TMI Blog1976 (9) TMI 172X X X X Extracts X X X X X X X X Extracts X X X X ..... e to time the price list of its products as per Annexure A which had been approved but it is now the case of the petitioner that in ignorance of the correct legal position and under a mis-apprehension and a mistake of law, these price lists had been wrongly submitted showing therein the assessable value of its products by including post manufacturing costs and expenses. This mistake came to the light after the decision in A.K. Roy v. Voltas Limited. - AlR 1973 S.C. 225 and, therefore, an application was made on September 13, 1973 for getting a reduction of 3 per cent from the approved prices by way of marketing expenses incurred in sale of the product. Two further certificates were submitted by Chartered Accountants showing the turnover sales and distribution expenses of cigarettes for the period ending June, 1972 and 1973. In those certificates the amount of freight on cigarettes, bank charges on discounting of bills and advertisement, publicity and other sales/distribution expenses were shown to arrive at the higher percentage of 4.39 per cent for 1972 and 4.08 per cent for 1973. Accordingly the higher percentage was sought to be claimed by way of adjustment. A reply was given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of the Chartered Accountant on the basis of which they desired to correct the aforesaid percentage mentioned in the earlier letter of September 13, 1973. The second respondent had finally replied by the aforesaid letter stating why this deduction could not be considered wherein it had pointed out the improtance of disclosing the actual cost of manufacturing and margin of manufacturing profit and in absence of such actual manufacturing cost and actual manufacturing profit, no such refund or adjustment should be granted. 3. Ordinarily, as per the settled legal position, in Bhopal Sugar Industries v. Sales Tax Officer - AlR 1967 S.C. 549 and Champalal v. Income tax Commissioner - AIR 1970 S.C. 645, in such taxation matters when the act provides a complete and self-contained machinery for obtaining relief against improper action taken by the authorities, the party feeling himself aggrieved by such action could not be permitted to refuse to have recourse to that machinery and to have to approach the High Court directly against that action. The remedy under the Act must be availed of where all questions of fact and law would be decided by these taxation authorities. The High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... calculation of duly of excise on the basis of the value, Section 4 has provided the measure or the yard-stick. The measure adopted is of 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 or removal of the article from the factory at the place of manufacture or production, or at the nearest market place. The three essentials, therefore, are: (1) the wholesale price as distinguished from retail price; (2) it must be cash price right then and not after a time lag which would involve interest element; and (3) it must be right there at the factory gate or at the nearest market place. If a real buyer is not available for cash or at the factory gate or the nearest market place, one has to ascertain at what wholesale cash price the product is capable of being sold 5. Now, if for that very produce this is possible, clause (a) would be attracted. If it is not possible because in respect of that very product there are no wholesale sales at all but only retail sales, clause (b) would be attracted on the ground that such wholesale cash price is not ascertainable and one would have to deduce the actual or potential wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considering the manufacturer s cost and the manufacturer s margin of profit which enters into the wholesale price realised from the wholesaler but which does not load the price with the wholesaler s profit as well which enters the picture when there is a subsequent or the second wholesale price or the retail price. Therefore, when in this context it is emphasised that the selling cost and the selling profit should be excluded, the emphasis is on this basic concept of excise that the measure should not be of the second or subsequent wholesale price or the retail price as that would load the real price with post-manufacturing element, namely, selling cost and selling profits of the wholesale dealers. That would be clearly violative of not only the basic concept of excise where the taxing event is production or manufacture of goods but would violate even the basic the factory gate concept because the price would be loaded with post-manufacturing elements after the article has entered the stream of wholesale trade. There would be no question of post-manufacturing elements being added or the price befog loaded with the selling cost and selling profit of the wholesale dealer if the measu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to extract any such wholesale price because in such cases the alternative contemplated in clause (b) was to be adopted that context their Lordships emphasized than the wholesale price primarily was that price current for state article, the amount of which, it not a subject of daily publication in the press, was easily ascertainable in appropriate trade circles. Therefore, in cases of such retail sales direct to the consumers the case was not to fall in clause (a) but only in clause (b) where the wholesale cash price payable at the time of importation would have to be deduced of the similar product in view of the fact that such wholesale cash price of the same product was not ascertainable 8. In the next decision in Ford Motor Company v. Secretary of State, A.l.R 1938 P.C 15, their Lordship explained the term ascertainable in a corresponding provision in Section 30 of the aforesaid Sea Customs Act. The earlier decision was relied upon as the wholesale case price used in clause (a) was the price for hypothetical goods and was to be independent of particular circumstances affecting the goods imported so that the clause could operate only in the case of staple articles for which t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithout undue refinement and, therefore, phrase place of importation or the factory gate concept in the present case had to be taken in a reasonable sense. Similarly, when the argument was pressed for the assembly charges in the case of these unassembled cars where the price list was of a car in a running order, it was held that the cartage allowance in respect of this defect had to be taken into account by considering the assembly charges by reducing the sum payable by the distributor to a price referable to the car in the condition in which it arrived at Bombay in the unassembled condition. Therefore. even though the assembling expenses were considered, when overhead expenses in respect of assembling were sought to be excluded, it was in terms pointed out by their Lordships that this had no bearing upon any matter arising under clause (a) of Section 30. 9. Both these decisions have been in terms approved in the decision in A.K. Roy v. Voltas Ltd., A.I.R. 1973 S.C. 226 which has been so vehemently relied upon in this context. In order to understand the true ratio of the Voltas decision we must determine the context of its facts and the question which have been settled by it. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o other lubricating oil of a like kind and quality was sold in Bombay. On the question whether the appellant was bound to pay customs duty on the basis of clause (a) or clause (b) of Section 30 of the Sea Customs Act, 1878, the Privy Council held that since the sales were to customers direct, the real value of the goods cannot be ascertained under clause (a) of Section 30 and that clause (b) of Section 30 was applicable. Their Lordships said that in determining the price which is to represent the real value of the goods to be taxed, the price must be conservative in every respect and free in particular from any loading for any post importation charges incurred in relation to the goods . The price is to be a price for goods, as they are both at the time , and place of importation. `It is to be a cash price that is to say a price free from any augmentation for credit or other advantage allowed to a buyer it is to be a net price, that is to say it is a price, less trade discount . Their Lordships, therefore, held that the words the wholesale price were used in the section in contradistinction to a retail price , and that not only on the ground that such is a well-recognised me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... negatived that the retail sale price realised by the manufacturer from the consumers could be taken as the basis for the computation of the duty. It is in the context that the principle if further elaborated by explaining that when a sale was effected in the retail market, it took within its sweep the profit attributable to the whole-sales who having purchased the goods from the manufacturer sold it to the retailer to the consumer at a profit. The price paid by the retailer would take into account the profit which would go into the coffers of the wholesalers with which the manufacturer had nothing to do. It was in this context that Their Lordships have made this crucial observation that Section 4 provided that the real value should be found out after deducting the selling cost and selling profits and that the real value could include only the manufacturing cost and the manufacturing profit. This observation could not be read dehors this context of the relevant controversy as to whether a retail price or the wholesale price should be taken as the basis for the computation. Their Lordships were only explaining why Section 4 provided for computation on the basis of the wholesale cash ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt or deduction shall be allowed except in respect of any trade discount. The interest and the freight or octroi which are mentioned by Their Lordships were the necessary adjustments to give effect to this concept of wholesale cash price at the factory gate and to arrive at the net wholesale cash price. The Explanation contemplated only the deduction of the trade discount. To read this ratio in any other manner would be to add a rider to Section 4 to the effect that notwithstanding the Explanation even in cases falling under Section 4(a) the manufacturer can claim some further deductions. No such question or issue arose in Voltas case or in the other two Privy Council decisions and, therefore, it would be difficult to read the ratio of Their Lordships in these two relevant paragraphs 20 and 21, except as propounding the rational basis for the provision made in Section 4 enjoining that only the wholesale cash price at the factory gate should be taken as the basis and not the retail sale price which might have been realized by the manufacturer by effecting direct sales which was the view vehemently canvassed by the excise authorities before Their Lordships. If the Voltas decision is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the manufacturing profit of the manufacturer but also the wholesale dealer s selling cost and selling profit and that would be wholly incompatible with the nature of excise. It may be noted that wholesale market in a particular type of goods may be in several tiers and the goods may reach the consumers after a series of wholesale transactions. In fact the more common and less expensive the goods, there would be greater possibility of more than one tier of wholesale transactions, for instance, in a textile trade, a manufacturer may sell his entire production one single wholesale dealer and the latter may in his turn sell the goods purchased by him from the manufacturer to different wholesale dealers at State level, and they may in their turn sell the goods to wholesale dealers at the district level and from the wholesale dealers at the district Ievel the goods may pass by sale to wholesale dealers at the city level and then ultimately from the wholesale dealers at the city level, the goods may reach the consumers. The only relevant price for assessment of value of the goods for the purpose of excise in such a case would be the wholesale cash price which the manufacturer receives f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive or the subsequent wholesale cash price and in that event it has been held that the first immediate contact between the manufacturer and the trade is made decisive for determining the wholesale cash price which is the measure of the value of the goods for the purpose of excise The second or subsequent price, even though on wholesale basis, is not material because if excise were levied on that basis of second or subsequent wholesale price, it would load the price with post-manufacturing elements, namely, selling cost and selling profits of the wholesale dealer which would violate both the nature of the excise and the factory gate concept. Therefore, post-manufacturing elements are emphasized only in the context of making a distinction between the first wholesale price and the subsequent price after the goods have entered the stream of trade because at the earlier stage there would be no question of loading the price with any post-manufacturing element, namely, selling cost and selling profit of the wholesale dealer as envisaged by Their Lordships. 13. Therefore, in those cases where the manufacturer sells the goods manufactured by him in wholesale to a wholesale dealer at arms ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... falling within the concept of excise. No confusion should ever be made in what is the basis of excise and its measure or the yardstick 15. Even in Messers Chhotabhai v. Union of India - A.I.R. 1962 S.C. 1006 at p. 1018, Their Lordships had pointed out that a duty of excise was a tax levy on the home produced goods of a specified class or description, the duty being calculated according to the quantity or value of the goods and which was levied because of the mere fact of the goods having been produced or manufactured and was unrelated to and not dependent on any commercial transaction in them. Therefore, even when a retrospective levy was done, Their Lordships upheld such a levy as satisfying this test. 16. No doubt Mr. Bhabha vehemently relied on various decisions, by the Karnataka High Court in I.T.C. Ltd. v. The Union of India, Tax L.R. 1975 page 1644 by the Maharashtra High Court in Miscellaneous Petition No. 293 of 1974 in lndian Tobacco Company Ltd. v. Union of India, decided on December 15, 1975, and by the Kerala High Court in Madras Rubber Factory Ltd. v. Assistant Collector of Central Excise, 1975 L.L.R. (2) Kerala 407 for pointing out that apportionment principle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cisions that the authorities were adopting any ultra vires approach because Voltas or Atic, ratio has never laid down any such apportionment which would be against the plain terms of the Explanation to Section 4. 17. In fact the petitioners have not laid out the necessary foundation of facts in the petition or before the authorities. The petitioner had been asked by the authorities to give details of the manufacturing cost, the manufacturing profit by giving detailed break, up of the alleged distribution marketing activity expenses. The petitioner contended itself by producing only the certificates of the Chartered Accountant. Even the very allegation in paragraph 3 is that the petitioner is manufacturing goods at its various factories and sells products manufactured to its distributors who in turn sell the same to wholesale dealers. The petitioner had never put the case on the basis that it had both manufacturing activity combined with the sales organisation and the nature of its arrangement with the distributors had not been disclosed and the refund claim was merely on the basis of those certificates of the Chartered Accountant which had been turned down by the authorities. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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