TMI Blog1975 (2) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... olesale units of two wholesale buyers, namely, ICl (India) Ltd. (hereinafter referred to as ICI) and Atul Products Ltd. (hereinafter referred to as Atul) under respective agreements entered into by them with ICI and Atul. Seventy per cent of the dye-stuffs manufactured by the appellants were sold to ICI, while the remaining 30% to Atul. The price charged by the appellants to ICI and Atul was a uniform price described as "the basic se!ling price" less trade discount of 18% ICI and Atul, in their turn, resold the dye-stuffs purchased by them from the appellants to two categories of buyers. One was the category of textile mills and other large consumers, while the other was the category of distributors. The sales by ICI and Atul to the textile mills and other large consumers were at the basic selling price without any discount, but so far as the distributors were concerned, the sales to them by ICI and Atul were at a higher price, though with trade discount. ICI charged a higher price but allowed 10% trade discount, while Atul charged a slightly lower price and allowed two and a half per cent trade discount. The prices were, however, so adjusted that the net selling prices charged by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other premises of manufacture or production, or if a wholesale market does not exist for such nrticle at such place at the nearest place where such market exists, or (b) where such price is not 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 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 amount of duty payable at the time of the removal of the article chargeable with duty from the factory or other premises aforesaid." 5. The question arose as to how the value of the dye-stuffs manufactured by the appellants should be determined on a proper application of the rule laid down in Section 4. The appellants contended before the Excise authorities that for the purpose of assessing the excise duty, the val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are sold by them to the sole Distributors, M/s. ICI Ltd and M/s. Atul Products Ltd., these prices cannot be adopted as the basis of ad valorem assessment" under Sec. 4 of the Act. The Central Government, however, observed that these dye-stuffs were "available to any independent buyer in open market conditions at the sole distributors prices", that is, at the prices charged by ICI and Atul to the distributors and, therefore, these prices should form the basis of assessment after allowing discount of 10% on the prices charged by ICI from the beginning and 21/2% on the prices charged by Atul upto 30th April, 1963 and 10% thereafter and on this basis directed refund of the excess duty collected by the Excise authorities. 6. The appellants were obviously not satisfied with this rather trivial and insignificant success and since their main plea was negatived by the Central Government, they filed a petition in the High Court of Gujarat under Article 226 of the Constitution challenging the validity of the various orders made by the Excise authorities culminating in the order of the Central Government and seeking a writ directing the Union of India "to refund excess duty amounting to Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of this Court in A.K. Roy v. Voltas Ltd. (1973) 2 SCR 1089 = 1977 E.L.T. (J 177) it stands completely decimated. The facts of that case are a little interesting and require to be noticed in order to understand the true ratio of the decision. 8. The respondent in that case carried on inter alia business of manufacturing airconditioners, water-coolers and their component parts. It effected direct sales to consumers at list prices and the sales so effected came to about 90% to 95% of its production during the relevant period. It also sold its articles amounting to 5% to 10% of its production to wholesale dealers from different parts of the country in pursuance of agreements entered into with them. The agreements provided among other things that the dealers should not sell the articles sold to them except in accordance with the list prices fixed by the respondent and the respondent would sell the articles to them at the list prices less 22% discount. The dealers were also required under the agreements to give service to the units sold in their territory Excise duty on the basis of ad valorem value was imposed on airconditioners, water-coolers and parts of water-coolers from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should be sold to socalled independent buyers. Even if it is assumed that the latter part of Section 4(a) proceeds on the assumption that the former part will apply only if there is a wholesale market at the place of manufacture for articles of a like kind and quality, the question is what exactly is the concept of wholesale market in the context. A wholesale market does not always mean that there should be an actual place where articles are sold and bought on a wholesale basis. These words can also mean the potentiality of the articles being sold on a wholesale basis. So, even if there was no market in the physical sense of the term at or near the place of manufacture where the articles of a like kind and quality are or could be sold, that would not in any way affect the existence of market in the proper sense of the term provided the articles themselves could be sold wholesale to traders, even though the articles are sold to them on the basis of agreements which confer certain commercial advantages upon them. In other words, the sale to the wholesale dealers did not cease to be wholesale sales merely because the wholesale dealers had entered into agreement with the respondent u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are correct", and proceeded to add : "lf a manufacturer were to enter into agreements with dealers for wholesale sales of the articles manufactured on certain terms and conditions, it would not follow from that alone that the price for those sales would not be the 'wholesale cash price' for the purpose of Section 4(a) of the Act if the agreements were made at arms length and in the usual course of business. There can be no doubt that the 'wholesale cash price' has to be ascertained only on the basis of transactions at arms length, if there is a special or favoured buyer to whom a specially low price is charged because of extra commercial considerations, e.g. because he is relative of the manufacturer, the price charged for those sales would not be the 'wholesale cash price' for levying excise under Section 4(a) of the Act. A sole distributor might or might not be a favoured buyer according as terms of the agreement with him are fair and reasonable and were arrived at on purely commercial basis. Once wholesale dealings at arms length are established, the determination of the wholesale cash price for the purpose of Section 4(a) of the Act may not depend upon the member of such wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'whole sale cash price' within the meaning of Section 4(a) and it did not make any difference that the wholesale dealings of the appellants were confined exclusively to ICI and Atul and apart from these two, no independent buyers could purchase the dye-stuffs in wholesale from the appellants. 12. The Excise authorities, robbed of what they thought was a strong argument prior to the decision of Voltas case (supra), then tried to fall back on a subsidiary argument in an attempt to save the assessments. They contended that all that Section 4 (a) provides is that the value of the article sought to be charged to excise duty shall be deemed to be the wholesale cash price for which the article is sold or is capable of being sold and it does not say which wholesale cash price shall be taken to be the value of the article - that charged by the manufacturer to the wholesale dealer or that charged by the wholesale dealer who having purchased the article from the manufacturer sells it in wholesale to another dealer. The latter price, they pointed out, would equally be the wholesale cash price within the meaning of Section 4(a) as it would be the price at which the article is sold or in any e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntire production to a 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 level 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 from sale to the first wholesale dealer, that is, when the goods first enter the stream of trade. Once the goods have entered the stream of trade and are on their onward journey to the consumer, whether along a short or a long course depending on the nature of the goods and the conditions of the trade, excise is not concerned with what happens subsequently to the goods. It is the first immediate contact between the manufacturer and the trade that is made decisive for determining the wholesale cash price which is to be the measure of the value ..... X X X X Extracts X X X X X X X X Extracts X X X X
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