judgement:
JURISDICTION: Criminal Appeal No. 271 of 1987.
From the Judgment and Order dated 3.7.
1986 of the Gauhati High Court in Crl.
No. 229 of 1986.
A.K. Ganguli, R.P. Srivastava, P. Purameswarn and Ashok K. Srivastava for the Appellant in Crl.
A. No. 271 of 1987 and Respondent in W.P. (Crl.) No. 664 of 1986.
R.K. Jain, Gaurav Jain, Abha Jain and R.P. Singh for the Respondent in Crl.
A. No. 271 of 1987 and Petitioner in W.P. (Crl.) No. 664 of 1986.
The Judgment of the Court was delivered by PATHAK, CJ.
Special Leave is granted.
The respondent Major S.K. Sharma addressed a letter dated 21 December 1985 to Brigadier S.S. Randhawa, Command er, HQ 41 Sub Area alleging that on 15 December, 1985 he was manhandled by Col. Mir Usman Ali in the HQ 41 Sub Area Officers Mess at Jorhat.
It was stated that the incident took place in the presence of Major M.M. Subbaiah.
Major Sharma was attached to B Camp.
Signal Regiment while Col.
Ali belonged to HQ 41 Sub Area.
Brigadier Randhawa wrote to the Officer Commanding, B. Comp.
Signal Regiment on 14 January 1986 seeking clarification from Major Sharma on some of the allegations.
It appears that correspondence was exchanged in the matter but apparently Major Sharma, having met with no satisfactory response, filed a complaint 21 January 1986 in the Court of the Additional Chief Judicial Magistrate, Jorhat alleging that Col. Ali had criminally assaulted him and further that Brigadier Randhawa did not report the matter to the higher authorities and was attempt ing to protect Col. Ali.
It was alleged in the complaint that Col. Ali had committed the offences under sections 323, 352 and 355 of the Indian Penal Code and Brigadier Randhawa had committed the offence under section 2 17 of the Indian Penal Code.
The Additional Chief Judicial Magistrate exam ined the complaint, and taking cognizance of the offences alleged to have been committed by Col. Ali and Brigadier Randhawa it directed that summons be issued to them for their appearance before him on 7 March, 1986.
On two applications moved by Major Sharma before him the 461 Chief Judicial Magistrate made an order dated 25 January.
1986 directing that the venue of a Court of Inquiry insti tuted in respect of certain complaints made against Major Sharma by his Commanding Officer be shifted from Mohanbari, where it was convened, to a place within the jurisdiction of his Court and it was directed further that Major Sharma should not be moved out of the jurisdiction of the Court during the pendency of the case.
Major Sharma had complained that the Court of Inquiry had been ordered by Brigadier Randhawa at Mohanbari as a measure of retaliation because of the institution of the criminal case by Major Sharma before the Additional Chief Judicial Magistrate.
On 7 February 1986 the Union of India moved an applica tion before the Chief Judicial Magistrate along with an application dated 3 February 1986 addressed to the Court by Major General T.S. Chaudhri informing the Chief Judicial Magistrate that the General Officer Commanding was of opin ion that Col.
Ali should be dealt with in accordance with the procedure laid down under the and the Army Rules and the Criminal Courts and Court martial (Adjustment of Jurisdiction) Rules, 1978, and that therefore, the case may be handed over to the Military Authorities.
It was pointed out by Major Chaudhri in his letter that the com plaint before the Additional Chief Judicial Magistrate against Col. Ali should, in his opinion, be disposed of under the procedure laid down in Army Rule 22 of Army Rules, 1954 and that under section 125 of the read with Army Rule 197A of the Army Rules and the Criminal Court and Court Martial (Adjustment of Jurisdiction) Rules 1978, Major General Chaudhri was the competent Military authority to claim the case.
He requested that the case should be handed over to the Military authorities for further necessary action.
On 12 February 1986 the Union of India moved another application before the Chief Judicial Magistrate along with an application dated 3 February 1986 addressed to the Chief Judicial Magistrate by Major General T.S. Chaudhri as Gener al Officer Commanding requesting that the case against Brigadier Randhawa should similarly be handed over to the Military authorities for necessary action.
On 17 February 1986 the Chief Judicial Magistrate, Jothat made an order disposing of the two requisitions made by Major General Chaudhri.
He noted that the cognizance of the offences had been taken by the Additional Chief Judicial Magistrate and necessary process had been issued against both accused to compel their presence, and that in the light of Rule 3 of the Criminal Court and Court Martial (Adjustment of Juris diction) Rules 1978 the prayer for trial by a Court martial by the competent authority was.
allowed.
In this connection he made reference to Delhi Special Police Establish 462 ment vs Lt. Col. S.K. Loraiya; , He directed that the case be transferred to the Army authorities pursu ant to the requisitions, and for disposal in accordance with the provisions of the after trial by a court martial at any place within the jurisdiction of his Court, He directed further that the progress of the case should be reported to his Court at intervals of two months and ultimately intimating the result thereof, for the pur pose of determining whether a successive trial was necessary as provided for in the .
While making the order the Chief Judicial Magistrate noted that the Army authorities had not shifted the venue of the Court of Inquiry mentioned earlier to any place within the jurisdiction of his court as required by his order dated 25 January, 1986, and this prima facie amounted to contempt for which it was open to Major Sharma to apply to the High Court for necessary action.
He also directed that Major Sharma should be permitted to proceed on leave to enable him to apply to the Gauhati High Court for filing a writ petition or taking other legal proceedings.
On 21, March 1986 the Union of India through the General Officer Commanding filed an application before the Chief Judicial Magistrate for modification of the order dated 17 February 1986.
In that application it was contended that under the and the Army Rules it was not mandatory that all disciplinary cases against military personnel should culminate in a trial by the Court Martial and that the directions made by the Chief Judicial Magistrate with regard to the trial of Brigadier Randhawa and Col. Ali by Court Martial were in contravention of the and the Army Rules and the Criminal Court and Court Martial (Adjust ment of Jurisdiction) Rules 1978.
It was asserted that the proposed disciplinary action would be initiated by the General Commanding Officer after an investigation of the alleged offences in accordance with Army Rule 22.
It was prayed that the order dated 17 February 1986 be reviewed by deleting the direction for a trial by Court Martial at a place within the jurisdiction of the Court of the Chief Judicial Magistrate and of the direction further that the progress of the case should be intimated to the Chief Judi cial Magistrate at intervals of two months.
On 7 April 1986 the Union of India filed another application making more detailed submissions for modification or the other dated 17 February 1986.
A third application was moved by the Union of India on 30 April 1986 to the Chief Judicial Magistrate requesting that the records of the case be handed over to the Army authorities.
These applications were disposed of the Chief Judicial Magistrate by his order dated 8 May 1986.
In that order he noted that the Additional Chief Judicial Magistrate had, on receipt of 463 the complaint examined the complainant Major S.K. Sharma under section 200 of the Cr.
P.C. and had taken cognizance of the offence under section 190(A) of the Code and on being satisfied of the existence of a prima facie case process had been issued by him under section 204(A) of the Code.
He noted that the judicial process for ascertaining the prima facie existence of a case had thereby been completed.
He held that in the circumstances the trial of the accused officers by a court martial appeared to be mandatory under the provisions of section 475 of the Code.
He observed that the preliminary investiga tions by a departmental court of inquiry did not seem per missible in the case.
However, having regard to section 124 of the which conferred absolute power on the Army authorities to choose the venue of trial and keeping in view the administrative convenience of the Army authorities he decided to accept the request of the General Officer Com manding for deleting the direction in respect of the venue of the trial.
The Chief Judicial Magistrate also directed that instead of intervals of two months the Army authorities should, having regard to the provision of section 127 of the , inform his Court as to the progress of the case at intervals of four months.
On 14 June 1986 the Union of India through the General Officer Commanding filed a revision petition before the High Court at Gauhati, which was disposed of by the High Court by its order dated 3 July 1986.
The High Court interfered with the order of the Chief Judicial Magistrate in so far only that it deleted the direction requiring the Army authorities inform the Chief Judicial Magistrate of the progress of the case at intervals of four months, and it directed instead that the result of the Court Martial proceedings should be communicated to the Chief Judicial Magistrate as soon as may be in accordance with Rule 7 of the Criminal Courts and Court martial (Adjustment of Jurisdiction) Rules, 1978.
It may be mentioned that according to the order of the High Court the only submission raised on behalf of the appellant in the revision petition was that the Magistrate had no jurisdiction to direct the Court Martial to submit reports relating to the progress of the case, including the result thereof, at intervals of four months.
Thereafter a special Leave Petition was filed by the Union of India, out of which the present appal arises.
Although it appears that the only point raised before the High Court on the revision petition related to the direction that the Army authorities should report periodi cally to the Chief Judicial Magistrate 464 in regard to the progress of the case, learned counsel for the appellants has raised a more fundamental question before us.
That question is whether it is open to the Army authori ties to constitute a Court of Inquiry, enter upon an inves tigation of the charges under Rule 22 of the Army Rules and determine whether there is a case for trial by a Court Martial.
Learned Counsel contends that the proceedings already taken by the Additional Chief Judicial Magistrate must be ignored for the purpose and the Army authorities are not bound to try the accused by a Court Martial.
Although the point was not taken before the High Court we have per mitted it to be raised before us and it has been argued by learned counsel at length.
It is apparent from the provisions of the Code of Crimi nal Procedure that it is open to a Magistrate to inquire into a complaint of an offence alleged to have been commit ted by a military person, where it fails within its juris diction, and to take proceedings either for his trial or for committing the case to the Court of Sessions for trial.
Likewise, there is power under the in a duly con stituted Army authorities to investigate into a charge against a military person accused of an offence triable under the , and after such hearing to decide whether his trial by a Court Martial should be ordered.
In the former case, sections 200 to 203 of the Code of Criminal Proce dure provide the procedure to be followed by Magistrates taking cognizance of an offence on a complaint.
The Magis trate is required to examine on oath the complaint and the witnesses present and reduce the substance of such examina tion to writing to be subsequently signed by the complainant and the witnesses and by the Magistrate.
That is the proce dure except when the complaint is made in writing by a public servant or the Magistrate makes over the case for trial or inquiry to another Magistrate.
The Magistrate may either inquire into the case himself or direct an investiga tion to be made by a police officer or by such other person as he thinks fit for the purpose of deciding whether or not there is sufficient ground for proceeding.
Where, however, it appears to the Magistrate that the offence complained of its triable exclusively by the Court of Session no such direction for investigation can be made by him.
For the purpose of inquiry be may take evidence of witnesses on oath.
If the Magistrate is of opinion that the offence complained of is triable exclusively by the Court of Session he must call upon the complainant to produce all his wit nesses and examine them on oath.
If after considering the statement on oath of the complainant and of the witnesses and the result of the inquiry or investigation directed by him the Magistrate is of opinion that there is no sufficient ground for proceeding he must dismiss the complaint.
Where 465 the Magistrate is of opinion that there is sufficient ground for proceeding he must adopt the procedure setforth in sections 204 onwards.
He must issue process for the attend ance of the accused.
In certain cases he may dispense with the personal attendence of the accused and permit him to appear by his pleader.
Where, however, the proceeding is taken by an Army authority under the reference must be made to the provisions of Rule 22 onwards of the Army Rules.
The Rules provide for the hearing of a charge, in which the accused has liberty to cross examine any witness against him and to call any witnesses and make any statement in his defence.
If the Commanding Officer investigating the charge finds no offence has been committed he must dismiss the charge.
He may also do so if, in his discretion, he is satisfied that the charge has not to be proceeded with.
If the charge is to be proceeded with he may pass any of the orders detailed in Rule 22(3).
They include proceedings for trial by a Court Martial.
It is clear that these provisions of the Army Rules run parallel to the provisions of the Code of Criminal Procedure adverted to earlier.
Now inasmuch as there is always a possibility of the same offence being triable either by a Criminal Court or by a Court Martial the law has attempted to resolve the compet ings claims of the civil authority and the military authori ty in such cases.
Section 475 of the Code of Criminal Proce dure empowers the Central Government to make rules as to cases in which persons shall be tried by a Court to which the Code applies or by a Court Martial, and the section provides that whenever a person is brought before a Magis trate and charged with an offence for which he is liable to be tried either by a Court to which the Code applies or by a Court Martial such Magistrate must have regard to such rules and must, in proper cases, deliver the person together with a statement of the offence of which he is accused to the Commanding Officer of the unit to which he belongs for the purpose of being tried by a Court Martial.
The language used in section 475 is significant.
It refers to a person who "is brought before a Magistrate and charged with an offence." In other words, he must be a person respecting whom the Magis trate has taken the proceedings envisaged by sections 200 to 204 of the Code.
He will be a person in respect of when the Magistrate has found that there is a case for trial.
It is for that reason that section 475 goes on to say that when such person is delivered to the Commanding Officer of the unit to which he belongs it will be "for the purpose of being tried by a Court Martial".
When he is so delivered, a statement of the offence of which he is accused will also be delivered to the Commanding Officer.
The relevance of delivering such statement can be easily understood, for it is to enable the Army authority to appreciate the 466 circumstances in which a Court Martial is required by the law.
We now turn to the Criminal Courts and Court martial (Adjustment of Jurisdiction) Rules, 1978.
These Rules have been framed under section 475 of the Code of Criminal Procedure.
When a person subject to military, naval or air force law or any other law relating to the Armed Forces is brought before a Magistrate and charged with an offence for which he is also liable to be tried by a Court Martial, the Magistrate will not proceed to try such person or to commit the case to the Court of Session unless (a) he is moved to that effect by a competent military, naval or air force authority or (b) he is of opinion for reasons to be recorded, that he should so proceed or to commit without being moved thereto by such authority.
Rule 3, in our opinion, comes into play at the point where the person has been brought before a Magistrate and charged with an offence.
That is the stage adverted to earlier where the accused is directed to appear before the Magistrate and is charged with an offence after the Magis trate has determined that there is a case for trial.
Before proceeding further with the case and either proceeding to try the accused or to commit the case to the Court of Ses sion the Magistrate must, under Rule 4, give written notice to the Commanding Officer of the accused and refrain for a period of 15 days from doing any of the acts or making any of the orders in relation to the trial of the accused speci fied in Rule 4.
In the event of the Magistrate entering upon the trial of the accused or committing the case to the Court of Session at the instance of the military, naval or air force authority it is open to such authority or the Command ing Officer of the accused to give notice subsequently under Rule 5 to such Magistrate that, in the opinion of such officer or authority the accused should be tried by a Court Martial.
Upon such notice, the Magistrate, if he has not taken any action or made any order referred to specifically in Rule 4 before receiving such notice, must stay the pro ceedings and deliver the accused together with the statement referred to in section 475(1) of the Code to the Officer speci fied in that subsection.
In the other kind of case, where the Magistrate intends to proceed to try the accused or to commit the case to a Court of Session without being moved in that behalf by the military, naval or air force authority, and he has given notice under Rule 4 to the Commanding Officer or the military, naval or air force authority of his intention to do so, Rule 6 empowers the Commanding Officer or the competent authority to give notice to the Magistrate within the aforesaid period of 15 days or in any event before the Magistrate takes any action or makes any order referred to in that Rule, that in the opinion of such offi cer or authority the accused should be tried by a Court Martial.
467 Upon such notice the Magistrate must stay the proceedings and deliver the accused together with the statement referred to in section 475(1) of the Code to the officer specified in that sub section.
It is clear that when the accused is made over by the Magistrate to the Commanding Officer or the competent military, naval or air force authority it is for the purpose of trial by a court martial or other "effectual proceedings" to be taken or ordered to be taken against him.
For Rule 7(1) provides that when an accused has been delivered by a Magistrate under Rule 5 or 6 the Commanding Officer or the competent military, naval or air force authority must, as soon as may be, inform the Magistrate whether the accused has been tried by a Court Martial or other effectual pro ceedings have been taken or ordered to be taken against him.
The communication of such information is mandatory.
When the Magistrate is informed that the accused has not been tried or other effectual proceedings have not been taken or or dered to be taken against him, he is obliged to report the circumstance to the State Government and the State Govern ment, in consultation with the Central Government may take appropriate steps to ensure that the accused person is dealt with in accordance with law.
The policy of the law is clear.
Once the Criminal Court determines that there is a case for trial.
and pursuant to the aforesaid rule, delivers the accused to the Commanding Officer or the competent military, naval or air force authority, the law intends that the accused must either be tried by a Court Martial or some other effectual proceedings must be taken against him.
To ensure that proceedings are taken against the accused the Rules require the Commanding Officer or the competent au thority to inform the Magistrate of what has been done.
Rule 7(2) appears to envisage the possibility that the Commanding Officer or the competent military, naval or air force au thority may not try the accused or take effectual proceed ings against him even where the Magistrate has found a case for trial.
To cover that exigency it provides that the State Government in consultation with the Central Government, on a report from the Magistrate to that effect, may take appro priate steps to ensure that the accused does not escape the attention of the law.
The policy of our Constitutional polity is that no person should be regarded as being above the law.
Military.
naval or air force personnel are as much subject to the law as members of the civil population.
It is significant that Rule 8 empowers the Magistrate.
on coming to know that a person subject to the military.
naval or air force law or any other law relating to the Armed Forces has committed an offence and proceedings in respect of which ought to be instituted before him and that the presence of such person cannot be procured except through military.
navel or air force authorities.
to require the Commanding Officer of 468 such person either to deliver such person to a Magistrate for being proceeded against according to law or to stay the proceedings against such person before the Court Martial if since instituted, and to make a reference to the Central Government for determination as to the Court before which the proceedings should be instituted.
Reference may also be made to section 127 of the .
It is an important provi sion.
It provides that a person convicted or acquitted by a Court Martial, may, with the previous sanction of the Cen tral Government, be tried again by a Criminal Court for the same offence or on the same facts.
This provision is an exception to Article 20 of the Constitution which provides that no person shall be prosecuted and punished for the same offence more than once.
The provision has been made possible by reason of Article 33 of the Constitution which confers power on Parliament to modify any Fundamental Right in its application to the members of the Armed Forces.
It is to enable the operation and application of section 127 of the Act that Rule 7(1) of the Criminal courts and Court Martial (Adjustment of Jurisdiction) Rules, 1978 requires the Com manding Officer or the competent military, naval and air force authority to inform the Magistrate whether the accused has been tried by a Court Martial or other effectual pro ceedings have been taken against him.
Our attention has been drawn by learned counsel for the appellants to section 125 of the .
Section 125 provides that when a Criminal Court and a Court Martial have each jurisdiction in respect of an offence it will be in the discretion of the Commanding Officer of the accused to decide before which Court the proceedings shall be institut ed.
This provision is of no assistance in deciding whether it is open to the Army authority to take proceedings for determining prima facie whether there is substance in the allegations made against the accused and decline to try him by a Court Martial or take other effectual proceedings against him even where a Magistrate has taken cognizance of the offence and finds that there is a case for trying the accused.
On the aforesaid analysis we are of opinion that the Army authority is not entitled to ignore the proceeding taken by the Additional Chief Judicial Magistrate and to invoke the provisions of Rule 22 and related rules of the Army Rules.
The Additional Chief Judicial Magistrate having hold that there is a case for trying the two accused offi cers and having directed their appearance, the Army authori ty must proceed to held a court martial for their trial or take other effectual proceedings against them as contemplat ed by the law.
The 469 contention advanced by learned counsel for the appellants to the contrary must be rejected.
We have also been referred to the provisions of the Army Rules relating to Courts of Inquiry, and learned counsel for the appellants urges that notwithstanding the proceeding taken by the Additional Chief Judicial Magistrate it is open to the Army authority to hold a Court of Inquiry and deter mine whether there is any case for trying the accused by a Court Martial.
We have been taken through Rule 177 and the connected Rules which deal with the institution and conduct of Courts of Inquiry, but we see nothing in those provisions which can support the contention now raised before us.
If, on the analysis detailed earlier, it is not open to the Army authority to have recourse to Rule 22 and investigate the charge directed against the accused officer in this case.
for the same reason it is not open to it to hold a Court of Inquiry and supersede the proceedings already taken by the Additional Chief Judicial Magistrate.
We may mention that learned counsel for the parties placed a number of cases before us, but having carefully perused the judgments in those cases we do not find any declaration of law therein which is inconsistent with the view taken by us.
Accordingly, the appeal is dismissed.
In the Criminal Writ Petition Major S.K. Sharma prays for a number of reliefs.
The material reliefs are that a direction be issued to the Army authorities to postpone the return of the petitioner to the Unit to which he has been posted and direct the Army authorities to stay all parallel proceedings against the petitioner until the hearing and disposal of their Special Leave Petition.
So far as the first submission as concerned it refers to the mental and physical stress suffered by the petitioner, apparently necessitating his treatment at a hospital with sychiatric facilities.
We do not think it necessary to issue any direction because, we think, it is a matter which can be adequately and humanely dealt with by the Army authorities.
If indeed the petitioner should be given a posting where the requisite medical facilities are available we have no reason to doubt that the Army authorities will afford such posting to the petitioner.
In doing so it will be open to the Army authorities to obtain the latest medical report respecting the condition of the petitioner.
470 As regards the second relief, we have already disposed of the special leave petition today and, therefore, no order need be passed in respect of that relief.
In the result the writ petition is dismissed.
H.L.C. Petition dismissed.

summary/full:
An officer in the Army filed a complaint before a Magis trate alleging that another officer has assaulted him, that the Commanding Officer to whom he had complained earlier had failed to take satisfactory action and thus both of them had committed offences under the Indian Penal Code.
The Magis trate examined the complainant under section 200 Cr.
P.C., took cognizance of the offences under section 190(A) and, on being satisfied of the existence of a prima facie case, issued summons under section 204(A) for the appearance of the accused.
Upon applications being made by the appellants urging that the case be handed over to the Military Authorities for disposal, the Magistrate made an order directing that the case be transferred to the Army Authorities for disposal in accordance with the provisions of the after trial by a Court Martial at any place within the jurisdic tion of his Court and that the progress of the case be reported to him at intervals of two months.
Upon the appel lants making further applications praying for review of the said order on the ground that under the and the Army Rules, it was not mandatory that all disciplinary cases against military personnel should culminate in a trial by Court Martial and submitting that the disciplinary action against the officers concerned would be initiated after an investigation of the alleged offences, the Magistrate, pointing out that the judicial process for ascertaining the prima facie existence of a case had already been completed, held that the trial of the accused by Court Martial was mandatory under section 475 Cr.
P.C. and, 457 therefore, it was not permissible for the Army Authorities to hold a preliminary investigation.
However, having regard to section 127 of the , the Magistrate directed that the progress of the case be intimated at intervals of four months.
in the Revision filed by the appellants, the High Court interfered with the order of the Magistrate insofar only that it deleted the direction requiring the Army Au thorities to inform the Magistrate of the progress of the case 'at intervals of four months and directed instead that the result of the Court Martial proceeding be communicated to the Magistrate, as soon as may be, in accordance with r. 7 of the Criminal Courts and Court Martial (Adjustment of Jurisdiction) Rules, 1978.
Dismissing the appeal by Special Leave, HELD: The Army Authority is not entitled to ignore the proceeding taken by the Magistrate and to invoke the provi sions of r. 22 and related rules of the Army Rules.
The Magistrate having held that there is a case for trying the two accused officers and having directed their appearance, the Army Authority must proceed to hold a Court Martial for their trial or take other effectual proceedings against them as contemplated by the law.
[468G H] (i) It is open to a Magistrate under sections 200 203, Cr.
P.C. to inquire into a complaint of an offence alleged to have been committed by a military person, where it falls within his jurisdiction and to take proceedings for trial of the accused.
Likewise, a duly constituted Army Authority has power under the provisions of r. 22 onwards of the Army Rules to investigate into a charge against a military person accused of an offence triable under the , and after such hearing to decide whether his trial by a Court Martial should be ordered.
The provisions of the Army Rules run parallel to the provisions in the Cr.
P.C. Inasmuch as there is always a possibility of the same offence being triable either by a Criminal Court or by a Court Martial, section 475, Cr.
P.C. empowers the Central Government to make rules as to cases in which persons shall be tried by a Court to which the Code applies or by a Court Martial, and the section provides that whenever a person is brought before a Magis trate and charged with an offence for which he is liable to be tried either by a Court to which the Code applies or by a Court Martial, such Magistrate must have regard to such rules and must, in proper cases, deliver the person together with a statement of the offence of which he is accused, to the Commanding Officer of the unit to which he belongs for the purpose of being tried by a Court Martial.
The language used in section 475 is significant.
It refers to a person 458 who "is brought before a Magistrate and charged with an offence." In other words, he must be a person respecting whom the Magistrate has taken the proceedings envisaged by sections 200 to 204 of the Cede.
He will be a person in respect of whom the Magistrate has found that there is a case for trial.
It is for that reason that section 475 goes on to say that when such person is delivered to the Commanding Officer of the unit to which he belongs, it will be "for the purpose of being tried by a Court Martial".
When he is so delivered, a statement of the offence of which he is accused will also be delivered to the Commanding Officer.
The relevance of deliv ering such statement can be easily understood, for it is to enable the Army Authority to appreciate the circumstances in which a Court Martial is required by the law.
[464C D; 465E H] (ii) It is clear from r. 7(1) of the Criminal Courts and Court Martial (Adjustment of Jurisdiction) Rules, 1978 framed under section 475 of the Cr.
P.C. that when the accused is made over by the Magistrate under section 5 or 6 thereof to the competent military or other authority, it is for the purpose of trial by a Court Martial or other "effectual proceedings" to be taken or ordered to be taken against him inasmuch as the competent authority must, as soon as may be, inform the Magistrate, whether the accused has been tried by a Court Martial or other effectual proceedings have been taken or ordered to be taken against him and the communication of such information is mandatory.
When the Magistrate is in formed that the accused has not been tried or other effectu al proceedings have not been taken or ordered to be taken against him, he is obliged to report the circumstances to the State Government and the State Government, in consulta tion with the Central Government, may take appropriate steps to ensure that the accused person is dealt with in accord ance with law.
The policy of the law is clear.
Once the Criminal Court determines that there is a case for trial, and pursuant to the aforesaid rule, delivers the accused to the competent military or other authority, the law intends that the accused must either be tried by a Court Martial or some other effectual proceedings must be taken against him.
[467B E] (iii) The policy of our Constitutional Polity is that no person should be regarded as being above the law.
Military, navel or air force personnel are as much subject to the law as members of the civil population.
It is significant that r. 8 of the Criminal Courts and Court Martial (Adjustment of Jurisdiction) Rules, 1978 empowers the Magistrate, on coming to know that a person subject to the military, naval or air force law or any other law relating to the Armed Forces has committed an offence and proceedings in respect of which ought to be instituted 459 before him and that the presence of such person cannot be procured except through military, navel or air force author ities, to require the Commanding Officer of such person either to deliver such person to a Magistrate for being proceeded against according to law or to stay the proceed ings against such person before the Court Martial if since instituted, and to make a reference to the Central Govern ment for determination as to the Court before which the proceedings should be instituted.
[467G H; 468A B] (iv) Section 127 of the provides that a person convicted or acquitted by a Court Martial, may, with the previous sanction of the Central Government, be tried against by a Criminal Court for the same offence or on the same facts which is an exception to the rule contained in article 20 of the Constitution that no person shall be prose cuted and punished for the same offence more than once.
It is to enable the operation and application of section 127 of the Act that r. 7(1) of the Criminal Courts and Court Martial (Adjustment of Jurisdiction) Rules, 1978 requires the compe tent military or other authority to inform the Magistrate whether the accused has been tried by a Court Martial or other effectual proceedings have been taken against him.
[468B D] (v) Section 125 of the , which provides that when a Criminal Court and a Court Martial have each juris diction in respect of an offence, it will he in the discre tion of the Commanding Officer of the accused to decide before which Court the proceedings shall he instituted, is of no assistance in deciding whether it is open to the Army Authority to take proceedings for determining prima facie whether there is substance in the allegations made against the accused and decline to try him by a Court Martial or take other effectual proceedings against him even where a Magistrate has taken cognizance of the offence and finds that there is a case for trying the accused.
[468E F] (vi) There is nothing in the provisions of the Army Rules relating to Courts of Inquiry which can support the contention that notwithstanding the proceeding taken by the Magistrate it is open to the Army Authority to hold a Court of Inquiry and determine whether there is any case for trying the accused by a Court Martial.
If, it is not open to the Army Authority to have recourse to r. 22 of the Army Rules and investigate the charge directed against the ac cused officer in this case, for the same reason, it is not open to it to hold a Court of Inquiry and supersede the proceeding already taken by the Magistrate.
[469B D] 460


judgement:
ivil Appeal No. 3195 of 1979 etc.
From the Judgment and Order dated 20th June, 1979 of the Kerala High Court in Writ Appeal No. 302 of 1978.
F.S. Nariman, M. Chandrasekharan, K.R. Nambiar, C.V. Subba Rao, Ms. A. Subhashini, A.K. Ganguli, Mrs. R. Rangas wamy, Hemant Sharma, K. Swamy and Ms. section Relan for the appearing parties.
The Judgment of the Court was delivered by BHAGWATI CJ.
1.
The above cases are involving a company known as Madras Rubber Factory Ltd. (popularly known as MRF Ltd.) MRE has four factories; Kottayam (Kerala), Madras (Tamil Nadu), Arkonam (Tamil Nadu) and Goa (Union Territory) engaged in 852 the manufacture of automotive tyres, tubes and other rubber factory products.
Each of these factories are under juris diction of different Assistant Collectors.
The four proceed ings arising for our consideration are as under: (i) Civil Appeal No. 3195 of 1979 is an appeal by certifi cate filed by the Union of India through the Assistant Collector of Central Excise, Kottayam against the Judgment dated 20th June 1979 of the Division Bench of the High Court of Kerala from Writ Appeal No. 302 of 1978 allowing post manufacturing expenses under the new Section 4 of the Excise Act.
This relates to the Kottayam factory.
(ii) Civil Appeals Nos.
4731 32 of 1984 are appeals filed by Union of India through the Superintendent of Central Excise, Kottayam against the Judgment dated 1st April 1976 of the Division Bench of the High Court of Kerala allowing post manufacturing expenses under the old Section 4 of the Excise Act.
(iii) SLP (Civil) No. 10108 of 1980 is another appeal of the Union of India against the Judgment of the Additional Judi cial Commissioner, Goa, Daman and Diu allowing post manufac turing expenses under the old Section 4 of the Excise Act in respect of the factory at Goa.
In respect of new Section 4, the Union of India and MRF were agreed that the decision in Writ Appeal No. 302 of 1978 being the subject matter of Civil Appeal 3195 of 1979 would be applicable to the factory at Goa.
(iv) Civil Appeal No. 793 of 1981 is MRF 's Appeal under Section 35L of the Central Excise and Salt Act (as amended) ' against the order and decision dated 1st February 1984 of the Tribunal (CEGAT) deciding that the sale of tyres and other rubber products through their 42 Depots throughout India were not retail sales but were in the nature of whole sale sales and MRF was not entitled to deductions under Rule 6A of the Central Excise (Valuation) Rules, 1975 (hereinaf ter referred to as the "Valuation Rules").
These proceedings are now arising for our considera tion after the pronouncement of the Judgment by this Court in the case of Union of India & Others vs Bombay Tyres International Ltd., [1983] Vol.
14 Excise Law Times 1896) decided on the 7th October 1983 and the clarificatory order passed by this Court in the same case of Union of 853 India & Others vs Bombay Tyres International Ltd., reported in This clarification was given by the Supreme Court on 14th and 15th November 1983.
Pursuant to hearings held in this Court in several cases relating to post manu facturing expenses and after the latter clarificatory order in the case of Union of India & Others vs Bombay Tyres International Ltd. (supra), the Tribunal (CEGAT) decided the Review Notice and set aside the order of the Appellate Collector on 1st February 1984 and on 9th February 1984 the Civil Appeal No. 793 of 1984 was admitted.
Format orders were passed by this Court in the pending appeals relating to post manufacturing expenses.
Even in the present matters format orders were passed on or around 3rd May, 1984.
Format orders were also passed in the pending Writ Appeal No. 590 of 1979 pending before the High Court at Madras.
In accord ance with the format orders and within the timeframe stipu lated, amendments to price lists were to be filed by MRF Ltd. The present Appeals are now to consider the various deductions claimed by MRF Ltd. and/or disallowed and/or not allowed by the Assistant Collector, or allowed by the As sistant Collector, in the various jurisdictions qua the factories of MRF Ltd. in the cross Appeals of the Union of India and the MRF Ltd. 3.
For the sake of convenience, the deductions arising for consideration of this Court can be summarised as under: (i) TAC/Warranty discount (ii) Product discounts (iii) Interest on finished goods and stocks carried by the manufacturer after clearance (iv) Over riding commission to Hindustan Petroleum Corpora tion (v) Cost of distribution incurred at duty paid Sales Depots (vi) Interest on receivables (vii) 1% turnover discount allowed to RCS Dealers (viii) Secondary packing cost on tread rubber (ix) Discount to Government and other Departments 854 4.
The Appeals further also raise the issue of whether the price to the Defence Department Ex factory gate (ex factory) is to be considered as the wholesale cash price under old Section 4 as this was disallowed by the Assistant Collector, and further the issue as to the method of compu tation of assessable value where the selling price is a cum duty price.
This issue involves the consideration as to how excise duty has to be deducted, whether after deducting permissible deductions or otherwise.
We propose to deal with the issues as follows.
For the purpose of this Judgment we are not repeating and setting out the text of the un amended Section 4 and the amended Section 4 as the same are exten sively quoted in our Judgment in Union of India vs Bombay Tyres International Ltd., Recapitulating our Judgment in Union of India & Others vs Bombay Tyres International Ltd. (supra) we held that: "broadly speaking both the old s.4(a) and the new s.4(1) (a) speak of the price for sale in the course of wholesale trade of an article for delivery at the time and place of removal, namely, the factory gate.
Where the price contemplated under the old s.4(a) or under the new s.4(1) (a) is not ascertain able, the price is determined under the old s.4(b) or the new s.4(1)(b).
Now, the price of an article is related to its value (using this term in a general sense), and into that value are poured several components, including those which have enriched its value and given to the article its marketability in the trade.
Therefore, the expenses incurred on account of the several factors which have contributed to its value upto the date of sale, which apparently would be the date of delivery, are liable to be included.
Consequent ly, where the sale is effected at the factory gate, expenses incurred by the assessee upto the date of delivery on ac count of storage charges, outward handling charges, interest on inventories (stocks carried by the manufacturer after clearance), charges for other services after delivery to the buyer, namely after sales service and marketing and selling organisation expenses including advertisement expenses cannot be deducted.
It will be noted that advertisement expenses, marketing and selling organisation expenses and after sales service promote the marketability of the article and enter its value in the trade.
Where the sale in the course of wholesale trade is effected by the assessee through its sales organisation at a place or places outside the factory gate, the expenses incurred by 855 the assessee upto the date of delivery under the aforesaid heads cannot, on the same grounds, be deducted.
But the assessee will be entitled to a deduction on account of the cost of transportation of the excisable article from the factory gate to the place or places where it is sold.
The cost of transportation will include the cost of insurance on the freight for transportation of the goods from the factory gate to the place or places of delivery.
In the clarificatory order in Union of India & Ors.
vs Bombay Tyres International Ltd., reported in 1984 Vol.
17 ELT 329 we clarified that discounts allowed in the trade (by whatever name called) should be allowed to be deducted from the sale price having regard to the nature of the goods, if established under agreements or under terms of sale or by established practice.
The allowance and the nature of dis count should be known at or prior to the removal of the goods and shall not be disallowed only because they are not payable at the time of each invoice or deducted from the invoice price.
In relation to the first head of deduction, namely TAC/ Warranty discount, the petitioners contend that deduc tion on account of TAC/Warranty discount ought to be permit ted as a deduction for determining the assessable value.
It is submitted by them that this discount relates to the claims of the customers on account of any defect in the tyre already sold and assessed to duty.
Such claims are scruti nised by a committee of technical personnel of the assessee.
The Committee decides as to what amount of money should be refunded to the customers on account of the defect in the manufactured tyre already sold to the customers by which defect the tyre does not get its full life tenure.
Instead of refunding the amount in cash the customers are permitted to buy a new tyre, the price of which new tyre would be reduced by the amount refundable to customers as per deci sion of the committee. '17he petitioners contend that the TAC/Warranty discount satisfied all the criteria of a trade discount stipulated in our order dated 14th/15th November 1983 in that it is a discount established by practice since 1943, it is a discount given to the consumer of a MRF tyre in respect of a tyre purchased earlier, the factum of allow ance is known is trade prior to removal, the nature of the discount is not arbitrary or ad hoc and easily determinable.
The Revenue disputes this claim on the ground that it does not come within Section 4(4)(d)(ii) of the Act since the claim is not in accordance with the normal practice of the wholesale trade at the time 856 of removal of the goods in respect to which the claim is made and also on the ground that this is not normally claim able as trade discount.
We are inclined to accept the contention of the department.
Even though the giving of TAC/Warranty is estab lished by practice or capable of being decided, what is really relevant is the nature of the transaction.
The war ranty is not a discount on the tyre already sold, but relate to the goods which are being subsequently sold to the same customers.
It cannot be strictly called as discount on the tyre being sold.
It is in the nature of a benefit given to the customers by way of compensation for the loss suffered by them in the previous sale.
In our order dated 14 th/15th November 1983 we have said that trade discounts of any nature should be allowed to be deducted provided, however, the discount is known at or prior to the removal of the goods.
In the present case this condition precedent is not satisfied as the Committee de cides the claim subsequent to the removal of the tyre.
The Petitioners have further contended that the Excise Act and the Rules framed thereunder contemplate such an allowance and an abatement of duty on defective tyres.
Counsel for the Petitioners has drawn an attention to Rule 96 which reads as follows: "Rule 96.
Abatement of duty on defective tyres: If a manu facturer desires that certain tyres should, in consequence of damage sustained during the course of manufacture, be assessed on a value less than the standard selling price he shall declare in writing on the application for clearance of the goods, that such damage has been sustained and each such tyre shall be clearly legibly embossed or indelibly stamped with the word "Second", "Clearance" or "Defective".
There is, however, a distinction between a compensa tion in the nature of warranty allowance on a defective tyre after it has been sold and removed from the factory gate and selling a defective tyre as a "seconds" or "defective".
In our view the analogy of Rule 96 is not applicable.
A tyre being sold as a "seconds or "defective" would be sold at a discount, such discount being known before the goods were removed/cleared, thereby also satisfying the pre condition of section 4(4)(d)(ii) of the Excise Act.
The assessable value and price list submitted would be one relating to "seconds" tyres.
We, therefore, 857 disallow the claim in respect of TAC/Warranty discount.
The next head of deductions arising for our consid eration is in respect of product discounts.
This head com prises of 3 tyres of discounts: (1) Prompt Payment Discount (2) Year Ending Discount (3) Campaign Discount 13.
We deal with each of the heads individually as under: (i) Under the prompt payment discount scheme MRF in relation to up country Non RCS Bills in the replacement market except Government and DGS & D accounts, a rate of 0.75% on the total value of the invoice including sales tax, surcharge, etc.
is offered if the bill is cleared/paid for within 26 days from the date of invoice.
The Union of India disputes this claim on the ground that it is limited to only certain varieties of products as explained in the scheme document and is only for a limited period.
We are not in clined to accept the contention of the Union of India in this regard.
A prompt payment discount is a trade discount given to the dealers by MRF.
It is established under the terms of sale or by established practice and is known at or prior to the removal of the goods.
It squarely falls within our order of clarification in the case of Union of India & Ors.
vs Bombay Tyres International Ltd. (supra).
The MRF is entitled to deduction on this account.
(ii) In the Special year end Bonus to Dealers MRF pro poses and claims this deduction as a year end discount.
This Bonus of Rs.50 per tyre is for certain specific tyres and is receivable only on those invoices where payments are actual ly receivable within 45 days from the date of the invoice.
Under this scheme a declaration is to be received dealerwise and thereafter provision is to be made at the head office of MRF for the Bonus.
The allowance of the discount is not known at or prior to the removal of the goods.
The calcula tions are made at the end of the year and the Bonus at the said rate is granted only to a particular class of Dealers.
This is computed after taking stock of the accounts between MRF and its dealers.
It is not in the nature of a discount but is in the nature of a Bonus or an incentive much after the invoice is 858 raised and the removal of the goods is complete.
In the circumstances, we are of the opinion that MRF is not enti tled to deduction under this head.
(iii) MRF proposed "Superlug Piggy back campaign Bonus" in March/April 1983 for invoices during a particular period whereby bonus of Rs.50 per tyre for every Superlug tyre and/or any other particular variety of tyres is given.
The bonus was again applicable only on invoices for which pay ments were received within 45 days.
Details of bonus earn ings per dealer were to be computed after taking stock of the accounts between MRF and its dealers and the bonus amount was to be credited after June 1983 or mid July 1983.
On the same reasoning as the year ending discount/bonus scheme, the campaign bonus cannot be a permitted deduction to MRF.
The allowance of the discount is not known at or prior to the removal of the goods.
The quantum is unascer tained at the point of removal.
The discount is not on the wholesale cash price of the articles sold but is based on the total sales effected of a particular variety of tyre calculated after the removal.
We accordingly reject this claim of MRF.
Interest on finished goods from the date the stocks are cleared till the date of the sale was disallowed by the Assistant Collector, Kottayam.
This head has again been urged for our consideration as a proper deduction for deter mination of the assessable value.
As quoted in our judgment in Union of India and Ors.
vs Bombay Tyres International Ltd. (supra), we have held that expenses incurred on account of several factors which have contributed to its value upto the date of sale which apparently would be the date of delivery at the factory gate are liable to be included.
The interest on the finished goods until the goods are sold and delivered at the factory gate would therefore necessarily, according to the judgment in Bombay Tyres International case (supra) have to be included but interest on finished goods from the date of delivery at the factory gate up to the date of delivery from the sales depot would be an expense in curred after the date of removal from the factory gate and it would therefore, according to the judgment in Bombay Tyres International case (supra) not be liable to be includ ed since it would add to the value of the goods after the date of removal from the factory gate.
We would therefore have to allow the claim of MRF Ltd. as above.
859 15.
The next head of deduction relates to over riding commission to the Hindustan Petroleum Corporation which was disallowed.
MRF entered into a contract with Hindustan Petroleum Corporation Ltd. for sale of their products through HPC dealer network.
An overriding commission was agreed to, in consideration of HPC not agreeing to entering upon agreement with any other tyre manufacturing company vis a vis by reason of MRF undertaking not to enter upon any agreement with any other oil company.
The discount proposed was as a percentage of sale effected through the HPC dealers on half yearly basis.
On the face of it, the over riding commission payable to HPC is a commission for sales.
It is a compensation granted for the sale of MRF products through HPC dealers and is a commission for services rendered by the agent.
It is not a discount known at or prior to the removal of the goods and we accordingly reject this claim of MRF Ltd. 16.
Another head of deduction disallowed to MRF relates to interest on receivables (sundry debtors for sales).
MRF has represented that this cost is inbuilt in the price and is incurred on account of the time factor between the time the goods are delivered and the time the moneys are rea lised.
The cost is incurred only where credit terms are given in case of up country and other buyers where payment is made much after the sales are effected.
They contend that it is nothing but an extension of the principle underlying Rule 4 of the Central Excise (Valuation) Rules.
They contend that this is an adjustment in value required to be made to take into account and provide for the difference in the time of delivery and the realisation of the sale value.
As stated in our judgment in Union of India & Ors.
vs Bombay Tyres International Ltd. (supra), it is only those expenses incurred on account of factors which have contributed to its value upto the date of sale or the date of delivery which are liable to be included in the assessable value.
The interest cost and expenses on sundry debtors or interest on receivables is an expense subsequent to the date of sale and removal or delivery of goods and in our opinion MRF Ltd. would be eligible to claim deduction on this account.
The next head which was urged for our consideration relates to the cost of distribution incurred at the duty paid sales depots.
In our judgment in Union of India and Others vs Duphar Interfram Ltd. (Civil Appeal No. 569 of 1981) reported in 1984 Excise and Customs Reporter at page 1443, we have held that the cost of distribution is not to be included in the assessable value in case the wholesale dealers take delivery of the goods from outside duty paid godown.
The 860 wholesale dealers having taken delivery of the goods manu factured by MRF.
Ltd. and there being a removal of the goods from the factory gate, the cost of distribution at duty paid sales depots cannot be taken into account for the purpose of determining the assessable value of the goods.
The next head of deduction disallowed to MRF relates to discount to Government and other Departments.
In our view the Assistant Collector, Goa has rightly rejected the claim of MRF though the Assistant Collector, Kottayam allowed the claim of MRF.
MRF Ltd. sells its products at a lower price as per contract with the Government or its Departments.
Separate price lists for the Government and other Depart ments were filed by MRF distinct and different from the price lists in relation to dealers.
The position that dif ferent price lists for different classes of dealers or different classes of buyers is specifically recognised under section 4(1), proviso (i), of the Excise Act.
Different prices can be declared with reference to different classes of buyers and each price is deemed to be a normal price of such goods.
In this view of the matter, merely because the product is sold at a lower price to the Government and its Departments does not enable the MRF to contend that the difference in price with reference to an ordinary dealer and the Government is a discount to the Government.
The differ ence in price is not a discount but constitutes a normal price for the Government as a class of buyer and no deduc tion on this head is liable to MRF Ltd. 19.
The next question which arises for our consideration relates to special secondary packaging charges for tread rubber.
It has been the contention of the MRF that their case is covered by the judgment in Union of India & Ors.
vs Godfrey Philips India Ltd., reported in 1985 Vol.
The majority judgment in Godfrey Philips India Ltd. (Supra) holds that "on a proper construction of Sec.
4(4)(d)(i) of the Act read with the Explanation, the second ary packaging done for the purpose of facilitating transport and smooth transit of the goods to be delivered to the buyer in the wholesale trade cannot be included in the value for the purpose of assessment of excise duty.
If a packaging is not necessary for the sale of the product in the wholesale market at the factory gate, the same cannot be included in the value for the purpose of assessment of excise duty.
" It has been brought to our notice that in a Judgment delivered by the Bombay High Court in Misc.
Petition No. 1534 of 1979 (Judgment dated 7th January 1986) Bharucha J. of Bombay High Court in Bombay Tyres International Ltd. vs Union of India & Ors., has considered the Judgment in 861 Godfrey Philips India Ltd. (supra) with specific reference to the question of secondary packaging for tread rubber.
It has been brought to our notice that such packaging consists of cardboard cartons or wooden cases.
In that case the tread rubber as packed was produced before Bharucha J. He has described that the tread rubber is a strip of rubber approx imately 6 ' ' wide and about 1 ' ' thick which is tightly wound into a roll.
Each roll weighs between 15 Kgs and 40 Kgs.
The roll is not held together by any means.
The roll is inserted into a loose and open polythene bag.
That bag also cannot hold the roll together.
The bag is placed in a cardboard carton or a wooden case.
The cardboard carton is held to gether by rubber bands.
The wooden case is nailed together.
Though, it was contended that the cardboard cartons and wooden cases were in the nature of secondary packaging whose cost was not includable in the value of tread rubber, Bharu cha J. held that a roll of tread rubber cannot be sold without the cardboard carton or the wooden case.
It is further stated that the secondary packing in which tread rubber is sold is in the course of wholesale trade.
The secondary packing is not employed merely for the purpose of facilitating transport or smooth transit and is necessary for selling the tread rubber in the wholesale trade.
Bharu cha J. refused to remand the matter to the authorities as the tread rubber as packed had been produced before him and he was of the firm view that the cardboard cartons and the wooden cases are not such secondary packing materials as can be excluded in computing the assessable value of the Peti tioner 's tread rubber.
In the circumstances that this very issue has been decided on a visual personal inspection of Bharucha J. in the case of Bombay Tyres International Ltd. (supra) pronounced after the decision in Godfrey Philips India Ltd. (supra) we are of the view that the cost of cardboard cartons and wooden cases or any other special secondary packing charges incurred by the MRF on tread rubber should not be excluded from the assessable value.
Tread rubber is a product which if even slightly damaged becomes unfit or un usable.
The vital element "cushion compound" which is applied to the bottom of the tread rubber and which helps the tread rubber to stick to the buffed surface of the old tyre which is to be retreaded is very delicate.
A polythene sheet is put over the layer of the compound before the same is rolled and put into another polythene bag to avoid sticking to the outer side of the tread rubber and getting contaminated by dust.
It is stated that such production cannot be marketed without the poly thene bags and/or cardboard boxes.
These are the findings of the Assistant Collector, Goa and in the light of the cumula tive decisions of the Assistant Collector, Goa and of the Bombay High Court, we are of the view that the secondary special packing charges for tread rubber 862 cannot be deducted from the assessable value of tread rub ber.
In relation to the determination of wholesale price of tyres on the basis of the ex factory price for Defence supplies, with reference to the old Section 4 in view of our Judgment in Union of India vs Bombay Tyres International Ltd. (supra) also reported in ; at 376E, this Court has held that "in the new Section 4 in supersession of the old Section 4, no material departure was intended from the basic scheme for determining value of excisable arti cles.
" It has been contended by the Union of India that even after our format orders referred to above, MRF has not submitted any statement of deductions/amendments in respect of price lists filed nor submitted any fresh prices.
It claims several deductions on percentage basis by furnishing calculations vis a vis the entire company but did not fur nish item wise or factory wise break up of such claims.
Having held that there is no material departure in the basic scheme for determining the value of excisable articles in the old Section 4 and the new Section 4, there is nothing in the unamended Section 4 to justify an inference that the wholesale cash price of articles of similar description sold cannot be different for different classes of buyers in wholesale.
Different prices can be normal prices for the purposes of determination of the assessable value of the article.
We accordingly reject the contention of the MRF.
Even though the MRF has not filed a separate price list for the factory gate clearances to Defence Department under the old Section 4, in view of our now holding that there is no material schematic difference between old Section 4 and new Section 4, we permit MRF Ltd. to file revised price lists with reference to the class of buyers namely, Defence on a different basis for a different normal price and avail of all the necessary reliefs with reference to lower assessable value, if the same has not already been filed.
In so far as the deductions claimed towards excise duty paid on processed tyre cord, the contention of the MRF has been upheld by the Goa Bench in Special Civil Appeal No. 28 of 1983 and the claim has been allowed to MRF for deduc tion from selling price of excise duty on processed tyre cord.
This is in accordance with Section 4(4) (d)(ii) of the new Section 4 and we accordingly confirm that MRF is eligi ble to this deduction.
The last important issue relates to the method of computation of assessable value in a cum duty price at a factory gate sale.
The issue is whether excise duty should be first deducted or the permissible deduction should be first deducted from the selling price for the re 863 assessments before the Assistant Collectors.
The assessment of excise duty both in relation to Section 4 and in relation to the Valuation Rules is now subject to the definition contained in Section 4(4)(d) of the Excise Act.
The value as defined thereunder is to be arrived at after the cost of packaging of a durable nature or a returnable nature as also amounts of duty of excise, sales tax and other taxes and trade discount allowed in accordance with the normal prac tice of wholesale trade is determined.
It is thus implicit that no excise duty is payable on an element of excise duty in the price.
The value as contemplated under Section 4 cannot include a component of excise duty.
In the circum stances, where the computation of an assessable value has to be made from the factory gate sale price which is a cum duty price, the first question which will have to be addressed is what are the exclusions and permissible deductions from such a sale price.
The petitioners have contended that their cum duty price was arrived at after calculating and adding excise duty payable i.e., before actual duty was paid.
They contend that their price list for several articles is ap proved much in advance of the removal from the factory.
They contend that when the assessable value is to be arrived at, the same amount of excise duty which was pre determined and added to the factory price is naturally to be deducted first and only thereafter the permissible deductions should be deducted to arrive at the value.
For the purposes of argu ment, MRF submitted the following example for consideration: They suggested that their selling price should be con sidered (cum duty selling price) as Rs. 3200.
They further submitted that the permissible deductions whether on account of trade discount or on account of cost of secondary packag ing or sales tax or other taxes, packaging or sales tax or other taxes should hypothetically be considered at Rs.200.
The rate of excise duty chargeable is 60% ad valorem for automotive tyres.
Assuming for the sake of argument that the value of the product is actually Rs.2075.
In accordance with the provisions of Section 4(4)(d) permissible deductions are made.
The assessable value would be Rs. 1875 being the difference of Rs.2075 and Rs.200.
The excise duty at the rate of 60% would thereafter be computed on the sum of Rs. 1875 and would aggregate Rs. 1125.
The selling price which is a cum duty price would be the sum total of the assessable value, the permissible deductions and the excise duty.
Putting this as a mathematical formula the selling price (cum duty price) is equal to assessable value plus permissi ble deductions plus excise duty.
Cumduty Paid Selling Price = Assessable Value + Excise Duty + Permissible deductions.
Again excise duty is computed as a ratio of the assessable value where duty is ad valorem.
For the purposes of ascer 864 taining the assessable value, if three of the components namely, the cum duty selling price, the quantum of permissi ble deductions and the rate of excise duty are known, the proper and appropriate method of determining the assessable value would be the following formula: Assessable value = cum duty selling price permissible deductions divided by ( 1 + Rate of excise duty) Thus in the instant case working backward, if the cum duty selling price is known to be Rs.3200 and the permissi ble deductions are known to be Rs.200 and the rate of excise duty is known to be 60% the assessable value is computed aS under: Selling price permissible deductions = Rs.3200=RS.200 = Rs.3000 Assessable value is equal to difference in selling price and permissible deductions divided by 1 plus 60/100 which is equal to 3000/1.6 which is equal to Rs. 1875.
The excise duty at 60% ad valorem rate would be Rs. 1125 on the assessable value of Rs. 1875.
The mathematical formula enumerated above balances.
For example, if the cum duty paid selling price is equal to Rs.3200, the assessable value is Rs. 1875, excise duty is Rs. 1125 and permissible deductions is Rs.200, the aggregate of the assessable value, the permissible deductions and the excise duty is equal to the selling price (cum duty paid).
Any other method of computation of excise duty or assessable value is erroneous.
The Petitioner 's basis that the assessable value is to be arrived at by taking into consideration the same amount of excise duty which was hypothetically pre determined and added to the factory price and that this element in an attempt to compute the assessa ble value should naturally be deducted first, is putting the cart before the horse.
The excise duty is only known as a ratio of the assessable value when an ad valorem duty is included in the cum duty paid selling price.
The quantum of excise duty cannot be pre deducted or predetermined till the assessable value is known.
It is only the permissible deduc tions in concrete monetary terms and amount which are 865 known.
The cum duty paid sale price being available for computation and a known value of deductions permitted being also known, the assessable value and the excise duty as a ratio of the assessable value can be only decided by first deducting the permissible deductions, from the cum duty paid selling price and thereafter computing the value in accord ance with the equation mentioned above.
This has both a legal and a mathematical basis.
If the pre determined amount of excise duty as per the illustration given by MRF Ltd. is first deducted, the equation will not tally.
For example, if from a hypothetical cumduty price of Rs. 150 (comprised of the value of the product at Rs. 100 and ad valorem excise duty@ 50% at Rs.50) if the excise duty of Rs.50 is first deducted and thereafter the permissible deduction of Rs.5 is deducted, the assessable value arrived at would be Rs.95.
The rate of excise duty is 50% and the excise duty @50% of the assessable value of Rs.95 would be Rs.47.50 and not Rs.50 as earlier deducted.
There would be a constant differ ence of Rs.2.50 in the computation.
It is, therefore, an incorrect method of evaluating the assessable value in instances of cum duty selling price.
This interpretation is borne out by the definition contained in Section 4(4)(d) of the Excise Act.
MRF 's contention that the excise duty should be deducted first and then the permissible deductions is incorrect.
In ordinary cases where the factory price is not a cum duty price, the first step in arriving at the assessa ble value is to deduct the permissible deductions and there after to compute the excise on an ad valorem basis.
The excise duty cannot be computed unless the permissible deduc tions are first made.
The assessable value is arrived at only after the permissible deductions are made.
Excise duty is a ratio of the assessable value.
Ad valorem excise duty is computed only on assessable value after arriving at such assessable value by making proper permissible deductions.
Excise duty cannot be computed without proper determination of the assessable value, namely assessable value exclusive of permissible deductions.
Even in the cum duty sale price, the same principle must be followed to arrive at the assess able value.
To compute an excise duty as a pre determined amount without making the permissible deductions for reduc ing the cum duty selling price is a fallacy both legally and mathematically as demonstrated above.
The ad valorem excise duty can only be computed after reducing the assessable value by permissible deductions and then applying the tariff rate to the assessable value.
To reverse this sequence is to mis interpret the scheme and mode of levy of excise duty on the assessable value.
In the light of our aforesaid discussions and keep ing in line with our previous format orders, we direct the assessing authorities to 866 quantify and re determine the permissible deductions in accordance with our present Judgment.
The assessee, MRF Ltd. already having been required to file the permissible deduc tions/amendments to the price lists within a period of one month in the last instance in May 1984 is once again re quired by us to file fresh price lists in the light of our present Judgment within one month for all the periods under consideration.
The assessing authorities after hearing the assessee would quantify the correct assessable value in the light of our Judgment.
In making the assessments for each of the periods, the authorities would include the set off in respect of further refunds, if any, allowable on account of fresh deductions permitted and/or already allowed to the assessee.
MRF would be at liberty to obtain suitable direc tions in the pending Writ Appeal No. 590 of 1979 in the High Court of Madras in accordance with our Judgment.
We leave the parties to bear their own costs.
ORDER In respect of items claimed by the assessee which have been allowed by us in this judgment or where the allowance by Assistant Collector has been upheld the quantum will be adjusted by giving appropriate credit in the personal Ledger Accounts.
P.S.S. Appeals dis posed of.

dataset_name: IN-Abs

summary/full:
In Union of India vs Bombay Tyres International Ltd., ; , this Court held that under s.4 of the Central Excise and Salt Act, 1944, only those expenses which were incurred on account of factors contributing to the product 's value upto the date of sale or the date of deliv ery at the factory.
gate were liable to be included in the assessable value.
On November 14/15, 1983 the Court made a clarificatory order wherein it was stated that discounts allowed in the trade (by whatever name called) should be allowed to be deducted from the sale price having regard to the nature of the goods, if established under agreements or under terms of sale or by established practice, and that such allowance and the nature of discount should be known at or prior to the removal of the goods and should not be disallowed only because they were not payable at the time of each invoice or deducted from the invoice price.
The respondent Rubber Factory claimed various deductions of the nature of post manufacturing expenses for determining the assessable value of their products under s.4 of the Act which were disallowed 847 by the Excise authorities.
Its writ petitions were, however, allowed by the High Court.
In appeals by the Union of India for setting aside the High Court judgment it was contended for the respondent: (a) that the TAC/ Warranty discount, which was sought to be deducted for determining the assessable value, satisfied all the criteria of a trade discount stipulated in the clarifi catory order; (b) that the claim for deduction of product discounts prompt payment discount, year ending discount and campaign discount was justified on the same reasoning; (c) that the interest on finished goods from the date the stocks were cleared till the date of sale was a proper deduction for determination of the assessable value; (d) that the claim for deduction of interest on receivables (sundry debtors for sales) was justified on the ground that this cost was inbuilt in the price and was incurred on account of the time factor between the delivery of goods and realisa tion of moneys; (e) that the overriding commission allowed to the Hindustan Petroleum Corporation for exclusive sale of company 's products through their dealer net work was also of the nature of a discount; (f) that the cost of distribution at the duty paid sales depot was a proper deduction; (g) that the difference between the lower price at which the product was sold to the Government and the price charged from ordinary dealer was of the nature of a discount; (h) that the claim for deduction of special secondary packaging charges squarely falls within s.4(4)(d)(i) of the Act, and (i) that the company was entitled to the deduction of excise duty paid on processed typecord under s.4(4)(d)(ii).
The respondents also disputed the method of computation of 'assessable value ' in a cure duty price at a factory gate sale and contended that such value was to be arrived at by first deducting the predetermined excise duty added to the factory price and only thereafter the permissible deductions were to be deducted.
Disposing of the appeals, the Court, HELD: 1.1 The respondent company is not entitled to the deduction of TAC/Warranty discount for determining assessa ble value of tyres since it does not come within s.4(4)(d)(ii) of the Central Excise and Salt Act, 1944.
[856H, 857A, 855H] 1.2 Even though giving of TAC/Warranty is established by practice for the wholesale trade or capable of being decid ed, what is really relevant is the nature of the traction.
It is not a discount on the 848 tyres already sold, but relate to the goods which are being subsequently sold to the same customers.
It is in the nature of a benefit given to the customers by way of compensation for the loss suffered by them in the previous sale.
[8S6B] 1.3 A trade discount of any nature could be allowed to be deducted provided it is known at or prior to the removal of the goods.
In the instant case, this condition precedent is not satisfied as the committee decided the claim for TAC/Warranty subsequent to the removal of the tyre.
[856C] 1.4 The analogy of Rule 96 of the Central Excise Rules, 1944 relating to abatement of duty of defective tyres cannot be made applicable to justify the claim for deduction of the TAC/Warranty discount.
A tyre being sold as a "seconds" or "defective" would be sold at a discount, such discount being known before the goods were removed/cleared, thereby also satisfying the pre condition of s.4(4)(d,(ii) of the Excise Act.
The assessable vase and price list submitted would be one relating the 'seconds ' tyres.
[856G] Union of India vs Bombay Tyres International Ltd., [1984] 17 ELT 329, referred to.
2.1 The respondent is entitled to deduction of 'prompt payment discount ' which is a 'trade discount ' given to the dealers by the company.
It is established under the terms of sale or by established practice and is known at or prior to the removal of the goods [857E F] 2.2 The company is not entitled to deduction of the 'year ending discount '.
The allowance of the discount is not known at or prior to the removal of the goods.
The calcula tions are made at the end of the year and the bonus at the said rate is granted only to a particular class of dealers.
This is computed after taking stock of the accounts between the company and its dealers.
It is not in the nature of a discount but in the nature of a bonus or an incentive much after the invoice is raised and the removal of the goods is complete.
[857G 858A] 2.3 The campaign bonus cannot be a permitted deduction to the company.
The allowance of the discount is not known at or prior to the removal of the goods.
The qnantum is unascertained at the point of removal.
The discount is not on the wholesale cash price of the articles sold but is based an the total sales effected of a particular variety of tyre calculated after the removal.
[858D] 849 3.1 Expenses incurred on account of several factors which have contributed to the product 's value upto the date of sale, which apparently would he the date of delivery at the factory gate, are liable to he included in the assessa ble value.
[858F] 3.2 The company was justified in claiming deduction of interest an finished goods until they were sold and deliv ered at the factory gate.
But interest on finished goods from the date of delivery at the factory gate up to the date of delivery from the sales depot would be an expense in curred after the date of removal from the factory gate and it would, therefore, not he liable to he included since it would add to the value of the goods after the date of remov al from the factory gate.
[858G H] Union of India vs Bombay Tyres International Ltd., ; , referred to.
The interest cost and expenses on sundry debtors or interest on receivables is an expense subsequent to the date of sale and removal or delivery of goods and, therefore, the company would not he eligible to claim deduction on this account.
[859H] 5.
The overriding commission paid by the company to the Hindustan Petroleum Corporation for sale of their products exclusively through HPC dealer network is not deductible.
It was agreed to in consideration of the COrporation not agree ing to enter upon agreement with any other tyre manufactur ing company vis a vis by reason of the respondent undertaking not to enter upon any agreement with any other oil company.
It is a compensation granted for the sale of company 's products through HPC dealers and is a commission for services rendered by the agent.
It is not a discount known at or prior to the removal of the goods.
[859A C] 6.
The cost of distribution incurred at the duty paid sales depots is not to he included in the assessable value in case the wholesale dealers take delivery of the goods from outside such godown.
The wholesale dealers having taken delivery of the goods manufactured by the company and there being a removal of the goods from the factory gate, the cost of distribution at duty paid sales depots cannot he taken into account for the purpose of determining the assessable value of the goods.
[859H 860A] Union of India & Ors.
vs Duphar Interfram Ltd., , referred to.
850 7.
Merely because the product is sold at a lower price to the Government it cannot be said that the difference in price with reference to an ordinary dealer and the Govern ment is a discount to the Government.
The position that there can be different price lists of articles of similar description sold to different classes of dealers or differ ent classes of buyers in wholesale is specifically recog nised under s.4(1)(a), proviso (1) of the Act.
The lower price for the Government constitutes a normal price for it as a class of buyer and no deduction on this head is liable to the company for the purpose of determination of the assessable value of the article.
[860D, C, E] 8.1 Section 4(4)(d)(i) of the Act read with the Explana tion thereto makes it apparent that the 'secondary packag ing ' done for the purpose of facilitating transport and smooth transit of the goods to be delivered to the buyer in the wholesale trade cannot be included in the value for the purpose of assessment of excise duty.
If a packaging is not necessary for the sale of the product in the wholesale market at the factory gate, the same cannot be included in the value for the purpose of assessment of excise duty.
[860 FG] 8.2 In the instant case, the secondary packaging for tread rubber consists of cardboard cartons and wooden cases.
This secondary packing is not employed merely for the pur pose of facilitating transport or smooth transit but is necessary for selling the tread rubber in the wholesale trade.
The cost of these cardboard cartons and wooden cases or any other special secondary charges incurred by the company on tread rubber could not, therefore, be excluded from its assessable value.
[861A, D, E F] Union of India & Ors.
vs Godfrey Philips India Ltd., and Bombay Tyres International Ltd. vs Union of India & Ors., Bombay High Court M.P. No. 1534 of 1979 decided an January 7, 1986, referred to.
The company is eligible for deduction from selling price of tyre of excise duty paid on processed tyre cord.
This is in accord with s.4(4)(d)(ii) of new s.4 of the Act.
[862F G] 10.1 The assessment of excise duty both in relation to s.4 and in relation to the Valuation Rules is now subject to the definition contained in s.4(4)(d) of the Act.
The 'va lue ' as defined thereunder is to be arrived at after the cost of packaging of a durable nature or a returnable nature as also amounts of duty of excise, sales tax and other taxes and trade 851 discount allowed in accordance with the normal practice of wholesale trade is determined.
It is implicit that no excise duty is payable on an element of excise duty in the price.
The value as contemplated under s.4 cannot include a compo nent of excise duty.
[863AB] 10.2 The aggregate of the assessable value, the permis sible deduction and the excise duty is equal to the selling price (cure duty paid).
The excise duty is only known as a ratio of the assessable value when an ad valorem duty is included in the cure duty paid selling price.
The quantum of excise duty cannot be pre deducted or pre determined till the assessable value is known.
It is only the permissible deductions in concrete monetary terms and amount which are known.
The cum duty paid sale price being available for computation and the value of deduction permitted being also known, the assessable value and the excise duty as a ratio of the assessable value can be only found by first deducting the permissible deductions from the cum duty paid selling price and thereafter computing the value by dividing the difference by (1 +rate of excise duty).
This method has both a legal and mathematical basis.
To reverse this sequence is to mis interpret the scheme and the mode of levy of excise duty on the assessable value.
[864E G, 865B, 865G] 10.3 Where the factory price is not a cure duty price, the first step in arriving at the assessable value is to deduct the permissible deductions and thereafter to compute the excise on an ad valorem basis by applying the tariff rate to the assessable value.
[865D]