civil appellate jurisdiction civil appeal number
389 of 1970.
appeal by special leave from the award dated april 16 1969
of the national tribunal calcutta in ref. number nit-6 of
1967 published in the gazette of india dated may 10 1969.

sreekantan nair appellant number 1 in person. urmila kapoor and k. bansal for appellant number 2.

b. pai p. p. bopanna k. n. bhatt and m. m. kshatriya. for respondents number. 2 to 7.
ambrish kumar and m. v. goswami for respondent number 1. the
judgment of the companyrt was delivered by
vaidialingam j. this appeal by special leave by the workmen
of the hindustan machine tools unit iv kalamassery is
directed against the award dated april 16 1969 of the
national tribunal at calcutta in reference number nit 6 of
1967 holding that the appellants are number entitled to any
bonus for the years 1964-65 to 1966-67.
by order dated october 17 1967 the central government made
a reference for adjudication of the disputes to the national
tribunal in the following manner
whereas the central government is of opinion
that an industrial dispute exists between the
employers in respect of the establishments
specified in schedule i and their workmen in
respect. of the matters specified in schedule
11 hereto annexed and that the said dispute is
of such a nature that industrial
establishments situated in more than one state
are likely to be interested in or affected
by such dispute
and whereas the central government is of
opinion that the dispute should be
adjudicated by a national tribunal
and whereas the central government is of
opinion that the said dispute is of such a
nature that the hindustan machine tools it
pinjore and the hindustan machine tools at
hyderabad are likely to be interested in or
affected by such disputes. number therefore in exercise of the powers
conferred by section 7b and sub-section  1a
and 5 of section 10 of the industrial
disputes act 1947  14 of 1947  the central
government hereby companystitutes a national
tribunal of calcutta of which shri s. k. sen
shall be the presiding officer and refers
the said disputes to the said national
tribunal for adjudication and includes in that
reference the hindustan machine tools at
pinjore and the hindustan machine tools at
hyderabad. schedulei

hindustan machine tools i bangalore. hindustan machine tools ii bangalore. hindustan machine tools iv
kalamassery kerala. scheduleii

whether the demand of the workmen in the
hindustan machine tools 1 and 11 at bangalore
for payment of bonus at the rate of 20 per
cent of their salary for the year 1966-67 is
justified? if number to what quantum of bonus
are they entitled ? whether the workmen of the hindustan
machine tools at kalamassery pinjode and
hyderabad are entitled to any bonus and if so
what should be the quantum of such bonus ? whether the demand of the workmen of the
hindustan machine tools 1 and 11 of bangalore
and of the hindustan machine tools iv at
kalamassery that the bonus should be cal-
culated on the basis of a companysolidated profit
and loss account for all the units and all
activities and number on the basis of profit and
loss account of the separate units and
separate activities is justified ? although in schedule i of the order of reference only the
units at bangalore and kalamassery were referred to
nevertheless companyies of the reference were sent by the
central government to the labour unions of the hindustan
machine tools limited unit number iii at pinjore  haryana
state  and unit number v at hyderabpd as also to the h.m.t. watch factory at bangalore. the unions representing the
workmen of the five units as well as the watch factory had
filed statements before the national tribunal. the
managements of these different units had also filed
statements opposing the claims of the unions. before the proceedings companymenced the national tribunal
appears to have felt certain difficulties regarding the
scope of the reference. in respect of item 1 of schedule
11 the tribunal felt a doubt whether it should also
consider the question of bonus for any other year in respect
of units 1 and 11 at bangalore. similarly the tribunal felt
a doubt as to what was the particular year for which the
claim for bonus is to be companysidered under item 2 of schedule
ii. this doubt arose because numberyear had been mentioned in
the reference under this item. for the purpose of getting
clarification the tribunal invited the views of all the
unions as well as the management. all parties agreed that
when the reference was ambiguous or doubtful. the scope of
the reference can be gathered from the pleadings of the
parties. accepting the agreement of the parties the
tribunal found from the pleadings that the workmen of the
hindustan machine tools units 1 and 11 at bangalore had
been paid bonus at the rate of 20 per cent for the years
1964-65 and 1965-66. therefore it held that the claim of
these two units under item i of schedule ii has to be
considered only for the year 1966-67. similarly in respect
of item 2 of schedule ii of the reference the tribunal
found that the workmen of unit number iii at pinjore claimed
bonus for the years 1963-64 and 1964-65 according to the
full bench formula and for the years 1965-66 and 1966-67
under the provisions of the payment of bonus act 1965
 hereinafter to be referred to as the act . similarly the
workmen of unit number iv
on the basis of bonus paid and payable to the bangalore
workmen. the workmen of unit number vat hyderabad claimed. bonus at 20 per cent for each of the years 1965-66 and
1966-67. the workmen of the watch factory who were getting
bonus at the maximum rate of 20 per cent did number require
any further bonus to be paid. but that-unit took up the
position that the companytention of the various unions who were
claiming annual bonus on the basis of the companysolidated
balance sheets and profit and loss accounts should be
rejected. having crystallised the actual scope of the reference in the
manner indicated above the tribunal proceeded to companysider
the questions that arose for companysideration. at this stage
it may be stated that the workmen of unit number iv at
kalamassery the appellant before us claimed bonus for the
year 1963-64 and onwards on the basis of bonus paid and
payable to the bangalore workmen. it must also be stated
that the claim of the appellants as well as that of the
workmen of units number. 1 and 11 at bangalore was for payment
of bonus on the companysolidated profit and loss account of all
the units of the hindustan machine tools limited situated in
bangalore pinjore kalamassery and hyderabad as well as of
the watch factory. in respect of item 1 of schedule 11 the tribunal held that
the workmen of units number. 1 and 11 at bangalore are entitled only
to the minimum bonus at 4 per cent under the act and
that their claim for payment at 20 per cent of their salary
for the year 1966-67 has to be rejected. the tribunal
answered items number. 2 and 3 of schedule 11 as follows -
my answer to item number  2  is
the workmen of the hindustan machine tools at
kalamassery and pinjore are entitled to the
same rate of bonus as is paid to the watch
factory and hmt 1 11 workmen during the year
1963-64. the factory at hyderabad number having
been started by march 31 1964 becomes
disentitled to the provisions of pre bonus
act. since during the bonus act period by
virtue of the maintenance of separate accounts
numberbranch or undertaking becomes entitled to
the prosperity of the companypany the hyderabad
is number entitled to any bonus at all under the
provisions of the payment of bonus act. my answer to item number  3  is
the demand of the workmen of the hindustan
machine tools limited 1 11 at bangalore and of
the
8 55
hindustan machine tools limited number iv at
kalamassery that bonus should be calculated on
the basis of companysolidated profit and loss
accounts for all the units and for all the
activities and number on the basis of the profit
and loss accounts of the separate units and
separate activities is justified for the year
1963-64 only and number for the years 1964-65
1965-66 and 1966-67.
it may be stated that numbere of the workmen aggrieved by one
or other or all the findings of the tribunal on items 1 2
and 3 excepting the workmen of unit number iv at kalamassery
have companye up in appeal. the net result of the above finding
so far as unit number iv at kalamassery which is the
appellant is that its workmen are eligible for bonus for
the year 1963-64 at the same rate of bonus that has been
paid to the workmen of the watch factory and units number. 1
and 11 at bangalore for the said year. the workmen of unit
number iv are number entitled to claim bonus for the years 1964-65
to 1966-67 on the basis of the companysolidated profit and loss
accounts of all the units of the hindustan machine tools but
only on the basis of the separate profit and loss account
maintained for unit number iv. after a companysideration of the
evidence oral and documentary the tribunal held that the
said unit was number entitled to any bonus at all for these
three years. the workmen of unit number iv challenged the disallowance of
bonus for the year 1964-65 to 1966-67. at the time of
granting special leave the companynsel for the management
respondents 2 to 7 herein appears to have represented that
there are certain findings recorded in the award which are
challenged by the management. in view of this
representation this companyrt passed an order on february 24
1970 permitting the management to bring to the numberice of
the learned judges hearing the appeal the various findings
which the management proposes to challenge provided numberice
has been given to the workmen companycerned by putting them in
the statement of case. accordingly the management has
raised in its statement of case by- way of cross-
objections its grounds of attack on certain findings. mainly two matters have been referred namely--
 1  the finding of the tribunal that there
was functional integrality of all the units
for the period 1963-64 and the award in
consequence of bonus to all the units at the
rate that has been paid to units number. 1 and
11 and
 2  the statement made by the tribunal in
paragraph 25 of the award about payment of
bonus to the watch factory employees. these points have been pressed before us by the learned
counsel for the management. we will first take up the point regarding the disallowance
of bonus for the years 1964-65 to 1966-67 arising in the
unions appeal. mr. n. sreekantan nair the president of
the employees federation appellant number 1 has argued the
case in person on behalf of the appellants. it must be
stated to his credit that he has placed the case before us
as lucidly and candidly as possible. according to mr. nair
the finding of the tribunal that the various units of the
hindustan machine tools limited located in the different
regions are different establishments and that the
management has been having separate profit and loss accounts
for each of these units and that it is only on that basis
that bonus will have to be calculated is erroneous. according to mr. nair the management with a view to defeat
the legitimate rights of the workmen have made it appear
that there are separate profit and loss accounts maintained
for each of the units while in reality it is number so. according to him it is only a camouflage adopted by the
management to circumvent the provisions of the act. even
assuming that separate balance sheets and profit and loss
accounts are maintained for each of the units he companytended
that in law the workmen of unit number iv at kalamassery are
entitled to the minimum bonus for these years under section
10 of the act. the reliance placed on section 16 by the
tribunal for disallowing such a claim is erroneous. mr. g. b. pai learned companynsel for the management on the
other hand has referred to the material provisions of the
act and also to the evidence on record in support of his
contention that the five units in the different regions and
the watch factory are all different entities having their
own profit and loss accounts and balance sheets. the
management according to the companynsel has number done any thing
to defeat the provisions of the act. the companynsel urged that
the view of the tribunal that unit number iv is exempt from
payment of bonus for the years 1964-65 to 1966-67 based upon
section 16 is companyrect. section 10 also the companynsel
pointed out will number help the appellants. the history of the hindustan machine tools limited and the
establishment of the five units at bangalore pinjore
kalamassery and hyderabad as well as of the watch factory
has been very elaborately dealt with by the tribunal in the
award. numberody has raised any dispute regarding the various
matters referred to by the tribunal. therefore we do number
propose to companyer the ground over again. from the evidence
the following facts are also clear -
the h.m.t. was incorporated in 1953. the unit
1 in bangalore was started in 1953 but
production and
sale began in 1956-57. number 11 unit of
bangalore was started in april 1960.
production and sale from that unit started in
may 1961. the third unit at pinjore in
haryana was started in may 1962. production
and sale at that unit started in the year
1964-65. the 4th unit at kalamassery was
started in july 1963. production and sale
started at that unit from 1965-66. the 5th
unit of the h.m.t. at hyderabad was started in
may 1964 and production and sale at that unit
started in 1966-67. the watch factory at
bangalore was started in september 1961 and
indigenumbers production of watches started in
1963.
from what is stated above it will be seen that unit number 4
at kalamassery with which we are companycerned was started in
july 1963. but that unit companymenced production and sale of
its. articles only from 1965-66. this aspect will have
considerable bearing when we companysider the impact of section

it is number necessary to refer to the material provisions
of the act. the act by virtue of section 1 4  applies to a
factory or department in respect of the accounting year
commencing on any day in the year 1964 and in respect of
every subsequent accounting year. therefore there can be
numbercontroversy that the periods with which we are companycerned
namely 1964-65 to 1966-67 are governed by the act. the
terms employees employer establishment in private
sector and establishment in public sector arc defined in
clauses 13 14 15 and 16 respectively of section 2. section
3 dealing with establishments so as to include departments
undertakings and branches is as follows -
establishments to include departments
undertakings and
branches

where an establishment companysists of
different departments or undertakings or has
branches whether situated in the same place
or in different places all such departments
or undertakings or branches shall be treated
as parts of the same establishment for the
purpose of companyputation of bonus under this act
provided that where for any accounting year a
separate balance-sheet and profit and loss
account are prepared and maintained in respect
of any such department or undertaking or
branch then such department or undertaking
or branch shall be treated as a separate
establishment for the purpose of companyputation
of bonus under this act for that year unless
such department or undertaking or branch was
immediately before the companymencement of that
accounting year treated as part
7-l797 sup. ci/73
8 58
of the establishment for the purpose of
computation of bonus. section 8 dealing with the eligibility for bonus is as
follows
eligibility for bonus

every employee shall be entitled to be
paid by his employer in an accounting year
bonus in accordance with the provisions of
this act provided he has worked in the
establishment for number less than thirty working
days in that year. section 13 relating to proportionate reduction in bonus in
certain cases is as follows -
proportionate reduction in bonus in certain
cases

where an employee has number worked for
all the working days in any accounting year
the minimum bonus of forty rupees or as the
case may be of twenty five rupees if such
bonus is higher than four per cent of his
salary or wage for the days he has worked in
that accounting year shall be proportionately
reduced. section 10 dealing with payment of minimum bonus runs
follows -
payment of minimum bonus

subject to the provisions of sections 8
and 13 every employer shall be bound to pay
to every employee in an accounting year a
minimum bonus which shall be four per cent of
the salary or wage earned by the employee
during the accounting year or forty rupees
whichever is higher whether there are profits
in the accounting year or number
provided that where such employee has number
completed fifteen years of age at the
beginning of the accounting year the
provisions of this section shall have effect
in relation to such employee as if for the
words forty rupees the words twenty-five
rupees were substituted. we have earlier referred to sections 3 and 13 as section 10
is subject to those two sections. section 11 provides for
payment of the maximum bonus of 20 per cent of the salary or
wages in the circumstances mentioned therein. section 16
which companytains
special provisions with respect to certain establishments
is follows
special provisions with respect to certain
establishments
16  1  where an establishment is newly set
up whether before or after the companymencement
of this act the employees of such
establishment shall be entitled to be paid
bonus under this act only--
 a  from the accounting year in which the
employer derives profit from such
establishment or
 b  from the sixth accounting year following
the accounting year in which the employer
sells the goods produced or manufactured by
him or renders services as the case may be
from such establishment
whichever is earlier
provided that in the case of any such estab-
lishment the employees thereof shall number save
as otherwise provided in section 33 be
entitled to be paid bonus under this act in
respect of any accounting year prior to the
accounting year companymencing on any day in the
year 1964.
explanation i -for the purpose of this
section. an establishment shall number be deemed
to be newly set up merely by reason of a
change in its location management name or
ownership. explanation ii---for the purpose of clause
 a  an employer shall number be deemed to have
derived profit in any accounting- year
unless---
 a  he has made provision for that years
depreciation to which he is entitled under the
income-tax act or as the case may be under
the agricultural income-tax law and
 b  the arrears of such depreciation and
losses incurred by him in respect of the
establishment for the previous accounting
years have been fully set off against his
profits. explanation iii.-for the purpose of clause
 b  sale of the goods produced or
manufactured during the companyrse of the trial
run of any factory or of the prospecting stage
of any mine or an oil-field shall number be
taken into companysideration and where any
question arises
with regard to such production or manufacture
the decision of the appropriate government
made after giving the parties a reasonable
opportunity of representing the case shall be
final and shall number be called in question by
any companyrt or other authority. the provisions of sub-section  1  shall
so far as may be apply to new departments or
undertakings or branches set up by existing
establishments
provided that if an employer in relation to an
existing establishment companysisting of different
departments or undertakings or branches
 whether or number in the same industry  set up
at different periods has before the 29th may
1965 been paying bonus to the employees of
all such departments or undertakings or
branches irrespective of the date on which
such departments or undertakings or branches
were set up on the basis of the companysolidated
profits companyputed in respect of all such
departments or undertakings or branches then
such employer shall be liable to pay bonus in
accordance with the provisions of this act to
the employees of all such departments or
undertakings or branches  whether set up
before or after that date  on the basis of the
consolidated profits companyputed as aforesaid. the only other section which requires to be numbered is
section 20 which makes the act applicable to establishments
in public sector in certain cases. the hindustan machine
tools limited is an establishment in public sector and there is
numbercontroversy that by virtue of section 20 the act applies
and it will be liable to pay bonus if circumstances justify
the same. we will number companysider the companytention of mr. nair that under
section 10 the unit number iv is bound to pay the minimum bonus
of 4 per cent for the years in question without reference to
any other circumstance. according to him the only
provisions which have to be companysidered for applying section
10 are as mentioned therein the two provisions namely
sections 8 and 13. the companytention of mr. nair is that the
workmen of unit number iv satisfy the requirements of sections
8 and 13 and therefore they are as of right entitled to
get the minimum bonus. mr. nair further urged that a
reference to section 16 is absolutely immaterial for the
purpose of companysidering the applicability of section 10.
section 16 according to him will companye into play only when
the workmen claim bonus at a rate higher than the minimum of
4 per cent provided under section 10. this aspect
according to him has number been at all companysidered by this
court when dealing with section 16 of the act. a reading of section 10 isolated from the other provisions
of the act may appear to lend support to the companytention of
mr. nair that an employee if he satisfies the requirements
of sections 8 and 13 will be entitled to get the minimum
bonus. numberdoubt mr. g. b. pai learned companynsel has
pointed out that the employees of unit number iv do number even
satisfy the requirements of sections 8 and 13. that apart
though section 10 has number been made subject to section 16
in our opinion the two provisions will have to be read
harmoniously so as to give effect to the purpose of the act. section 10 will apply to all those units which are
otherwise bound to pay bonus irrespective of the fact
whether the units make profit or incur loss. section 16 in
our opinion has to be read as an exception to section 10.
in particular it will be numbered that section 16 1  after
referring to an establishment newly set up whether before
or after the companymencement of the act states that the
employees of such establishment shall be entitled to be paid
bonus under this act only it cannumber be companytroverted
that payment of even the minimum bonus under section 10 or
bonus upto the maximum of 20 per cent as per section ii
will both be payment of bonus under this act as
contemplated by section 16. similarly eligibility for
bonus under section 8 in accordance with the provisions of
this act can be related only to those cases where the
bonus is payable either under section 10 or under section

section 16 1  gives a total exemption to the
establishments in the circumstances mentioned therein from
payment of bonus which include the minimum bonus also. when
the section says that an employee of the establishment
referred to in section 16 shall be entitled to be paid
bonus under this act only if the companyditions mentioned
therein are satisfied it is idle to companytend that numberwith-
standing the exemption granted under section 16 the
establishment referred to therein is still bound to pay a
minimum bonus. numberdoubt that liability to pay the minimum
bonus at any rate will certainly attach itself to the
particular establishment if one or other of the companyditions
mentioned in sub-clauses  a  or  b  of section 16 1  companye
into play. under such circumstances it will be open to an
employee to claim number only the minimum bonus but also bonus
at a higher rate upto the maximum of 20 per cent if
circumstances permit. mr. nair is numberdoubt right in his
contention that section 10 has number been referred to by this
court when dealing with section 16. the reason for such
number-consideration is because numbersuch argument as is number
placed before us appears to have been raised before this
court. number that such a companytention has been raised we have
dealt with it. according to us if section 16 1  applies
however hard the result may be section 10 will number entitle
an employee to get even the minimum bonus under section 10.
therefore the companytention of
mr. nair that in any event the minimum bonus under section
10 should have been awarded cannumber be accepted. in this companynection we may also refer to the decision of this
court in alloy steel project v. the workmen 1 . the
question was whether the alloy steel project which was
started in 1961 and went into production in 1964-65 and did
number earn profits upto 1967-68 was liable to pay bonus at
the minimum rate under the act for the year 1965-66. on
behalf of the alloy steel project exemption from payment of
bonus was claimed under section 16 1  of the act on the
ground that it was a new establishment and had number made
profits. this companyrt held that the said unit was number liable
to pay even the minimum bonus as claimed by the workmen in
view of the provisions of section 16 1  of the act. it is
numberdoubt true that there is numberreference in this decision to
section 10 that is why we have stated earlier that a
contention similar to that advanced by mr. nair was number
raised before this companyrt. the next question that arises for companysideration is whether
the tribunal was justified in rejecting the claim for bonus
for the years 1964-65 to 1966-67. we have already referred
to the fact that unit number iv was started in july 1963 but
production and sale started only from 1965-66. therefore
the question is whether it is liable to be treated as part
of the establishment of h.m.t. under section 3 or whether it
is entitled to exemption from payment of bonus under section

we have already extracted section 3. it is to be numbered
that the principal part of section 3 lays down that
different departments or undertakings or branches of an
establishment are to be treated as parts of the same
establishment for the purpose of companyputation of bonus under
the act. from the main provision an exception is carved out
by the proviso and there is a further exception to the
proviso itself. the sum and substance of section 3 is that
an establishment initially takes in all establishments
undertakings and branches for the purpose of companyputation of
bonus. but if in respect of any department undertaking or
branch separate balance sheet land profit and loss account
are prepared and maintained for any accounting year then
for that particular year companyputation of bonus shall. be by
treating it as a separate establishment. but this will be
subject to a further exception that immediately before the
commencement of that accounting year namely the accounting
year in which a separate balance sheet and profit and loss
account is prepared and maintained such a department or
undertaking or branch has number been treated as part of the
establishment for the purpose of companyputation of bonus. in
this  case units 1 and 11 alone have been always treated
together for the purpose of companyputation of bonus. all the
other three units and
 1  1971 35. c. r. 629
the watch factory at bangalore have each been treated sepa-
rately and each of them has been having a separate balance
sheet and profit and loss account. this is the evidence on
record which has been accepted by the tribunal. we see no
reason to differ from this finding. the companytroller of finance of the management mw 1 has given
in detail the various dates when these several units were
started and production and sales began. he has deposed that

m.t. units number. 1 and 11 at bangalore were alone treated
as one for the purpose of maintenance of accounts and that

m.t. units number. 111 iv and v and the watch factory were
all having separate and independent profit and loss accounts
and balance sheets. this practice has been followed from
the inception of the different units. a companysolidated
balance sheet and profit and loss account was only being
prepared for the purpose of the companypanies act. there is no
evidence that any of the units or undertakings fell within
the exception to the proviso in section 3 and that in such
branches immediately before the companymencement of the
accounting year 1964-65 separate balance sheets and profit
and loss accounts for purposes of companyputation of bonus were
prepared and maintained. if that was the case it may well
be stated that the appellant-unit was treated as part of the
establishment in this case the h.m.t. for purposes of
computation of bonus. in fact the evidence of mw 1 is that
numberprofit bonus was ever paid to any of the employees of
even h.m.t. units number. 1 and 11 prior to 1964-65. what was
paid was only production bonus on the basis of individual
performance. section 3 is the key to the act as it fixes
the property which is to provide the allocable surplus for
the distribution of bonus in terms of the act. as the
different units in this case had been treated separately for
the purpose of companyputation of bonus and separate balance
sheets and profit and loss accounts had been prepared in
respect thereof the units will number lose their separate
identity as establishments because of the main provision of
section 3  see delhi cloth general mills company limited v.
workmen 1 . as unit number iv is a different establishment
coming under the proviso and number falling under the exception
to the proviso to section 3 the main part of section 3 will
number assist the appellants. then the question is regarding the applicability of section

the evidence of mw 1 which has been accepted by the
tribunal is to the effect that unit number iv was started in
july 1963 and production and sale companymenced only from 1965-

section 16 1  grants exemption from payment of bonus to
establishments newly set up for a period of six years
following the accounting
 1  1972  1  s. c. r. 594. 8 64
year in which the goods produced or manufactured are sold
for the first time and in the alternative upto the year
when the new establishment results in profit whichever is
earlier. unit number iv is to be treated as an establishment
newly set up as companytemplated under section 16 1 . if so
the exemption claimed would be fully justified because the
contingency companytemplated under subclause  a  or  b  of
section 16 1  has number happened during the relevant years
1964-65 to 1966-67. even if unit number iv is companysidered to be
a new department undertaking or branch set up by the
existing establishment namely the hindustan machine tools
ltd. section 16 2  makes the provisions of sub-section  1
apply to such units. the proviso to sub-section  2  of
section 16 does number stand in the way of the managements
claim for exemption because there is numberevidence that for
any year after unit number iv was set up bonus was paid to
the employees of all the units on the basis of companysolidated
profits of all such units. in fact the evidence as we. have already stated is companytra. numberdoubt it is in evidence
that the employees of the head office have been treated at
par with the employees of units 1 and 11 at bangalore. in
the case of the head office calculation of bonus on the
basis of companysolidated accounts is justified but that does
number affect the principle to be applied to the separate units
for which separate accounts separate balance sheets and
separate profit and loss accounts are maintained. the
proviso to sub-section  2  of section 16 will companye in the
way of the management only if bonus is paid in any year to
the employees of all the units on the basis of the
consolidated accounts. that is number the evidence in this
case. we may also state that the evidence in this regard
has been very elaborately companysidered by the tribunal and we
agree with the companyclusions arrived at by it. therefore the
exemption claimed under section 16  1  by the management for
the years 1964-65 to 1966-67 in respect of unit number iv the
appellant has been companyrectly accepted by the tribunal. this disposes of the points raised by the appellant in the
appeal. we have already referred to the permission granted by this
court by its order dated february 24 1970 to the
respondents to attack certain findings. accordingly the
respondents have attacked two of the findings recorded by
the tribunal which we have set out earlier. for the
accounting year 1963-64 which is the pre-bonus act period
the direction of the tribunal is that unit number iv the
appellant is to get bonus on the basis of the companysolidated
profit and loss accounts of all the units in the same manner
as was paid to the watch factory and h.m.t. units number. 1
and 11 for the said year. the tribunal has recorded a
finding that during this period there was unity of
ownership management and companytrol and also functional
integrality and
therefore all the units as well as the watch factory have
to be termed as one establishment and bonus will have to be
calculated according to the full bench formula on the
consolidated profit and loss accounts of all the units. this finding is attacked by mr. g. b. pai learned companynsel
for the respondents. but it is number necessary for us to
consider the companyrectness or otherwise of this finding in
view of the fact that we are accepting anumberher companytention of
his relating to this year. according to the learned companynsel
the evidence that has been accepted by the tribunal itself
clearly shows that there was numberprofit bonus paid prior to
1964-65 to either h.m.t units 1 and 11 or the watch factory
in bangalore. it was only from and after 1964-65 that bonus
was paid to those units in accordance with the act. mr.
pais companytention is supported by the evidence of mw 1. from
the evidence of this witness it is clear that numberprofit
bonus was paid to the above units prior to 1964-65 and what
was paid was only production bonus based on individual
performance. apart from the evidence of this witness there
is also an agreement ext. 3 dated august 10 1962 between
the management and the workmen of units number. 1 and 11 at
bangalore. that agreement provides for payment of deferred
annual bonus. the quantum of such bonus as well as the
circumstances under which it is to be paid to each worker
has also been detailed in the said agreement. the tribunal
unfortunately missed these items of evidence and has
proceeded on the assumption that profit bonus for the year
1963-64 was paid to the workmen of these units on the basis
of the full bench formula. this reasoning is erroneous. hence the direction of the tribunal that profit bonus is to
be paid to unit number iv as was paid to the units at
bangalore is clearly erroneous as it is totally
unworkable. even otherwise the finding of the tribunal that
all the units were treated as part of one establishment
for purposes of bonus for the year 1963-64 is also
erroneous. for the above reasons the direction of the
tribunal for payment of bonus for the year 1963-64 to unit
number iv has to be set aside. the second finding that has been attacked by mr. pai is the
statement companytained in paragraph 25 of the award that it
appears from ext. a 2  the balance sheet and the profit
and loss account for the year 1963-64 an amount of rs. 1880902/- was paid as bonus to the employees of the watch
factory and units number. 1 and 11 at bangalore. a personal
of the entry in ext. a 2  shows that the particular entry
regarding this amount relates to payments made to units number. 1 and 11 and number to the watch factory. it will be seen that
numberclaim whatsoever was put forward before the tribunal by
the workmen of the watch factory. we have already referred
to the stand taken by the workmen of the
watch factory who were getting bonus at the maximum rate
that they wanted the claim of the other unions for bonus on
consolidated balance sheets and profits and loss accounts to
be rejected.


civil appellate jurisdiction civil appeal number. 1432
and 33 of 1984.
from the judgment and order dated 15/27.11.1978 of the
bombay high companyrt in special civil application number. 1066/72
and 1276 of 1972.

k. ganguli p. parmeshwaran dilip tandon and ms. a
subhashini for the appellants. m. lodha s.s. shroff rajiv shakdhar and s.a. shroff
for the respondent. the judgment of the companyrt was delivered by

ranganathan j. these two appeals under central
excises salt act 1944  hereinafter referred to as the
act  raise an interesting question as to the vires and
interpretation of s.3 2  of the act. under that provision
the central government issued numberifications dated 28.11.1970
and 26.7.1971 fixing the tariff value on the basis of which
excise duty was to be levied on sulphuric acid and liquid
chlorine respectively. in respect of the former the tariff
value fixed was rs. 260 per metric tonne where the strength
of the acid was 93 to 99 and a proportionately lower
figure where the strength of the acid was less. the tariff
value for chlorine was fixed at rs. 500 per metric tonne. it is necessary to set out the provisions of sections 3
and 4 of the act as they stood at the relevant time to
enable a proper understanding of the issue raised. they
read thus

duties specified in the first schedule to be
levied

there shall be levied and companylected in such
manner as may be prescribed duties of excise on all
excisable goods other than salt which are produced
or manufactured in india and a duty on salt
manufactured in or imported by land into any part
of india as and at the rates set forth in the
first schedule.  1a  x x x

the central government may by numberification in
the official gazette fix for the purpose of
levying the said duties tariff values of any
articles enumerated either specifically or under
general headings in the first schedule as
chargeable with duty ad valorem and may alter any
tariff values the time being in force. determination of value for the purpose of duty
where under this act any article is chargeable
with duty at a rate dependent on the value of the
article such value shall be deemed to be -
 a  the wholesale cash price for which an article
of the like kind and quality is sold or is capable
of being sold at the time of the removal of the
article chargeable with duty from the factory or
any other premises of manufacture or production for
delivery at the place of manufacture or production
or if a wholesale market does number exist for such
article at such place at the nearest place where
such market exists or
 b  where such price is number ascertainable the
price at which an article of the like kind and
quality is sold or is capable of being sold by the
manufacturer or producer or his agent at the time
of the removal of the article chargeable with duty
from such factory or other premises for delivery at
the place of manufacture or production or if such
article is number sold or is number capable of being sold
at such place at any other place nearest thereto. explanation - in determining the price of any
article under this section numberabatement or
deduction shall be allowed except in respect of
trade discount and the amount of duty payable at
the time of the removal of the article chargeable
with duty from the factory or other premises
aforesaid. the effect of these two sections read with the
definition in s.2 d  of and the first schedule to the act
may be summarised thus excise duty is charged on all goods
specified in the first schedule to the act. it is a duty on
such goods produced or manufactured in india. it is levied
at the
rates specified in the first schedule. these rates are
charged in some cases on the basis of length area volume
and weight but in most cases the rate is ad valorem i.e. dependent on the value of the goods. we are companycerned here
with the last of these modes of rate fixation where the rate
is applied to the value. naturally in such cases the
crucial question is what is the value of the goods to
which the rate is to be applied? this question is answered
in two ways. s.3 2  empowers the central government in
such cases to fix the tariff value by gazette numberifications
issued from time to time. s.4 empowers the assessing
authority to determine the vales of the excisable goods in
individual cases on the basis of the wholesale cash price
for which the goods are sold at the factory gate. the century spinning and manufacturing company limited  the
respondent hereinafter referred to as the assessee
challenged the fixation of the tariff values of sulphuric
acid and liquid chlorine at the amounts referred to earlier. its companytention developed in three steps was this  a  that
an excise duty being a duty on manufacture or production
its levy can be based on the companyt of production or
manufacture together with any margin of profit the
manufacturer may be able to make when he sells the goods in
a wholesale market at or near the factory gate  b  the
tariff value fixed under s.3 2  can also be only on this
basis and cannumber be based on the sale price of the goods
much less on a weighted average sale price as in the present
case  c  if s.3 2  were to be interpreted differently in a
wide manner as empowering the central government to fix
tariff values wholly at its discretion - unfetttered by the
formula indicated in  a  above - at any figure it chooses
the sub-section should be struck down as violative of
article 14 as there are numberguidelines indicated in the
statute for fixation of such tariff value. the bombay high companyrt in its judgment reported as
century spinning mfg. company v. union  1979  4 elt  j  199
accepted the first two steps in the assessees line of
reasoning. it therefore allowed the writ petitions filed
by the assessee and gave certain directions. we are
informed that a similar view as to the scope of section 3 2
of the act has also been taken in subbarayan v. union of
india  1979  4 elt  j  473  mad  and gwalior rayon silk
mfg.  weaving  company limited v. union of india  1981  5 elt 52

p. . veeran v. union of india  1981  8 elt 515  ker
and gwalior rayon silk mfg.  weaving  company limited v. union of
india  1988  34 elt 562  m.p.  take a companytrary view but
these decisions were rendered after an
amendment of 1973  effective from october 1975  and are
according to the assessee distinguishable on that ground. the issue being one of some importance and companystant
recurrence the union of india has preferred these appeals. the high companyrt in the judgment under appeal has been
greatly influenced by certain observations of this companyrt in
roy v. voltas limited 1973 2 s.c.r. 1089 and atic industries

asst. companylector 1975 3 s.c.r. 563 explaining the
concept and nature of an excise duty. in the former of
these cases this companyrt was companycerned with an attempt of the
revenue to ignumbere what was clearly a wholesale transaction
because it represented only 10 of the total sales and to
levy excise duty on the basis of retail sales which companyered
the major percentage of the total production. pointing out
the error of this and after analysing the language of s.4
of the act the companyrt observed
excise is a tax on the production and manufacture
of goods  see union of india v. delhi cloth and
general mills 1963 supp 1 scr 586 air 1963 sc

sec. 4 of the act therefore provides that the
real value should be found after deducting the
selling companyt and selling profits and that the real
value can include only the manufacturing companyt and
the manufacturing profit. the section makes it
clear that excise is levied only on the amount
representing the manufacturing companyt plus the
manufacturing profit and the excludes post-
manufacturing companyt and the profit arising from
post-manufacturing operation namely selling
profit. the section postulates that the wholesale
price should be taken on the basis of cash payment
thus eliminating the interest involved in wholesale
price which gives credit to the wholesale buyer for
a period of time and that the price has to be fixed
for delivery at the factory gate hereby eliminating
freight octroi and other charges involved in the
transport of the articles. as already stated it is
number necessary for attracting the operation of
section 4 a  that there should be a large number of
wholesale sales. the quantum of goods sold by a
manufacture on whole-sale basis is entirely
irrelevant. the mere fact that such sales may be
few or scanty does number alter the true position.  emphasis added
this companyrt adopted the above passage and further
elucidated it in the latter case. there the companyrt was
concerned with an attempt of the revenue to levy duty number
on the basis of the wholesale sale price but on the basis
of the price at which the wholesale purchaser sold the goods
to distributors and large companysumers. in this companytext the
court observed that if excise were levied on the basis of
second or subsequent wholesale price it would load the
price with a post manufacturing element namely the selling
cost and selling profit of the wholesale dealer. that would
be plainly companytrary to the true nature of excise as
explained in voltas case and it would also violate the
concept of the factory gate sale which is the basis of
determination of the value of the goods for the purpose of
excise. unfortunately the observations of this companyrt in the
above cases came to be understood as laying down a general
proposition that excise duty can be levied only with
reference to a hypothetical value of the manufactured goods
comprising of its manufacturing companyt and manufacturing
profit and numberhing more. this companyceptual error was rectified
and the companyrect legal position expounded in union of india

bombay tyres international limited 1984 1 s.c.r. 347. it
is true that by the time this decision was rendered s.4
had undergone certain amendments. but this makes no
difference to the point at issue before us and it will be
useful to extract certain relevant passage from this
judgment

the central issue between the parties is that case
was
whether the value of an article for the purposes
of the excise levy must be determined by reference
exclusively to the manufacturing companyt and the
manufacturing profit of the manufacturer or should
be represented by the entire wholesale price
charged by the manufacturer. the wholesale price
actually charged by the manufacturer companysists of
number merely his manufacturing companyt and his
manufacturing profit but includes in addition a
whole range of expenses and an element of profit
 companyveniently referred to as post manufacturing
expenses and post manufacturing profit  arising
between the companypletion of the manufacturing process
and the point of sale by the manufacturer. on this issue the companytention urged on behalf of the
union of india which was accepted by the companyrt ran on the
following lines
shri k. parasaran the learned solicitor general
of india  when these cases were heard and number the
attorney general of india  has strongly companytended
that the value of an excisable article for the
purposes of the levy must be taken at the price
charged by the manufacturer on a wholesale
transaction the companyputation being made strictly in
terms of the express provisions of the statute and
he says there is numberwarrant for companyfining the
value to the assessees manufacturing companyt plus
manufacturing profit. according to him although
excise is a levy on the manufacture of goods it is
open to parliament to adopt any basis for
determining the value of an excisable article that
the measure for assessing the levy need number
correspond companypletely to the nature of the levy
and numberfault can be found with the measure so long
as it bears a nexus with the charge. and the companyrt expressed its companyclusion in the following
words
it is apparent therefore that when enacting a
measure to serve as a standard for assessing the levy the
legislature need number companytour it along lines which spell out
the character of the levy itself. viewed from this
standpoint it is number possible to accept the companytention that
because the levy of excise is a levy on goods manufactured
or produced the value of an excisable article must be
limited to the manufacturing companyt plus the manufacturing
profit. we are of opinion that a broader based standard of
reference may be adopted for the purpose of determining the
measure of the levy. any standard which maintains a nexus
with the essential character of the levy can be regarded as
a valid basis for assessing the measure of the levy. in our
opinion the original s.4 and the new s.4 of the central
excises and salt act satisfy this test. dealing with the old and new section 4 the companyrt
had this to say
as we have said it was open to the legislature
to specify the measure for assessing the levy. the
legislature has done so. in both the old s.4 and
the new s.4 the price charged by the manufacturer
on a sale by him represents the measure. price and
sale are related companycepts and price has a definite
connumberation. the value of the excisable article
has to be
computed with reference to the price charged by the
manufacturer the companyputation being made in
accordance with the terms of s.4. a companytention was raised for some of the assessees that
the measure was to be found by reading s.3 with s.4 thus
drawing the ingredients of s.3 into the exercise. we are
enable to agree. we are companycerned with s.3 1  and we find
numberhing there which clothes the provision with a dual
character a charging provision as well as a provision
defining the measure of the charge. touching upon a.k. roy anr. v. voltas limited
1973 2 s.c.r. 1089 and the passage from it which we have
quoted earlier the companyrt observed
those observations were made when the companyrt was
examining the meaning of the expression wholesale
cash price. what the companyrt intended to say was
that the entire companyt of the article to the
manufacturer  which would include various items of
expense companyposing the value of the article  plus
his profit on the manufactured article  which would
have to take into account the deduction of 22
allowed as discount  would companystitute the real
value had to be arrived at after off-loading the
discount of 22 which in fact represented the
wholesale dealers profit. a careful reading of
the judgment will show that there was numberissue
inviting the companyrts decision on the point number
raised in these cases by the assessees. as to atic industries limited v. h.h. dove asstt. companylector of central excise and ors. 1975 3 s.c.r. the
court after quoting extensively from the decision pointed
out
this case also does number support the case of the
assessees. when it refers to post-manufacturing
expenses and post-manufacturing profit arising from
post - manufacturing operations it clearly intends
to refer number to the expenses and profits pertaining
to the sale transaction effected by the
manufacturer but to those pertaining to the
subsequent sale transactions effected by the
wholesale buyers in favour of other dealers. if we look number at the judgment under appeal in the
light of the above clarifications it becomes clear that it
does number state the companyrect law. its basic premise is based
on wrong interpretation of s.3 1  and s.4. it observes
section 3 1  of the central excise and salt act
1944 provides that there shall be levied and
collected duties of excise on all excisable goods
which are produced or manufactured in india at the
rates set forth in the first schedule. the
charging section therefore enables levy of excise
duty on production and manufacture of goods. it
is therefore clear that the levy of excise must
have relation to the production or the
manufacturing companyt of the goods produced by a
manufacturer. any levy of excise which takes into
account the factors which are number companynected with
the production companyt and profit on goods by the
manufacturer would number be legal. it is true that the sub-section  1  of section 3 makes
a reference to the first schedule. but as already pointed
out the first schedule specifies rates based on length
area volume and weight in a number of cases which may number
and need number have any relation to manufacturing companyt and
profit. even where the schedule fixes a rate ad valorem
and the value is governed by s.4 there is numberrestriction of
the value to manufacturing companyt and profit. the high companyrt
observes
under s.4 it is the wholesale cash price which
is the assessable value. it is well sellted that
the wholesale cash price means the manufacturing
cost and the manufacturing profit and the post-
manufacturing companyt and the post-manufacturing
profit has got to be ignumbered for finding out the
assessable value for levying the excise duty at the
rates laid down in the schedule. proceeding further the companyrt ties up the value number only
to the manufacturing companyt and profit but also ties it up to
the manufacturing companyt and profit of the particular producer
who is the assessee. it observes
the valuation for the purpose of levying excise
duty thus solely depends on the production and the
manufacturing companyt and manufacturing profit of the
product. this necessarily would exclude the
inflation of companyt and profit by the weighted
average
method or otherwise. one producer or a
manufacturer has numbercontrol whatsoever over the
production or manufacture by anumberher manufacturer
or producer. it appears to us clear that the value
for the purposes of the excise duty on a particular
product produced or manufactured by a purchaser or
a manufacturer must be arrived at on the basis of
manufacturing companyt and manufacturing profit of that
particular purchaser or manufacturer. the weighted
average basis necessarily introduces irrelevant
considerations viz. the production or
manufacturing companyt or manufacturing profit of
anumberher manufacturer or producer altogether. this
in our view would be foreign to the companycept of
excise as envisaged by the charging section 3 1 . in short the high companyrts reasoning restricts the
freedom of rate fixation under s.3 1  to the mode of
determination of value set out in s.4 and to the
manufacturing companyt and profit of an individual manufacturer-
as-sessee before the authorities. it overlooks that
reading ss.3 1  3 2  and 4 together in the light of bombay
tyres it is clear that the rate of excise duty need number
necessarily be ad valorem that even when it is ad valorem
the mode of determination of value outlined in s.4 is only
one of the modes available to the central government which
comes into operation only where the value of any item of
goods is number otherwise specified in numberifications issued
under s.3 2  and that even where the value is to be
determined under s.4 it can have any nexus with the
wholesale price and is number limited to the manufacturing companyt
and profit. in out opinion the high companyrt has erred in
reading ss.3 1  and  2  as being subject to the parameteres
of s.4. it is clear that s.3 1  read with the schedule is
very wide and unrestricted in its language and permits the
levy of duty on any basis that has a nexus with manufacture
or production as explained in bombay tyres. section 3 2
comes into operation only in cases of goods where an ad
valorem duty is set forth in the schedule but subject only
to this restriction this sub-section too does number carry any
limitations as to the manner in which the value is to be
fixed much less any limitation that the value should be
determined in the same manner as under s.4. even s.4 does
number restrict the levy to manufacturing companyt and profit but
this apart this section read with the relevant rules only
sets out the procedure by which the assessing officer is to
determines the value in individual cases that companye up before
him. naturally in such cases the statute proceeds on the
basis of the position
in the individual case before the officer. whether it be
the manufacturing companyt plus profit basis  as erroneously
thought by the high companyrt  or the price basis  as explained
in bombay tyres  the officer determines the value on the
facts of the individual case without taking into
account similar companysiderations in the case of other
manufactures. but it would number be companyrect to read this
limitation into s.3 2  as well. s.3 2  is a general
provision which gives full liberty to central government to
determine the value in cases where the first schedule
prescribes an ad valorem levy. section 4 does number companytrol
or limit the power of the central government to fix rates
under s.3 2 . section 4 is subject to s.3 2  and is number
attracted to cases where the value is numberified under s.3 2
and number vice versa. the high companyrt was therefore number
correct in finding fault with the central government for
having fixed the tariff value at a figure related to an
average of the prices at which the goods are sold by various
manufacturers. there is numberhing in the statute which
precludes the government from fixing the tariff value in
this manner. but then says learned companynsel to read s.3 2  in the
manner indicated above would make the provision vulnerable
to challenge on the basis of violation of article 14 of the
constitution. such an interpretation it is said would
leave it open to the central government to fix tariff values
at its whim and caprice without any statutory guidelines
laying down the parameters of such fixation. we think that
the companytention proceeds on a misconception. while we
undoubtedly say that s.3 2  companyfers a power on the central
government to fix tariff values for goods at its pleasure
unrestricted to the terms of s.4 we do number say that this
can be done at the whim and caprice of the government. the
discretion has to be exercised by the government in
accordance with the crucial guideline that is inbuilt into
the statute and also illustrated by the manner in which the
determination is proved for in s.4. the statute leves one
in numberdoubt that the rate of duty is to be fixed ad valorem
i.e. on the basis of the value of the goods. it cannumber be
disputed that the numbermal indication of the value of the
goods will be its price and that the statute intends price
to be the relevant factor is clear form the language of s.4
under which the statute itself fixes the value for the
majority of cases. but where one had got bogged down
possibly due to certain earlier observations of this companyrt
in a different companytext was in thinking that the value of
goods can only companyprise of manufacturing companyt and profit. actually it has been made to depend on the wholesale price
of the manufacturer companycerned under s.4  old and new . but this need number be the sole criterion. the value may be
derived with reference to the wholesale price the retail
price or the average price at which the goods are sold by
the manufacturer companycerned or even by the price at which the
goods are sold by any particular person or place or the
average price which the goods companymand in the whole companyntry
or any part thereof. if can be fixed at the lowest of such
prices at the highest of such prices or at some average
 mean media mode etc.  of such prices as the government
may companysider appropriate in the case of the particular
commodity. in the case of the goods with which we are companycerned
the basis on which tariff value was fixed by the government
was explained before the high companyrt we may extract the
relevant passage
on rule being issued affidavits in reply were
filed on behalf of the respondents in special civil
application number 1066 of 1972. the affidavit of
shri s.r. narayan under secretary to the
government of india central board of excise and
customs new delhi shows that numberifications fixing
the tariff values in respect of sulphuric acid were
being issued from time to time since the year 1962.
these tariff values were fixed from time to time on
the basic of weighted average value of sulphuric
acid based on statistics companylected. this weighted
average value was based on the data companylected on
all-india basis. it is also companytended in this
affidavit that it would be a practicable method to
fix tariff values on the basis of weighted average
on all- india basis by taking into companysideration
the assessable values of the different
manufacturers and then taking a weighted average
thereof which would be a uniform rate of tariff for
all the manufacturers. it has been also pointed
out that in some of the sales in view of the tariff
value so fixed the petitioners have benefited as
they were required to pay excise duty at a rate
less than what would have been payable under
section 4. it was also pointed out that there is a
difference between the method of determining the
value under section 4 and under sub-section  2  of
section 3 and once the tariff value is fixed the
determination of value under section 4 would be
irrelevant. in the affidavit the fixation of
tariff value in respect of these items has been
justified on the ground that it is a useful method
to
fix tariff value where the price fluctuation is
violent and it has been pointed out that the tariff
values have been fixed after a close study of price
fluctuations and it cannumber therefore be said
that the central government has absolute and
unfettered discretion which is being used in an
arbitrary manner. a similar approach is found in
the affidavit of shri s.r. narayan is special civil
application number 1276 of 1972 in respect of
chlorine and the fixation of the tariff values on
weighted average basis is justified on the ground
that it is the only workable method for determining
the assessable value which would be fair and
acceptable to all the manufacturing units
throughout the companyntry. it has been companytended that
by its very nature such an average value is bound
to be higher or lower or even at par with the
selling prices of the various manufacturers but
this cannumber be helped if a uniform tariff rate is
to be fixed. it is further stated in the affidavit
that since 1962 numberifications were issued by the
central government fixing the values of chlorine
and other products in gaseous form. representations were also made by certain
manufacturers and by the western u.p. chambers of
commerce and industries for fixation of tariff
values. the various companylectorates were asked to
furnish particulars regarding the assessable value
of the various gases manufactured in their
collectorates and after the data was companylected
from them tariff values were fixed for various
gases including chlorine. it was pointed out that
even in the case of chlorine there has been a
considerable fluctuation in its price. this
contention was sought to be demonstrated by
reference to the information regarding the
manufacturing companyt and manufacturing profit of
chlorine gas manufactured by the petitioners for
the period from january 1972 to april 1972. in the
month of january 1972 there was a fluctuation in
price from rs. 50 to rs. 900. in the month of
february the price fluctuation was between rs.250
to rs.800 in the month of march 1972 it was
between rs. 250 to rs. 1000 and in the month of
april 1972 the price fluctuation was between rs.250
to rs.800. it was companytended that there is a
considerable fluctuation in prices and a uniform
rate of tariff value might at times also be to the
benefit of the petitioner-company when the
manufacturing companyt and the manufacturing profit
would be higher than the tariff value although it
may be put to a loss when such value is actually
less than the tariff value. the respondents deny
the petitioners companytention that the impugned
numberifications issued under sub- section  2  of
section 3 of the act were arbitrary or unreasonable
or that the provisions of sub-section  2  of
section 3 and sub-section  3  of section 3 were
ultra vires or violative of any provisions of the
constitution of india. it is number necessary for us
to elaborately mention the other points made out in
the affidavits is reply having regard to the
arguments advanced by the companynsel on both sides. in our opinion the tariff value has been numberified
under s.3 2  for valid reasons and on germane grounds having
a nexus to the value of the goods and the high companyrt erred
in accepting the assessees plea that the numberifications are
arbitrary perverse and display a number-application of mind on
the part of the authorities as the tariff values fixed are
unrelated to the value or price or the manufacturing companyt
and manufacturing profit of the products. that the
weighted average so fixed exceeds the manufacturing companyt
and profit of a particular manufacturer can be numberreason
for doubting its validity. equally there is numberacceptable
logic in the high companyrts suggestion that it should be fixed
at the lowest of the prices at which the manufacturer is
able to sell his goods in the wholesale market. to apply
such a measure will restrict the fixation of the value at
figures even less than those that can be arrived at under
s.4. the whole purpose of s.3 2  is to enable the revenue
to free itself from the shackles of s.4 inter alia in
cases where as here the government feels that the
application of that section would lead to difficulties and
harassments. the criticism that the tariff value has been
manipulated to enhance the rate of duty has also numberforce. the central government has the undoubted power to enhance
the rates and the validity of a numberification having such an
effect is number open to challenge even if it is done under the
guise of fixing a tariff value. but as already pointed
out by us there is numbersuch guise or facade in this case and
the tariff value has been fixed o the basis of relevant
criteria having a nexus to the value of the goods. we have so far avoided any reference to s.3 3
inserted in 1978 and s.4 3  inserted with effect from
1.10.1975 as these amendments came into effect later than
the period with which we are companycerned and we wished
to look at the provisions of the statute as they stood
before these amendments. in the light of our interpretation
outlined above it will be seen that these amendments are
clarificatory in nature. the generality of s.3 2  is
unrestricted and s.3 3  only explains a few possible ways in
which that power can be and companyld always have been
exercised. likewise the scheme of ss.3 and 4 leave no
doubt that s.4 is without prejudice to the provisions of s.3
and the newly inserted s.4 3  only makes this abundantly
clear. we have principally dealt with the reasoning of the
judgment under appeal and it is unnecessary to deal
specifically with the earlier decision of the m.p. high
court viz. gwalior rayon silk mfg.  wvg.  company v. union of
india  1981  5 e.l.t. 52 m.p. and the madras decision
subbarayan v. union  1975  4 e.l.t.  j  473 which have
adopted a similar approach. the decision in union of india

vazir sultan tobacco company limited  1978  tax lr 1824 is number
directly in point. the second gwalior rayon decision  1988
34 e.l.t. 562  m.p.  and the kerala decision veeran v.
union  1981  8 e.l.t. 515 set out the companyrect position
though they restrict themselves to a companysideration of s.4 of
the act after its amendment in 1973/1975. for the reasons discussed above we are of opinion that
the tariff values of sulphuric acid and chlorine were
validly fixed under the impugned numberifications.


civil appellate jurisdiction civil appeals number. 1314 to
1318 of 1979.
appeals by certificate from the judgment and order dated
4.4.1979 of the judicial companymissioner goa daman diu in
special civil application  writ petition  number. 7576 77 of
1977 103 and 111 of 1978.
and
writ petition number 864 of 1988.  under article 32 of the companystitution of india . ramaswamy additional solicitor general t.v.s. krishnamoorthy iyer s.s. ray y.s. chitaley joachin dias

b. nadkarni arun madan ms. a. subhashini s. ganesh and

swamy for the appellants petitioners. manumberar s. usgaocar f.s. nariman g.l. sanghi m.n. phadke r.f. nariman s.k. mehta atul nauda aman vachher
mrs. nineti sharma s.m. usgaocar and m.k. dua for the
respondents. the judgment of the companyrt was delivered by

v. rangam s. lotlakar a.n. rajan and ms. sarla
chandra for the intervener. sharma j. the civil appeals number 1314 to 1318 of 1979 by
certificate are directed against the decision of the judi-
cial companymissioner of goa daman and diu declaring the goa
daman and diu agricultural tenancy  5th amendment  act
1976 as unconstitutional. the respondents are landlords in
goa. the lands were in possession of the tenants who were
cultivating the same and paying rent to the respondents. the
respondents were divested of their title in the lands by the
provisions of the impugned act which came in force in 1976
vesting the same in the tenants. the respondents filed five
writ applications in the companyrt of the judicial companymissioner
challenging the validity of the amendment act. the writ
petitions were allowed by the impugned judgment. it has been
held that the act violates articles 14 and 19 of the companysti-
tution and the protection of article 31a is number available as
the scheme of the act does number companystitute agrarian reform. it has been companytended on behalf of the respondent-
writ petitioners that the landlords in goa are generally
small land-holders and their companydition is number better than
that of the tenants and in that view the act divesting the
landlords of their title in the land and veting the same in
the tenants suffers from the vice of illegal discrimination. a similar act was earlier passed by the maharashtra legisla-
ture also which has been found to be companystitutionally valid. the writ petitioners have before the companyrt below success-
fully argued that the decision in that case is number applica-
ble inasmuch as the maharashtra act companytains provisions
fixing ceiling to which the other provisions are subject to
while there is numbersuch restriction in the present act. the
result is that although the maharashtra act had to be upheld
as a measure of agrarian reform and thus protected by arti-
cle 31a of the companystitution the present act cannumber be so
interpreted. during the pendency of these appeals the impugned
amendment act along with the main act were included in the
9th schedule of the companystitution and the assent of the
president was received on the 26th of august 1984. smt. lakshmibai narayan patil the writ petitioner in the three
of the cases in the companyrt of judicial companymissioner  respond-
ent in civil appeals number 1314 1315 and 1316 of 1979  has
challenged the companystitutional amendment as illegal and ultra
vires by filing an application under article 32 of the
constitution which has
been numbered as writ petition number 864 of 1988.

by the impugned amendment act chapter iia has been
included in the goa daman and diu agricultural tenancy act
1964  hereinafter referred to as the act  chapter iii has
been deleted and some companysequential changes have been made
in some other sections. chapter iia deals with special
rights and privileges of tenants as indicated by the head-
ing. broadly speaking by the provisions of s. 18a of this
chapter the land belonging to a landlord number in his culti-
vating possession on the tillers day gets transferred to
the tenant-inpossession for a price to be paid to the land-
lord. the expression tenant has been given a larger mean-
ing under the act by s. 4. by the second proviso of s. 4 a
sub-tenant cultivating any land on or after 1.7. 1962 has to
be deemed to be a lawfully cultivating tenant numberwithstand-
ing the fact that the creation of sub-tenancy might have
been prohibited by any law and the tenant prior to the
creation of the sub-tenancy  who may be referred to as
intermediary tenant  is number to be treated as a tenant. the
price of the land in question has to be determined and the
payment made in accordance with the provisions of chapter
iia. separate provisions have been made with respect to
special cases where tenant is a minumber or has been evicted by
the landlord before the tillers day. the provisions of s.
18-j provide for the resumption and disposal of the land number
purchased by the tenant by reason of purchase being ineffec-
tive under s. 18c or s. 18h or due to the failure of the
tenant to take steps under s. 18b within time. a revenue
officer described as mamlatdar is vested with the power to
dispose of such land in the manner provided in sub-section
 2  of s. 18j. such land has to be disposed of in the order
of priority whereunder 75 of such land is to be disposed
of by sale to persons belonging to scheduled castes or
scheduled tribes and thereafter the remaining land to serv-
ing members of the defence forces of the companyntry or ex-
servicemen or freedom fighters who agree to cultivate the
land personally. if the land still remains undisposed of it
first goes to agricultural labourers and thereafter to
landless persons. if some of the land still remains avail-
able it has to be sold to a companyoperative farming society. section 18-k puts a restriction on transfer of the land
which the tenant acquires by purchase under the chapter. only with the previous sanction of the mamlatdar any trans-
fer whether by sale gift exchange mortgage lease or
assignment can be made. if the land-owner is himself cultivating it there
being numbertenant or a deemed tenant he companytinues to be in
possession without any curtailment of his rights. on the
other hand in a case where the tenant
after getting a tenancy from the landlord inducts anumberher
person as a sub-tenant who cultivates the same the benefits
of the impugned provisions go to him and number to the tenant. the object of the amending act is thus clearly to vest the
land in the tiller. the right of any person to receive
merely rent is taken away for a price. the respondents who
are landlords have challenged the amendment act whereby
chapter iia has been inserted in the act on the ground of
illegal discrimination. the argument is that in absence of
provisions for ceiling the impugned act bestows undeserved
benefit on the tenants at the companyt of the landlords without
reference to the respective areas in their possession. the
amendment was enforced as also the impugned judgment was
delivered before the deletion of clause  f  of article 19 1
from the companystitution and one of the grounds which has been
successfully urged before the high companyrt is based on article
19 1  f . so far article 31a of the companystitution is company-
cerned the case of the respondents which has found favour
with the companyrt below is that the provisions of the impugned
amendment act cannumber be held to be a step by way of agrarian
reforms and therefore cannumber have the protection of the
article. this is the main thrust of the argument of mr. r.f. nariman in this companyrt also. he has strenuously companytended
that for extending the protection of article 31a 1  a  to
any particular law it is necessary that the law companytains
adequate measure against companycentration of wealth in the
hands of a few. it is claimed that fixation of ceiling is
the heart and soul of agrarian reform without which it does
number survive. it has been observed in the impugned judgment that
from the transcripts of newspapers produced by the writ
petitioners and the statements alleged to have been made by
the late chief minister that there were very few big land-
holders in goa it can be assumed that the landlords in goa
are small holders of land. certain statements made in the
affidavit filed before the companyrt were also referred to in
this companynection. an attempt was made in this companyrt also to
urge that there companyld number be many big landlords in goa and
therefore their deprivation of the lands cannumber be deemed to
be a step towards fair distribution. it was companytended that
in many a case a cultivating tenant in possession of lands
under different landlords may be having far larger area of
land than his landlords and there cannumber be any justifica-
tion in clothing such a tenant with title to the land at the
cost of his companyparatively poor landlords. the argument
proceeded that so far the holdings of the tenants are
concerned. a necessity of placing ceiling on the holdings
cannumber be denied in view of the affidavit filed on behalf of
the state stating that further legislation for that purpose
was in companytemplation. mr. r.f. nariman emphasized the fact
that numbersuch law has been
brought in force till number. to the last part of the argument
it was tightly pointed out by the learned companynsel for the
appellants that since the amendment act was struck down by
the judicial companymissioners companyrt as ultra vires further
amendment in the act by way of introducing provisions for
ceiling had to await this companyrts judgment in the present
civil appeals. before proceeding with the main argument of mr. r.f. nariman and the cases relied upon by him it may be useful
to briefly refer to the nature of the right of the landlords
and the tenants under the act before the insertion of chap-
ter iia by the impugned amendment act. the rights of a
tenant were heritable and sections 8 and 9 prohibited the
termination of his tenancy and his eviction except where the
himself surrendered his right to the landlord or where the
landlord established one of the grounds specified in this
regard. by an amendment in 1966. the tenant was given by s.
13a the first option to purchase the land in case the
landlord proposed to sell it. by chapter iii the landlord
was permitted to resume the land subject to the ceiling of
an area of 2 hectares in case of paddy land and 4 hectares
in other lands on the ground of bona fide requirement for
personal cultivation but this right was also dependent on
the fulfilment of certain companyditions. this chapter was to
come into force only on a numberification for the purpose which
was never issued. by the impugned amendment act this chapter
was omitted from the act. in effect the right of resumption
contemplated by the act never vested in the landlords before
it disappeared from the statute book. it may be stated here
that the 1964 act is number under attack and the challenge is
confined to its 5th amendment whereby chapter iia has been
included and chapter iii deleted. the statement of objects and reasons was placed before
us wherein it has been mentioned that there was a similar
legislation in force in the neighbouring state of maharash-
tra. the reference obviously is to the bombay tenancy and
agricultural lands  amendment act 1956 mentioned in para-
graph 2 above introducing similar amendments in the bombay
tenancy and agricultural lands act1948. in sri ram ram
narain medhi v. the state of bombay 1959 supp 1 scr 489
the validity of the act was upheld by a companystitution bench
of this companyrt. it has been companytended that the maharashtra a-
mending act including provisions fixing ceiling which effec-
tively prevented accumulation of large areas of land in
possession of the tenants and since there is numbersimilar
safeguard in the present 5th amendment act the aforesaid
decision does number companye to its rescue
and leads to the companyclusion that in absence of similar provi-
sions the act cannumber be sustained. the learned companynsel for the
respondents relied upon the observation of several decisions of
this companyrt in support of his companytention that provisions regarding
ceiling are essential for a statute enacted as a measure of
agrarian reform and in their absence the same cannumber claim pro-
tection of article 31a of the companystitution. article 31a 1  a  declares that numberlaw providing for
the acquisition by the state of any estate or of any rights
therein or the extinction or modification of any such
rights shall be deemed to be void on the ground that it is
inconsistent with or takes away or abridges any of the
rights companyferred by article 14 or article 19. the 5th amend-
ment act has received the assent of the president as re-
quired by the first proviso. the expression estate is
undisputedly applicable in the present case in view of the
provisions of clause  2  of the said article. although
article 31a 1  a  does number by express language restrict its
application to a particular nature of law it is number well
settled that the protection of the article is limited to the
laws which serve the purpose of agrarian reform and mr.

f. nariman is right in relying upon the observations at
page 90if of the judgment in godavari sugar mills limited and
others v. s.b. kamble and others 1975 3 scr page 885. the
learned companynsel has further urged that the other observa-
tions in this judgment support his main argument also that
in absence of provisions for ceiling a statute cannumber be
held to be for agrarian reform. we are unable to agree. in
that case the companystitutional validity of the act amending
certain provisions of the maharashtra agricultural  ceiling
and holdings  act was under challenge and it was sought to
be saved inter alia with the aid of article 3 1a. while
discussing the scope of article 3 1a the companyrt at page 902f
relied upon the decision in balmadies plantations limited and
anumberher v. state of tamil nadu 1973 1 scr 258 in the
following terms
in the case of balmadies plantations limited anr. state of tamil nadu it was held while dealing with the
provisions of gudalur janmam estates  abolition and companyver-
sion into ryotwari  act that the object and general scheme
of the act was to abolish intermediaries between the state
and the cultivator and to help the actual cultivator by
giving him the status of direct relationship between himself
and the state. the act as such in its broad outlines was
held to be a measure of agrarian reform and protected by
article 31a. at page 903h it was observed that in a sense agrarian reform
is wider than land reform. at page 905 the companyclusion was
summarised under 8 heads and mr. r.f. nariman strongly
relied on the last proposition stating

a provision fixing ceiling area and providing for the
disposal of surplus land in accordance with the rules is a
measure of agrarian reform. it cannumber be denied that the appropriately enacted statutes
having provisions for fixing ceiling of holdings do fall in
the category of legislation for agrarian reform but the
proposition relied upon does number say and cannumber be inter-
preted as holding that it is such an essential feature of
agrarian reform without which a law cannumber be included in
that category. the observations at page 902f in respect of
the judgment in balmadies plantations case quoted earlier
rather negative such an assumption. the case of sri ram ram narain medhi  supra  has number
only been distinguished in the impugned judgment but has
been relied upon for supporting the writ petitioners argu-
ment. reliance has been placed on the observations at page
495 of the reported judgment to the effect that the object
of the maharashtra act which was under companysideration in
that case. was to bring about such distribution of the
agricultural lands as best to subserve the companymon good and
this object was sought to be achieved by fixing ceiling on
areas of holdings. it however does number follow that fixing
ceiling area of land which can be held by a person is a
basic and essential requirement of land reform. since the
challenge against the maharashtra act was being directed to
the provisions fixing ceiling it became necessary to companysid-
er and decide the effect of those provisions pointedly. but
on a careful companysideration of the entire judgment there
does number remain any element of doubt that a proper statute
even without including provisions regarding ceiling may be
entitled to the protection of article 31a provided it is
otherwise a measure of agrarian reform. as mentioned earli-
er the companyrt was deciding the question of companystitutional
validity of the 1956 act which amended the bombay tenancy
and agricultural lands act enacted in 1948. the original
1948 act did number companytain the provisions of ceiling which
were later introduced by the impugned amendment. if the
stand of the respondents be assumed to be companyrect the 1948
act companyld number have been in absence of the provisions of
ceiling held to be a step in agrarian reform. but the companyrt
at page 492 stated that
the 1948 act had been passed by the state legislature as a
measure of agrarian reform
with respect to the 1956 amendment act it was said at page
493 that
with a view to achieve the objective of establish-
ing a socialistic pattern of society in the state within the
meaning of articles 38 and 39 of the companystitution a further
measure of agrarian reform was enacted by the state legisla-
ture being the impugned act hereinbefore referred to
which was designed to bring about such distribution of the
ownership and companytrol of agricultural lands as best to
subserve the companymon goods thus eliminating companycentration of
wealth and means of production to the companymon detriment.  emphasis added
the use of the expression further measure as mentioned
above and the repetition of the said expression again at
page 495 emphasise the fact that the original act also was a
measure of agrarian reform. thus the decision instead of
helping the respondents lends support to the appellants
argument. mr. r.f. nariman cited a number of other decisions
dealing with the validity of provisions fixing ceiling and
the companyrt upheld those provisions on the ground that they
were measures of agrarian reform but they do number support
the reverse proposition as put forward on behalf of the
respondents. all these decisions are therefore clearly
distinguishable and we will mention briefly some of them
which were heavily relied on by mr. nariman. in the case of sonapur tea company limited v. must. mazi-
runnessa 1962 1 scr 724 writ petitions were filed in the
high companyrt challenging the validity of the assam fixation of
ceiling on land holding act 1957. the high companyrt in dis-
missing the petitions held that the impugned act was pro-
tected by article 31a as it was a measure of agrarian re-
forms and imposed limits on lands to be held by persons in
order to bring about its equitable distribution. the main
question which was canvassed before this companyrt was whether
the expression the rights in relation to an estate in the
article companyld companyer the impugned act and it was answered in
the affirmative by holding that the said expression is of a
very wide amplitude. at page 729 this companyrt observed thus
this article has been companystrued by this companyrt on several
occasions in dealing with legislative measures of agrarian
reforms. the object of such reforms generally is to abolish
the intermediaries between the state and the cultivator and
to help the actual cultivator by giving him the status of
direct relationship between himself and the state. the 5th amendment act impugned in the cases before us satis-
fies this test. similar was the position in purushothaman
nambudiri y. the state of kerala 1962 supp. 1 scr 753.
the case of fida ali and others v. state of jammu and kash-
mir 1975 1 scr 340 was also companysidering a statute pro-
viding a scheme for agrarian reform which included provi-
sions in respect of ceiling. while upholding the act the
provisions fixing ceiling were upheld but the other observa-
tions in the judgment clearly indicate that the same cannumber
be assumed to be a companydition precedent. personal cultivation
by the holder of land was emphasised as an important aspect
in the following words at page 345g
the golden web throughout the warp and woof of
the act is the feature of personal cultivation of the land. the expression personal cultivation which runs through
sections 3 4 5 7 and 8 is defined with care under section
2 7  in a detailed manner with a proviso and six explana-
tions. from a review of the foregoing provisions it is
obvious that the act companytains a clear programme of agrarian
reforms intaking stock of the land in the state which is number
in personal cultivation  section 3  and which though in
personal cultivation is in excess of the ceiling area
 section 4 . in the ultimate paragraph of the judgment it was pointed
that for framing a scheme for agrarian reforms it is number
necessary or feasible to follow a set pattern in different
parts of the companyntry. it was observed
on the other hand the predominant object under-
lying the provisions of the act is agrarian reforms. agrar-
ian reforms naturally cannumber take the same pattern through-
out the companyntry. besides the availability of land for the
purpose limited in scope in the nature of things the
scheme has to fit in with the local companyditions variability
of climate rainfall peculiarity of terrain suitability
and profitability of multiple crop patterns vulnerability
of floods and so
many other factors in formulating a scheme of agrarian
reforms suitable to a particular state. the decision therefore indicates that a flexible approach
has to be adopted in deciding as to the nature of agrarian
reform to be taken rather than laying down a strait jacket
rule for universal application. the observations in datta-
traya govind mahajan and others v. state of maharashtra and
anumberher 1977 2 scr 790 were also made while examining an
act fixing ceiling of holdings and in justification of the
impugned provisions it was observed that the policy in this
regard was initiated following the report of the agricultur-
al labour inquiry companyducted in the 1960s and in implementa-
tion of this policy the act under companysideration was passed. the implication is that the fixation of ceiling was number
essentially involved in agrarian reform but it had to be
resorted to in the state of maharashtra following the company-
clusion arrived at in the agricultural labour inquiry. the learned companynsel for the respondents also placed
two cases wherein article 31a was held to be inapplicable. in k.k. kochuni and others v. the state of madras and oth-
ers 1960 3 scr 887 the question of article 31a did arise
but in absolutely different companytext. the immediate predeces-
sor of the petitioner k.k. kochini was the sthanee of the
properties attached to the various sthanee held by him. on
his death in 1925 the petitioner being the senior member
became the sthanee and the respondents number 2 to 17 being the
junior members of the tarwad did number get any interest in the
properties. in an earlier litigation which was companymenced
following the passing of an act in 1932 the petitioners
exclusive right was established up to the privy companyncil
stage. it was held that the members of the tarwad had no
interest therein. after the title of the sthanee was thus
established the madras legislature passed the impugned act
in 1955 which declared that every sthanam satisfying cer-
tain companyditions mentioned in the act would be deemed and
would always be deemed to have properties belonging to the
tarwad. the petitioner k.k. kochuni challenged the act as
ultra vires before this companyrt by an application under arti-
cle 32 of the companystitution. two other petitions were also
filed one by his wife and daughters with respect to certain
other properties gifted to them and the other by his son. in
support of the companystitutional validity of the act it was
argued on behalf of the respondents that the petitioners
sthanam was an estate within the meaning of article 31a and
therefore enjoyed the protection under that article. the
argument was that a law relating inter se the rights of a
proprietor in his estate and the junior members of his
family was also companyered by the wide
pharseology used in clause  2  b  of article 31a. this companyrt
rejected the plea holding that
the definition of estate refers to an existing law relat-
ing to land tenures in a particular area indicating thereby
that the article is companycerned only with the land tenure
described as an estate. the inclusive definition of the
rights of such an estate also enumerates the rights vested
in the proprietor and his subordinate tenure-holders. the
last clause in that definition viz. that those rights also
include the rights or privileges in respect of land revenue
emphasizes the fact that the article is companycerned with land
tenure. it is therefore manifest that the said article
deals with a tenure called estate and provides for its
acquisition or the extinguishment or modification of the
rights of the land-holders or the various subordinate ten-
ure-holders in respect of their rights in relation to the
estate. the companytrary view would enable the state to divest a
proprietor of his estate and vest it in anumberher without
reference to any agrarian reform. it would also enable the
state to companypel a proprietor to divide his properties
though self-acquired between himself and other members of
his family or create interest therein in favour of persons
other than tenants who had numbere before. the companyrt thus held that article 31a  1  a  will number apply
to an act which does number companytemplate or see to regulate the
fights inter se between the landlords and tenants leaving
all their characteristics intact. the companyrt further companysid-
ered the judgment in sri ram ram narains case  supra  and
distinguished it on the ground that under the bombay act
certain fights were companyferred on the tenants in respect of
their tenements which they did number have before. the other
case of san jeer companye manufacturing companypany v. bharat companying
coal limited and anumberher 1983 1 scr 1000 relied upon by mr.
nariman is also of numberhelp as the same was dealing with
certain legislation in regard to mines and minerals. the
question of interpreting article 31a  1  a  did number arise
there at all. as has been discussed above. the title to the land
shall vest in the tiller and the landlord shall get the
compensation. earlier also his right to resume the land for
personal cultivation was companysiderably restricted by the
provisions of the 1964 act. as a result of the impugned
amendment act he has been divested of this limited right
for a price and the tiller shall numbermore be under a threat
of dispossession. the impugned provisions must therefore be
accepted as a measure of land reform. we reject the argument
of the respondents that in absence of provisions fixing
ceiling on the area of land which can be held by a person a
statute cannumber be accepted as a measure of land reform. the
5th amendment act is therefore entitled to the protection
of article 3 ia and it cannumber be struck down on the ground
of violation of articles 14 and 19 of the companystitution. the
judgment of the judicial companymissioner declaring the act as
ultra vires is accordingly set aside and the writ petitions
filed by the respondents are dismissed.