TMI Blog1976 (8) TMI 150X X X X Extracts X X X X X X X X Extracts X X X X ..... Powders and Infant Cereal Food for sale in India by Nestle s Products (India) Limited under certain trade marks in respect of which Nestle s was registered as a sole registered users in lndia. The agreement stipulated that the Indian Company should manufacture for and on behalf of Nestle s and supply to Nestle s such quantities of the food products as Nestle s might specify from time to time subject to a certain minimum and certain maximum. Nestle s was obliged to buy the products so manufactured by the Indian Company. Nestle s was to give, from time to time, complete and detailed quality and specifications of the products to be supplier to them and the Indian company was required to manufacture the products in strict accordance with the specifications and instructions given for and on behalf of Nestle s. Prices of the products were determined by the agreements free on rail Moga or free on lorry at factory. The agreements also provided for increase of price or decrease of price by negotiations and after two months notice in writing. All invoices had to be settled within ninety days after the receipt thereof. The Indian Company expressly disclaimed any interest in the trade mark and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h, Bombay, Calcutta and Mysore have taken the view that if a manufacturers entire production was sold to one or more favoured distributors, it could not be said that there was any wholesale market in the sense of an open market at the gate of the factory where an independent buyer could purchase the goods in wholesale. It was held that in such a case the prices at which the goods were sold by the manufacturers to the favoured distributors could not be taken as the value of goods for the purpose of levy of excise duty. It was further held that the price at which the favoured distributors, in his turn, sold the goods in wholesale or in retail, as the case may be, should be determined as the value of the goods for the purpose of levy of excise duty payable by the manufacturer. The decision of the several High Courts were over-ruled by the Supreme Court in A.K. Roy v. Voltas Ltd. where it was held that in order that wholesale market should exist, it was not necessary that there should be a market in the physical sense of the term where articles of a like kind or quality were or could be sold or that the article should be sold to so called independent buyers. It was pointed out that a w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, freight and other expenses incurred by Nestle s. The petitioner therefore, desired the excise authorities to determine the wholesale cash price independently without adopting the price at which Nestle s sold the products in the market. The petitioner preferred an appeal to the Collector of Central Excise in which it was claimed that the price at which they sold the products was loaded with several post-manufacturing costs. The Collector held that there was no whole sale market at the place of manufacture as no independent buyer could purchase the manufactured products in open contemporary conditions. He held that the sale to Nestle s was a sale to a favoured buyer and, therefore, the price prevailing between the petitioners and Nestle s could not be taken as the price at which the duty could be levied. In regard to the deduction of post-manufacturing cost claimed by the petitioners the Collector held that the petitioners were entitled to claim deductions of trade discount and amount of excise duty only and nothing else. The Collector of Central Excise purported to rely on the decision of Calcutta High Court in M/s. National Tobacco Co. v. Collector, Central Excise and others - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stle s or any other buyer since the brand name of Nestle s was not petitioner s to sell. In order to appreciate the submission made by the learned Counsel it is useful to refer in some detail to the two decisions of the Supreme Court in A.K Roy v. Voltas Ltd. and Atic Industries v. Assistant Collector of Central Excise. Voltas Ltd. was a company registered under the Companies Act and was engaged in the manufacture of air-conditioners, water coolers and component parts. Therefore, ninety to ninety five per cent of the articles produced by them were sold directly to consumers at list price through their sales organisation. A small part of its production was sold to wholesale dealers in pursuance of agreements entered into with them. The agreements provided that the dealers should not sell the products sold to them except in accordance with the list price fixed by Voltas Ltd., that Voltas Ltd., would sell the products to them at the list price less 22 per cent discount, that the dealers should give service facilities of the units sold in their territory. The Central Excise authorities levied duty not on the basis of the wholesale cash price at which Voltas sold the products to whole ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d :- 4. It was argued before the Supreme Court that the price charged to the distributors by ICI and Atul was also wholesale cash price and could well be taken as the wholesale cash price for the purpose of Section 4(a). The argument was rejected by Bhagwati, J. as violative of the very basic principles underlying the imposition of excise duty he said :- There can, therefore, be no doubt that where a manufacturer sells the goods manufactured by him in wholesale to a wholesale dealer at arms length and in the usual cause of business, the wholesale cash price charged by him to the wholesale dealer less trade discount would represent the value of the goods for the purpose of assessment of excise. That would be the wholesale cash price for which the goods are sold at the factory gate within the meaning of Section 4(a). The price received by the wholesale dealer who purchases the goods from the manufacturer and in his turn sells the same in wholesale to other dealers would be irrelevant to the determination of the value and the goods would not be chargeable to excise on that basis. The conclusion is therefore inescapable that the assessable value of the dyestuffs manufactured ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here was great escalation of prices between 1965 and 1975, between the petitioner and Nestle s. So it was that the Government of India, in its order, could only say that the parties were not unfamiliar and independent because they were subsidiaries of the same foreign company and, therefore, they could not be said to deal at arms length. This view is clearly opposed to that expressed by the Supreme Court. When it was expressly averred in Paragraph 7(xiv) and (xv) of the writ petition that the prices were fixed on purely commercial considerations and that specially low prices were not charged, the respondents evaded the issue by answering that these defects were not relevant. It was again repeated in the instant case, the facts on record show that M/s Nestle s have special relations with the petitioner as favoured buyer... The argument between the two companies who are subsidiaries of a parent company shows that their transactions are not independent and cannot be said to be at an arms length ... In the instant case, on the basis of the facts on record when the petitioner is manufacturing the excisable goods exclusively for a particular firm who are favoured buyers and when no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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