as well as for refund of the amount illegally collected from the plaintiff is not barred by limitation. In para 17 of his judgment, the learned

trial Judge observes :

The suit period is from 1st January, 1962 to 30th September, 1965, in respect of which the refund has been claimed. It is not in dispute that the

plaintiff company had preferred an appeal against the order of the Assistant Collector of Central Excise in respect of the price list submitted for the

first order of 1962. The memo of appeal is at Ex. 25, dated 2nd April, 1962. This appeal was rejected by the Collector on 27th February, 1972

by his order, Ex. 26. Thereafter, the plaintiff filed the revision application on 17th August, 1962 that revision application is at Ex. 27. It was

decided by the Central Government on 6th March, 1965 that order is at Ex. 28. The plaintiff writes a letter Ex. 29, dated 27th August 1966 to the

Collector of Central Excise, Baroda, to give refund in pursuance to the order of Central Government which is at Ex. 28. His request was finally

rejected on 14th October, 1966 by the reply at Ex. 30 Thus, there is no substance in the contention of the defendant that the suit claim is barred.

Article 120 of the Limitation Act would apply.

The learned Government Pleader has not raised any submission before us that the suit for declaration and injunction is not filed within the

period of limitations. It is admittedly filed within the period of limitation. He had only submitted that so far as the claim for refund of the amount

illegally collected from the plaintiff is concerned, part of the claim is time barred and that claim consists of two amounts -

(i) Rs. 12,989.50 paise of year 1962, and

(ii) Rs. 8,615.28 paise of year 1963.

The suit having filed on 31-3-67, and the interest on these two amounts come to Rs. 779.34 paise and Rs. 1,296,24, the question for

consideration is, what would be the article that would govern the period of limitation as regards these amounts which have been illegally recovered.

Article 24 of the Limitation Act, 1963 prescribes period of the three years for recovery of suit for money payable by the defendant to the plaintiff

for money recovered by the defendant, for the plaintiff''s use. Time commences to run from the date the money is received. As found by us, the

amount was recovered by the revenue authority in excess of its powers. It is, therefore, evident that from the date of the receipt of that amount by

it, the amount was payable by the authority to the plaintiff which was received and retained for its use.

In Venkata Subbara v. State of Andhra Pradesh, AIR 1965 Supreme Court 1973, the controversy in this behalf has been settled by the

Supreme Court. It is observed :

In order to attract Article 62 of the Limitation Act, 1908 it is not necessary that at the moment of the receipt of money the defendant should have

actually intended to receive it for the use of the plaintiff and that it is sufficient if the receipt is in such circumstances that the law would impute to

him an obligation to retail it for the use of the plaintiff and refund to him when demanded. Article 62 most nearly approaches the formula of money

had and received by the defendant for the plaintiff''s use, if read as a description and apart from the technical qualifications imported in English Law

and procedure. However, if the right to refund does not arise immediately on receipt by the defendant but arised by reason of facts transpiring

subsequently. Article 62, cannot apply, for the proceeds on the basis that the plaintiff has a cause of action for instituting the suit at the very

moment of the receipt.

The instant case is not a case where the right to refund in favour of the plaintiff arose subsequently on account of some event. Such a right arose

immediately, the reason being, that the excise authority had no power to recover such duty. It is, therefore, evident that from that very moment

there would be obligation on the defendant to retain it for the use of the plaintiff and refund to it when demanded. When this decision of the

Supreme Court was pointed out to Mr. Kaji, he could not show anything to persuade us to reach the conclusion that this part of the suit claim was

not time-barred. We hold that aforesaid part of the suit claim is time-barred.

Coming next to submission No. 3 of Mr. Desai, that the claim for interest allowed by the Court is not in accordance with law, in the instant

case it is not necessary for us to enter into the controversy. Whether such interest could be allowed by way of damages or not, admitted position is

that Interest Act does not apply. Even in the plaint, interest was claimed by way of damages. Plaintiff''s only witness examined is Vasudeo

Parsuram Bapat, Ex. 42. He has in terms stated that the Central Excise duty is shown separately in invoices and is collected by the plaintiff-

company. He has in terms admitted that it was true that the plaintiff-company pays the actual dueseto the Government collected by it. It is thus

evident that in the instant case, excise duty paid by the plaintiff-company to the Government is collected by it from the dealers or consumers, as the

case may be. In para 4 of his disposition, Bapat has stated that the plaintiff company has to borrow money from Banks for its working and has to

pay interest at the rate of 9 to 10 per cent. On hypothetication of their goods. If the suit amount would not have been charged from the plaintiff-

company, it would not have advanced, to that extent. Hence, they had claimed interest at the rate of 6 per cent, by way of damages. In the instant

case, the excise duty having been admittedly collected from the dealers and distributors or consumers, as the case may be, there is no occasion for

the plaintiff-company to suffer any loss by way of damages. That being the position, the plaintiff-company is not entitled to interest amount claimed

by way of damages. There was no contract to pay interest. Interest Act does not apply. It is only on this count that the learned trial Judge has

allowed interest. He has, in our opinion, commented on error in allowing the interest claimed.

The net result of our finding is that the plaintiff-respondent has been wrongly allowed the two claims, viz. (1) Rs. 12,989.50 paise, and (2) Rs.

8,616.28 paise, Rs. 21,604.78 paise, which are barred by limitation. Similarly, the claim of interest in respect of two items, viz. Rs. 779.34 paise,

and Rs. 1,262.24 paise, - Rs. 2,075.78 paise is also time-barred. The only claim that is within limitation and is allowable, comes to Rs. 75,742

minus Rs. 21,604.78 paise - Rs. 54,138.22 paise. The relief granted in respect of declaration - and injunction has been properly granted. The

result is that the appeal partly succeeds.

First Appeal No. 713 of 1968 is partly allowed. The decree of the trial Court, so far as money claim is concerned, is modified. Instead of Rs.

82,571.10 paise, plaintiff-respondent is entitled to recover from the appellant defendant Rs. 54,137.22 paise with proportionate costs and running

interest at 6 per cent, on it from the date of the suit till payment. The decree passed by the trial Court regarding declaration and injunction is hereby

confirmed. For the money claim disallowed, the plaintiff is to pay proportionate costs to the defendant in the suit. In the appeal the plaintiff-

respondent to get the costs from the appellant defendant for the claim disallowed in the appeal, and pay the costs to the appellant-defendant for the

claim allowed in the appeal.