TMI Blog1970 (8) TMI 96X X X X Extracts X X X X X X X X Extracts X X X X ..... offices the petitioners effect direct sales to consumers at list prices . Further, the petitioners have made agreements with certain dealers inter alia agreeing to sell to these dealers for each different area all the different goods manufactured by the petitioners on the terms and conditions which appear in a specimen copy of the agreement annexed as exh. A to the petition. The exh. Al to the petition contains particulars of the dealers with whom agreements were made on the conditions appearing in the specimen copy exh. A and of the dates of their appointments as also the dates of termination of some of such appointments. It appears that between 1962 and 19C6, which is the relevant period, the petitioners had made agreements on the above terms with dealers at Surat, Poona, Rajkot, Nagpur, Dibrugarh, Allahabad, Banaras, Agra, Amritsar, Jaipur, Trichy, Coimbatore, Vijayawada, Mangalore and Calicut. Apparently, these agreements relate to very large areas of local districts roundabout the places mentioned above. The appointed dealers agreed, inter alia, to render servicing to the air-conditioners and water coolers sold. Paragraph 11 of the agreement contains descriptions of the goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the petitioners to the dealers. 3. The petitioners' case is that diverse terms mentioned in the agreements with dealers are all for ensuring that the public get the goods of the manufacture of the petitioners at uniform and standard price and the units are properly serviced and preserved in good condition after sale. All the units and component parts (i. e, goods of each kind) manufactured by the petitioners were at some time or another sold by the petitioners to the dealers in accordance with the terms in the agreements. This was not the case in respect of the unit described as low temperature unit Model B-I-BL which came to be sold directly by the petitioners to consumers because of the nature of this model. 4. Excise duty on the basis of ad valorem value was imposed on air-conditioners, water coolers and parts of water coolers from March 1, 1961. The petitioners' case that the list prices less 22 and 20 per cent discount which the petitioners agreed to charge to their dealers was wholesale cash price in respect of all the articles of the manufacture of the pretitioners was accepted by the Excise authorities for assessments made up to the end of 1902. Upon speci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... except to authorised dealers. Discount not generally available to all independent wholesale purchasers was not admissible for the purpose of Section 4(a)(of the Central Excises and Salt Act). He accordingly held that prices agreed to be charged by the Company to their authorised wholesale dealers could not be accepted as wholesale cash price (within the meaning of that phrase) under Section 4(a). The discount allowed to these dealers could not be held to be trade discount . He held that Section 4(a) contemplated existence of wholesale transactions in the ordinary course of business in an open market. The price charged must be one at which an independent buyer of a normal wholesale lot for cash would pay and the price must not be dependent on any special relationship between the seller and the buyer. He then went on to examine the question if a wholesale market on a reasonable basis existed in the case of the sales of the products of the Company. In that connection, he held that the price list furnished to the authorised dealers was not open to others. The sales made by the Company through these authorised dealers did not represent transactions in wholesale in an open market con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions in Clause (a) of Section 4 of the Central Excises and Salt Act. His submission was that in arriving at his findings respondent No. 1 did not pay any attention to the true nature of the excise duty levied under Section 3 of the Act. He submitted that there was no warrant for the finding that the wholesale cash price mentioned in Clause (a) was the price which was the ruling price in open market conditions. The submission was that the price which could be the basis of levy of excise duty both under Clauses (a) and (b) of Section 4 was always intended to be the price that the manufacturer charges on sale of goods of his manufacture. The submission was that the ruling price in the open market charged by third party dealers to their purchasers had no relevance to the purpose of the excise duty levied under the Act. For arriving at the true construction and effect of the provisions in Section 4 it was necessary to remember that excise duty was levied on manufacturers of goods on the basis of the cost of manufacture and in certain events on the profits made by the manufacturers. It was impossible that excise duty could be charged on prices prevailing in markets other than the market ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice as mentioned in Clause (a) of Section 4. He relied upon the fact that the above judgment of the High Court of Calcutta was followed by that High Court in the case of Collector, Central Excise v. Skonkarlal [1908] A.I.R. Cal. 154, and the High Court of Mysore in the case of Amco Batteries (P) Ltd. v. Asst. Collector, Central Excise [1968] A.I.R. Mys. 216, and the High Court of Andhra Pradesh in the case of Union of India v. Suryapraltasa Rao [1967] A.I.R. A.P. 281. 8. As regards the reliance that had been placed by Mr. Palkhivala on the findings of the Privy Council in the case of Vacuum Oil Company v. Secretary of State (1932) 34 Bom. L.R. 1057, P.C., and Ford Motor Company of India, Limited v. Secretary of State (1937) 40 Bom. L.R. 209, P.C., Mr. Bhablia's submission was that these observations were irrelevant because they were made in connection with the construction and effect of the provisions in Section 30 of the Sea Customs Act, whilst the present case was governed by the provisions of the Central Excises and Salt Act. His further submission was that even as regards the provisions in Section 30 of the Sea Customs Act which were in pari materia with the provisions i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 not sold or is not capable of being sold at such place, at any other place, nearest thereto. Explanation,-In determining the price of any article under this section no abatement 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. In both the Clauses (a) and (b) of the section the following relevant phrases appear:- ...price ....at the time of the removal of the article chargeable with duty from the factory ...for delivery at the place of manufacture or... The relevant provision applicable to both the above clauses which appears in the Explanation to the section is In determining the price...no abatement 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 ...fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be fixed with reference to the time of the removal of the articles from the factory or on the basis of delivery at the place of manufacture. These outside dealers would fix price for the resales of the manufactured goods obtained by them in accordance with the ruling conditions in the market, wholesale or retail. They would take advantage of scarcity. Conversely, in the event of glut in the market, they would have to suffer losses. This would be so in the case of retail dealers as also wholesale dealers and more so in respect of wholesale dealers. It is for this reason that we have come to the conclusion that for assessing the value of the manufactured goods to excise duty under Clause (a), the ascertainable wholesale cash price must only be the price charged by a manufacturer. If his transactions do not disclose any such wholesale cash price, the alternative way of assessing duty would be in accordance with the provisions in Clause (b) i.e. the retail price that he charges or the whole cash price of the articles of like kind and quality. Now, in this connection, it is important to notice that the provisions in Section 4(a) prior to its amendment by Act XV of 1955 did not make ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnative construction would be extraneous and irrelevant to the very object and purpose of the duty which is called excise duty that is levied by the above Act. Duty charged on any other basis would not be fixed and calculated on the basis of cost of manufacture and the profits earned by the manufacturer and would thus involve levy of kind other than exise duty. Under the above circumstances, in our view, the true construction and effect of the provisions in Clause ( ) is that wherever manufacturer makes contracts fixing wholesale cash price, duty will have to be levied on the basis of such price. This price will be the price for contracts for delivery at the place of manufacture and in the absence of such contracts the price fixed by the manufacturer for delivery at the place which is nearest to the factory. 11. Now, as has been held with reference to in pari materia provisions in Section 30 of the Sea Customs Act by the Privy Council in the above two authorities, the phrase wholesale price mentioned in Clause (a) is in contradistinction to the retail price which is the basis fixed under Clause (b). 12. In the case of Vacuum Oil Company v. Secretary of State, questions aros ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be ascertained for levy of customs duty, the observation was (p. 1068) : ...sections of a taxing Act not to be pressed against the taxpayer beyond their plain intendment, and taken as a whole, us their Lordships read them, they seem to disclose on the part of the legislature when describing the price which is to represent the 'real value' of the goods to be taxed a definite purpose to define a price-conservative in its every aspect 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 price 'less trade discount'. And this last expression, supplemented by these other indications confirms in their Lordships' view the conclusion that the words 'wholesale... price' are used in the section in contradistinction to a 'retail price' and that not only on the ground that such is a well-recognised meani ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espect of trade discount and the amount of duty payable. These provisions were made to provide for calculating duty on the basis of cost of manufacture plus manufacturer's profit. All the circumstances mentioned in Clause (a) of Section 4 existed in relation to customs duty in Section 30 (a) and (b) of the Sea Customs Act which came to be construed by the Privy Council. Following the reasoning contained in the observations of the Privy Council, it must be held that the phrase whole sale cash price contained in Clause (a) of Section 4 is used in the section in contradistinction to the retail price and that price is relieved of the loading represented by post manufacture expenses unless they form part of the profits of the manufacturer himself. The word wholesale in the phrase wholesale cash price in Clause (a) has not the meaning of price for bulk sales and quantitative sales. When the sales of the manufacturers are to consumers even if in large quantities and at prices which might be in common parlance described as whole sale prices, the transactions cannot be held to involve wholesale cash price . 15. In the case of Ford Motor Company of India, Limited v. Secretary o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mall. The volume of business was small in most cases. 16. The phrase article of the like kind and quality in relation to wholesale cash price and retail price appears in both the clauses of Section 4 of the Central Excises and Salt Act and Section 80 of the Sea Customs Act. Even so, in the case of Vacuum Oil Company v. Secretary of State, their Lordships of the Privy Council held that in respect of oil that was known by the trade name of Gargoyle there could be no article of like kind and quality and also that when actual sales of the manufactured articles existed the price charged for them would be the basis for calculation of duty. In the case of Ford Motor Company of India, Limited v. Secretary of State also the duty was calculated on the basis of price of actual sales of the vehicles to distributors. The ratio of the two decisions is that in cases in which price of the article itself is available, the same would be the only correct norm for calculation of duty. As in the present case the price of the articles of manufacture of the petitioner Company is available and the Voltas is the trade name by which the goods of the petitioner Company are sold, there is no difficulty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... necessary to deal with the authorities on which reliance has been placed on behalf of the respondents. 18. The first case is National Tobacco Co, v Collector, Central Excise. The facts in that case were similar to the facts in the present case, because the Company which manufactured cigarettes made special agreements for sale of goods of its manufacture through agents. The agents were from time to time given, price list on the basis whereof they were bound to sell the Company's goods to third parties. Though upto a time duty of excise was assessed against the Company on the basis of the prices charged by the Company to the distributors under Clause (a) of Section 4, at a subsequent stage, that price was not accepted as the correct basis for calculating excise duty. The case of the department was that the duty was liable to be calculated on the basis of wholesale cash price, that is to say, the price at which the goods were capable of being sold in a wholesale market to an independent buyer. In connection with this question, Sinha, J. (sitting singly), referred to the provisions in Section 4 and analysed the section and ascertained its true effect by mentioning in the first i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or at the nearest market. The meaning that he gave to the phrase wholesale market and the opinion he expressed that the price charged by a third party wholesale dealer could be the basis for ascertaining wholesale cash price led the learned Judge into great difficulties. He had accordingly to make allowances in that connection and he observed as follows (p. 481) : ...If a wholesale market exists at the site of the factory, ... then the determination of the time-element is very simple. But where there is no wholesale market at the site of the factory, ... a calculation has to be made, a I the location of the nearest wholesale market. In that event, the calculation must be made at a point of time when the goods were removed from the factory or premises of manufacture etc., which means a determination of the wholesale cash price that the goods would have fetched at the nearest wholesale market at the time of such removal etc. ... if at the time of removal no actual transaction can be discovered at the nearest wholesale market, then the excise authorities must investigate and discover the nearest transaction in point of time. This however will be permissible only when the next tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eems to be clear that what is to be ascertained is not whether there is a market for the goods at the place of importation but whether the particular goods under enquiry can be sold in the market at a wholesale cash price, that is to say, the particular goods or goods of the like kind and quality. We apprehend that if the two Privy Council cases and his own above judgment were cited to the learned Judge, his conclusions might have been different. 20. In connection with the findings made by the learned Judge regarding the meaning of the phrase wholesale market , it may at once be noticed that the market referred to in both the sections must be the place mentioned by a manufacturer in his contracts for delivery of goods, the place being, in the first instance, the factory itself. If price is not fixed by a manufacturer for delivery at the factory, the only alternative place can be the place nearest the factory fixed by him for delivery of his goods. This being the true construction of the phrase wholesale market , we cannot accept the submission made by Mr. Bhabha that the phrase means an open market where everyone can reach for making transactions with a third party wholesal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ains came to be concluded more often than not through correspondence and the connotation of the word 'market' underwent a corresponding expansion. In modern parlance the word 'market' has come to mean business as well as tile place where business is carried on ... the question in what sense it is used in a particular statute must be decided on a consideration of the context of that statute. 24. Now, from what is discussed above, it is clear that the basis of the decision in the impugned appellate order dated May 2, 1967, is entirely incorrect. To the extent that respondent No. 1 held that the wholesale cash price acceptable for assessment must represent sales in an open market to an independent buyer, he was entirely incorrect. He was not entitled to reject consideration of the price quoted by the petitioner Company to its dealers merely on the ground that this price was not offered for wholesale sales to other traders in an open market condition. In rejecting the submission made on behalf of the petitioner Company that the quantum of sales to consumers howsoever large would have to be ignored if wholesale cash price was ascertainable, he failed to follow the law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t only very few articles removed were delivered under the agreements to the distributors. For the balance of the goods it was impossible to hold that at the time of removal any wholesale cash price was fixed by the manufacturer in respect of the goods removed. As regards the goods sold by the petitioner Company itself, a finding should be made that in respect of those goods wholesale cash price was not available and the duty levied was proper. 26. Mr. Palkhivala contended that the above submissions do not take into account the phrase is capable of being sold as contained in Clause (a) of Section 4. The submission was that the agreements with the dealers were not held to be non-commercial or not made in the ordinary course of business. These agreements provided for sale of each and all the articles of manufacture of the petitioner Company to and through the dealers on the terms of price mentioned in the agreements. The list prices for each and all of the articles current at the date of the removal of the articles fixed the price at which the petitioner Company agreed to deliver these articles to the dealers. The actual sale and delivery of the goods was irrelevant, because, und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the time of removal thereof, to the dealers as agreed under the agreements was not capable of being ascertained. As appears from the contents of exhs. Z and Z-l in respect of what is described as 'Tushar' Water Coolers Model BR-10, not a single sale and delivery had been effected either by the petitioner Company or the dealers. Though 856 room air-conditioners Model B-125 were sold in 1963 by the petitioner Company, not a single article of this model was sold to the dealers and/or in the territories of dealers. These facts only go to show that certain kinds of articles of manufacture of the petitioner Company were not in demand in the territories of dealers. Certain kinds of articles were for that reason during certain periods of time not sold in the territories of dealers and/or to the dealers; but these facts do not destroy the position which arises by reason of the provision in the agreements with dealers that the petitioner Company was at every relevant time, i.e., every time that the articles of the manufacture of the petitioner Company were removed from the factory, willing to sell to the dealers these very articles at the current list prices less discounts agreed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s reliance is placed on these and similar provisions for the contention that the price charged to the dealers is not open market price, the same must be rejected. 29. It first requires to be noticed that as is mentioned in the affidavit of Virendra Punj, the President of All India Airconditioning and Refrigeration Association, dated April 25, 1969, the air-conditioning and refrigeration units and machineries and components manufactured by the manufacturers of these goods are highly specialised engineering items and they are of such a nature that they require regular after-sale service by competent well trained engineers and technicians. Under the circumstances, the agreements made between such manufacturers and their dealers provide for the proper upkeep of the units. Having regard to these facts, even in respect of sales effected by the petitioner Company itself to consumers, the petitioner Company itself gives guarantee for twelve months and undertakes during the guarantee period to render services of the kinds mentioned in the different clauses of the dealers' agreements. As these clauses which are described as restrictive have been agreed between the petitioner Company a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting on these deposits because of a certain judgment of the Supreme Court and is willing to dispose of these appeals. Mr. Palkhivala, however, submits that respondent No. 1 made up his mind on all the contentions which could be raised before him in these appeals when he disposed of the appeal in respect of the assessment for 1963. He thereafter made demands for deposits. The department thereafter issued notices of demand for payment of diverse amounts assessed in respect of all the years in question. But for the prayers in the present petition challenging the validity of these assessments, respondent No. 1 would have by this time disposed of the appeals on the same footing as contained in the impugned order dated May 2, 1967. As questions of merits are all questions of law and as the opinion expressed by this Court on these questions must be binding on respondent No. 1, no useful purpose can be served by asking the petitioners to have their appeals in respect of these years heard by respondent No. 1. We find it extremely difficult to negative the submissions made by Mr. Palkhivala. The basis on which the assessments for the above years are made against the petitioner Company was th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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