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(On appeal from the judgment and order of the Lahore High Court dated July 10, 1970, in W. P. No. 1632,11969).

Civil Appeal No. 21 of 1972, decided on 22nd March, 1980.

---S. 4‑Value for purpose of levy of excise duty, determination of appellant contracting supply of clothes T. C. 2 No. 1 and T. C. 2 ' No. 2‑Department considering both types of cloth identical and assessing them equally‑Held, Department to determine whether two consignments were of like kind and quality before assessing uniform rates‑Qualities according to specifications distinctive, weight for yard and weave different‑Such qualities, held, different and could not be assessed at identical rates.

Maqbool Ahmed, Advocate Supreme Court instructed by Maqbool Ahmed, Advocate‑on‑Record for Appellant.

Fazal‑i‑Hussain, Advocate‑on‑Record for Respondent No. 1.

Nemo for Respondents Nos. 2 to 4.

Date of hearing : 22nd March, 1980.

‑This appeal, by the leave of the Court, is directed against the judgment of a Division Bench of the Lahore High Court dated the 10th of July, 1970, by which a writ petition filed by the appellant Crescent Textile Mills Ltd. to challenge the legality of the imposition of excise duty on a certain quality of cloth manufactured by it, was dismissed in limine.

The appellant had contracted to supply to the Government of Pakistan, Department of Investment Promotion and supplies, a certain quantity of Khaki drill, commercially described by the appellant as C‑555, and described by the contracting Department as T. C. 2 No. 1, at the assessible rate of Rs. 1.83 and inclusive rate of Rs. 2.41 per yard in the year 1964. Another contract was given to the appellant by the Directorate of Industries (Supply Wing), Government of West Pakistan, Lahore, for the supply of cloth described by the appellant as Drill Cotton, Mineral Khaki (Quality No. 2) and described by the Government Department as T. C. 2 No. 2, at the assessable rate of Rs. 1.43 and inclusive rate of Rs. 1.88 per yard. However, the appellant declared the same rates for the purposes of the assessment of excise duty for both the qualities of cloth, namely, assessable rate of Rs. 1.37 and inclusive rate of Rs. 1.80 per yard, and paid the excise duty accordingly.

The matter was referred by the Superintendent, Central Excise & Land Customs, to the Assistant Collector, Central Excise, Lahore, who by his order dated the 5th of November, 1974, approved the rates fixed by the Superintendent, namely, Rs. 1.75 assessable and Rs. 2.31 inclusive or ex‑Mill per yard for both the qualities of cloth, on the ground that they were identical and should be priced similarly. As a result, the appellant was called upon to pay the arrears of excise duty calculated on the basis of the rates approved by the Assistant Collector. The appeal filed by the appellant was dismissed by the Collector of Central Excise and Land Customs by his order dated the 28th of November, 1966, and the revision petition was similarly dismissed by 'the Government of Pakistan on the 5th of April, 1969.

The appellant thereupon filed a writ petition in the Lahore High Court which, as already stated, has been dismissed by a Division Bench. The learned Judges have observed that the appellant did not contend before the Assistant Collector that the two supplies were different in quality; and that, in .any case, the determination of assessible value per yard of each sample was not open to question for the reason only that the manufacturer chose to describe the two products under different specifications.

Leave to appeal was granted by this Court to examine the contention that the High Court was in error in thinking that the difference in the quality of the two consignments was not pressed before the relevant authorities in the Central Excise Department, as this was, in fact, the main grievance urged by the appellant against the assessment made by the Assis tant Collector. It was further observed in the leave granting order that as the excise duty and the sales tax were to be levied under the law m accordance with the sale price of the commodity sold, it was necessary to discover the basis on which the two qualities of cloth had been uniformly treated for this purpose by the Excise Department, although the prices charged from the concerned Departments of the Government were admittedly dissimilar.

It is submitted by Mr. Maqbool Ahmad, the learned counsel for the appellant, that right from the beginning the case of the appellant has been that the two contracts entered into with the Government of Pakistan and the Government of West Pakistan respectively were for two different qualities of cloth, which were priced differently, and, accordingly, the same rates could not be assessed for both the qualities. He submits that all the relevant information was available to the departmental authorities in the contract documents, but they were ignored by them, and instead a much higher rate of duty was assessed even on the second quality cloth. The learned counsel submits that the appellant accepts the rates fixed for quality No. 1, and is aggrieved only by the identical rates assessed for quality No. 2.

Mr. Fazal‑i‑Hussain, learned counsel appearing for the Department, submits that the appellant itself had treated both qualities as being identical by declaring the same rates, assessable as well as inclusive, for them irrespec tive of the price differential mentioned in the respective contracts, and, therefore, it can have no grievance if the Department has also treated two qualities as being identical; and that it was within the power of the Assistant collector to reject the rates declared by the appellant and to assess the rates on the basis of the higher price mentioned in the contract with the Central Government.

Mr. Fazal‑i‑Hussain is clearly right in stating that the appellant itself had declared identical rates for both the qualities of cloth, namely, Rs. 1.37 assessable and Rs. 1.80 inclusive per yard; but he is not right in saying that the appellant had taken the position that both the consignments were of identical quality; nor is he right in saying that the Department could enhance these rates in utter disregard of the specifications and the rates mentioned in the two contracts. It is clear that the appellant deliberately declared lower rates for quality No. 1, but this incorrect declaration did not absolve the departmental authorities from examining appellant's conten tion that the two consignments were of different qualities and specifications, and were priced differently.

Section 4 of the Central Excises and Salt Act, 1944, prescribes the method of determination of value for the purposes of excise duty. At the relevant time it was worded 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 the wholesale cash price for which an article of the like kind and quality is sold or is capable of being sold for delivery at the place of manufacture and at the time of its removal there from, without any abatement or deduction whatever except trade discount but not such discount as may be payable to a distributor and the amount of duty then payable."

It will be seen, therefore, that in order to determine the correct value for the purpose of the levy of the excise duty, the Department had necessarily to determine whether the two consignments were of the like' kind and quality, before assessing uniform rates for them. We find that in taking a decision on this point, the departmental authorities completely ignored the difference in specifications as mentioned in the Government contracts concerned.

The cloth supplied to the Central Government was described in the contract as T. C. 2 No. 1, whereas the cloth supplied to the Government of West Pakistan was described as T. C. 2 No. 2, thus showing that these was a distinction between the two qualities according to the specifications prescribed by the Government. There was also a difference in weight per, yard, namely, 8.5 ounces for T. C. 2 No. 1, and 7.5 ounces for T. C. 2' No. 2. Similarly there was difference in weave, namely 3/1 for T. C. 2 No. 1 and 2/1 for T. C. 2 No. 2, apart from minor differences in the width anti; average count of yarn used in the manufacture of cloth. It was clearly for these reasons that the cloth supplied to the Government of West Pakistan; was priced at lower rates than that supplied to the Central Government. In view of the technical description of the two qualities as brought out in the specifications stipulated in the' two contracts, there is no doubt at ale:; that the two qualities were different, and they could not have been assessed at identical rates. Such identical assessment was erroneous on the face; of the record, and was in violation of the express provisions of section 4 of the Act. The learned Judges of the High Court were in error in thinking that the appellant bad not ‑stressed the quality difference before the Depart mental Authorities.

For the foregoing reasons we are of the view that while the assessment arrived at by the Departmental Authorities for quality No. 1 is not open to any exception, the assessment fixed for quality No. 2 is without lawful, authority and of no legal effect. The Department is directed to assess the duty on quality No. 2 at rates not exceeding those mentioned in the relevant contract with the Government of West Pakistan, namely Rs. 1.43 assessable and Rs. 1.88 inclusive per yard. The appellant is consequently liable to pat arrears of duty on the basis indicated by us.

The appeal is accepted in these terms, and the parties are left to bear their own costs.

Appeal accepted.

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