TMI Blog1979 (4) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... llore, known as `Nippo'. The petitioner follows a uniform pattern for the selling and marketing of the dry cell batteries manufactured at its factory at Andhra Pradesh. The petitioner does not have any sole selling agents and sells the batteries to wholesale dealers in different parts of the country for ultimate distribution to consumers. The authorised wholesale dealers, to whom the petitioner sell dry cell batteries, are not the agents of the petitioner-company and they have no interest directly or indirectly in the business of the petitioner-company or in the business of each other. The sales are organised at arms-length and in the usual course of business with no extra commercial advantages offered to the wholesale dealers and none of the wholesale dealers can be characterised as favourite buyers. The sale by the petitioner to the wholesalers is on a principal to principal basis and is by way of outright sale. Among the authorised wholesale dealers of the petitioner, there are two absolute independent buyers, Messrs. Tormal Rameshwar Das, Bargarh, Orissa and Messrs. Modern Electric Stores, Nepal. Some of the directors or partners of the rest authorised wholesale dealers are rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ued by the 2nd respondent on 20-8-1975 directing the petitioner to file its price list by 15-9-1975 in accordance with the provisions of the new Section 4 of the Act as introduced by the Amending Act of 1973 and brought into force with effect from 1-10-1975, By his letter dated 3-10-1975, the 2nd respondent refused to accept the price list filed by the petitioner on the ground that there are no sales direct to independent wholesale buyers at the Factory Gate and that the goods are being sold through its Distributors and that the petitioner is not entitled to claim any deduction of the post-manufacturing expenses and the post-manufacturing profits in view of the amended Section 4 of the Act. Regarding packings, the petitioner was directed to show two values for the two different packings of Display Boxes and Cartons in which the boxes were further packed for transport to up-country buyers. The said letter is marked as Annexure C. The petitioner sent a reply to the 2nd respondent on 20-11-1975 reiterating its earlier stand that excise duty will be leviable only on the production and manufacture of goods and that the wholesale dealers who purchased from the petitioner are not distribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rger amounts of excise duties which the respondents are not entitled in law to levy and collect. The interpretation placed by the respondents on Section 4 of the Act is directly contrary to the following principles laid down by the Supreme Court in the Voltas case for determining the assessable value of the excisable goods sold by the manufacturer to the wholesale dealers for the purpose of the levy of excise duty. (a) Even if there is 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 the 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. (b) Where the manufacturer sells the goods manufactured by him in wholesale to a wholesale dealer at arms-length and in the usual course of business, the wholesale price charged by him to the wholesale dealer would represent the value of the goods for purposes of assessment of excise duty. (c) If the post-manufacturing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e duty on various wholesale dealers who purchased batteries from the petitioner-company excluding therefrom the post-manufacturing costs as well as the post-manufacturing profits and the refusal of the 2nd respondent to accept the price list submitted by the petitioner is patently illegal and without jurisdiction. The rejection of the petitioner's request to delete the cost of the Display boxes and Cartons from the price charged to the wholesale dealers for the purpose of excise levy is also against law and is arbitrary. Packing is not a process incidental or ancillary to the completion of a manufactured product and hence the value of packing materials which are not excisable, cannot be taken into account. The dry cell batteries produced by the petitioner are sold just as batteries and are not covered by any kind of wrapper. The packing in Display boxes by the petitioner is only to enable the movement of batteries freely and conveniently and further packing in cartons for long distance transport is also for safety in transit and handling. The petitioner, therefore, prays for a writ of certiorari or any other appropriate writ or direction or order quashing, the order dated 1-12-1975 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns and the sales are not organised at arms-length. 95.28 per cent of the total production of the goods of the petitioner-company is sold through related authorised dealers. Only 4.72 per cent of its goods are sold through unrelated authorised wholesale dealers. The firm, Messrs Tormal Rameswar Das, Bargarh, Orissa is no doubt an independent buyer, but the percentage of sales to the said firm for the year ending 30-9-1975 was only 2.89. The total percentage of sales for the year ending with 30-9-1975 to the other firm, Messrs Modern Electric Stores, Nepal was only .61. The sales to the said firms situate outside inside cannot be compared to sales in India. Thus by selling a small percentage of its goods to independent buyers the petitioner could get the whole range of their goods assessed on a manipulated price. One of the objects of the amendment of Section 4 is to safeguard against such manipulation. The sales to related persons are, therefore, assessable to excise duty under Section 4(1)(a)(iii) of the Act. 6. In W.P. No. 819 of 1976, the petitioner is a limited company having its registered office and factory at Andhra Pradesh. The petitioner's business comprises of activities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 4 in order to determine the 'wholesale cash price' all post-manufacturing costs and expenses incurred and all profits attributable to such post-manufacturing operations were to be excluded from the price charged to its main dealers. Even though the respondents had no authority to levy excise duty on post-manufacturing costs, they continued to do so and the petitioner was paying the same without realising the actual legal position. The total amount thus collected is about Rs. 1,59,000/-. This sum of Rs. 1,59,000/- relates to excise duty on post-manufacturing costs, expenses and profits which the petitioner is entitled to recover from the respondents and there is a duty cast on the respondents to refund the same. After ascertaining the post-manufacturing costs and expenses on the basis of the decision in the Voltas case and also on the basis of the decision of this Court dated 19-2-1975 in W.P. No. 1748 of 1974 and batch, the petitioner filed price lists under Rule 173(c) of the Central Excise Rules excluding the post-manufacturing costs and expenses. The respondents refused to approve the price lists in spite of the decisions referred to supra on the ground that, under the amen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Department that the dealers to whom the petitioner was exclusively selling its entire products had undertaken advertisement of the petitioner's products. The dealers of the petitioner were, therefore, classified as related persons' for the purpose of Section 4 of the Act and the petitioner was advised to submit its price lists in Part IV of the proforma. 8. In W.P. No. 1115 of 1976 the petitioner is a limited company having its registered office and factory at Ajamabad, Hyderabad. In W.P. No. 2194 of 1976 the petitioner is a limited company having its factory situate at Uppal road at Hyderabad. The business of the petitioners in both the writ petitions comprises of the activities of manufacturing and also selling cigarettes? as is the case of the petitioner in W.P. No. 819 of 1976. The averments made in the two Writ Petitions are practically the same as levelled in W.P. No. 819 of 1976. In W.P. No. 1115 of 1976 a Writ, Direction or Order, particularly in the nature of Mandamus is prayed for by the petitioner directing respondents 2 and 3 to approve the first, the second and the fourth price lists submitted by the petitioner on 25-9-1975, 12-1-1976 and 3-2-1976 respectively and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndition to various projects and there are instances where cement is sent in loose condition regularly to bulk consumers like Hyderabad Cement Products Limited. Cement is also despatched in unpacked condition in closed wagons. The petitioner also supplied cement packed in jute bags. Apart from the stockists, who purchase cement for distribution, there are other dealers who send back the empty jute bags after sale for further use. Prior to 30-9 1975, the petitioner was not including the cost of cement bags to arrive at the assessable value for the payment of excise duty and the same was being approved by the excise authorities. Even after the amended Section 4 came into force till 4-12-1975, the authorities of excise did not include the cost of jute bags in the assessable value of cement packed in the same and sold. However, from 5-12-1975 to 8-1-1976, the Excise authorities made a demand in a sum of Rs. 2,08,791.05 towards excise duty on the cost of jute bags. The petitioner objected to the demand, but, however, paid the amount under protest. For the period between 1-10-1975 to 4-12-1975, a demand was subsequently made by the 3rd respondent in a sum of Rs. 3,85,835.46 towards excise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithout packing, the assessable value is the price at which it is sold in loose, which is normal price of the bulk cement. In Grey Portland Cement, even though the bags are durable in, nature they are not returned by the buyer to the assessee. The value for purpose of assessment, therefore, includes the packing charges when cement is sold in bags. From 1-10-1975 to 4-12-1975, the duty of packing charges was not collected as the price list was approved due to mistake. As the duty was not time barred, a demand was issued for recovery of duty on packing charges not collected from 1-10-1975 to 4-12-1975. From 5-12-1975 onwards duty on packing charges was being paid under protest. It is true that the Government of India issued the notification dated 9-1-1976 exempting payment of duty on packing charges of Grey Portland Cement and it came into force only from 9-1-1976. It cannot be applied retrospectively. The concession granted under the notification was implemented from 9-1-1976. The collection of duty from 1-10-1975 to 8-1-1976 is, therefore, in order. The Director General of Supplies and Disposals merely tendered advice in respect of levy of duty on the packing charges and his advice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent assessable values. The petitioner also claimed that the cost of secondary packing in wooden boxes not included in the price of batteries, but charged separately in the invoices, should not form part of the assessable value. The 3rd respondent directed the petitioner to submit the Price List in Part I of the proforma. The petitioner complied with the direction on 1-10-1975 under protest, but brought to the notice of the 3rd respondent that Part I of the proforma was not applicable to it as the batteries are not ordinarily sold by the petitioner to buyers in the course of wholesale trade for delivery al the time and place of removal, i.e, at the factory gate and that Section 4(1)(a) is, therefore, not applicable to the petitioner. The 3rd respondent passed an order on 4-10-1975 determining the assessable values of the batteries without making any deduction for the cost of transportation. The 3rd respondent also included the cost of secondary packing in wooden boxes in the assessable value determined by him. Aggrieved by the order of the 3rd respondent, the petitioner preferred an appeal before the 2nd respondent on 23-12-1975. The petitioner made similar claims in respect of cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e | Collector | of | Central | Excise, Hyderabad. Neither the 2nd respondent nor the 3rd respondent disputed the correctness of the costs of transportation from the place of removal to the various places of delivery, which have been claimed by the petitioner as deduction from the price of batteries. Respondents 2 and 3 however held that as the petitioner maintains a uniform selling price throughout the country, no deduction on account of equalised freight is admissible. Section 4(1)(a) could be invoked and applied only where the normal price is ascertainable at the place of removal in the course of wholesale trade and not otherwise. It is implicit under Section 4(2) of the Act that there could be different assessable values in respect of the same manufactured goods in different situations on the basis of difference in transportation costs. There is no prohibition under any law for the charging of uniform selling price by manufacturers. It could not have been the intention of the legislature to extend the relief under Section 4(2) to only those manufacturers who maintain disparity in the selling price of the products in different regions of India. It is a matter of common know ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same cannot be excluded for the purpose of ascertaining the assessable value. The petitioner's claim of exclusion from the assessable value the cost of secondary packing of the goods in wooden boxes is, however, conceded by the respondents. 14. The Alkali and Chemical Corporation of India Limited, Balanagar, Hyderabad is the petitioner in W.P. Nos. 217 and 218 of 1978. The petitioner is a public limited company having its factory among other places at Balanagar at Hyderabad. The petitioner's business comprises of the activities of manufacturing and selling, among other products, paints and varnishes. The petitioner sells its goods in bulk to industrial consumers and dealers in the course of wholesale trade, the price being the sole consideration for the same. The petitioner has no sole selling agents. The sales are effected through the regional offices/godowns of the petitioner at Calcutta, Delhi, Bombay, Madras, Ludhiana, Hyderabad, Ernakulam, Bangalore and other places. The sales to the dealers are by way of outright sale on a principal basis. The petitioner has no interest direct or indirect, in their business or they in the petitioner's. The petitioner's sales to the dealers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the petitioner-company. By his letter dated 14-10-1977, the 2nd respondent made certain observations and called for clarifications with respect to the four price lists submitted by the petitioners on 6-10-1977. It is stated therein that in case the sales are through regional godowns only, proforma Part II is relevant and Part IV alone is relevant. The 2nd respondent also invited attention to the Collector's Trade Notice No. 22/77 (SRP No. 1/77) dated 17-1-1977 wherein it is said that the provisions of proviso (iii) to Section 4(1) (a) of the Act would be attracted when any factory places all the stocks at the disposal of what they may claim to be the sales organisations situated within the same premises or in separate premises. Wholly relying on such Trade Notice issued by the Collector, the 2nd respondent stated that 'no claim for deduction of post-manufacturing expenses or profits from the prices realised would be merited if the goods are kept at the disposal of the sales organisations for marketing by the producing factory'. The petitioner gave an elaborate reply dated 28-10-1977 clarifying the various points and stating inter alia that the regional godowns are not related ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l wholesale buyers in accordance with the normal practice of the wholesale trade in respect of the goods and is not refundable on any account whatsoever. The petitioner is, therefore, entitled to exclude the said trade discount for purposes of determining assessable value. The order of the 2nd respondent is arbitrary, patently illegal, without the authority of the law and without jurisdiction. ln W.P. No. 217 of 1978 the petitioner prays for issue of a Writ, Direction or Order, particularly in the nature of Certiorari, calling for the records relating to the order C. No. V/14/30/197/77 MP (I) dated 1-11-1977 of the Assistant Collector of Central Excise, I.D.O. III, Hyderabad and after declaring it as illegal, quashing and setting aside the same. The petitioner also prays for issue of a Writ, Direction or Order, particularly in the nature of mandamus directing the Assistant Collector of Central Excise, I.D.O. III, Hyderabad, to approve the assessable values as claimed by the petitioner in the 1st Price List No. 1/77-78 dated 6-10-1977 and the 3rd Price List No. 2/77-78 dated 6-10-1977 and not to levy or collect or recover any excise duty from the petitioner on the prices charged by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lV but not proforma Part II which is applicable to assessees falling under the provisions of Section 4(1)(a)(i) of the Act. As the petitioner's case falls under the third proviso to Section 4(1)(a), the proper form of the price list applicable to the petitioner's case is proforma Part lV. As per the provisions of Section 4, for the determination of assessable value and the normal price deductions, such as, post-manufacturing expenses and profits are not permissible. The 2nd respondent's action in disallowing the trade discount on the ground that it is not given to the buyers who purchase on credit is based on the provisions of the Central Excise Act. When the trade discount is not given to all the wholesale buyers alike, the same is not a permissible deduction. 16. On the scope of Section 4 of the Act, particularly with reference to the claim for exclusion of post-manufacturing costs, expenses and profits, the contentions advanced by the respondents in the counter-affidavit in W.P. No. 5948 of 1975 are reiterated by the Excise authorities in all the other Writ Petitions, where the claim is put forward. 17. In order to appreciate the rival contentions of the parties, Section 4 m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alue thereof is determined with reference to the price for delivery at a place other than the place of removal, the cost of transportation from the place of removal to the place of delivery shall be excluded from such price. (3) The provisions of this Section shall not apply in respect of any excisable goods for which a tariff value has been fixed under sub-section (2) of Section 3. (4) For the purposes of this section,- (a) "assessee" means the person who is liable to pay the duty of excise under this Act and includes his agent; (b) "place of removal" means- (i) a factory or any other place or premises of production or manufacture of the excisable goods; or (ii) a warehouse or any other place or premises wherein the excisable goods have been permitted to be deposited without payment of duty, from where such goods are removed; (c) "related person" means a person who is so associated with the assessee and they have interest, directly or indirectly, in the business of each other and includes a holding company, a subsidiary company, a relative and a distributor of the assessee, and any sub-distributor of such distributor. Explanation. - In this clause "holding company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... try 84 in List I of Seventh Schedule to the Constitution of India. It is necessary to bear in mind the concept of 'excise duty' as interpreted and expounded in the various cases decided by the Federal Court, the Privy Council and the Supreme Court. The nature of excise duty and the distinction between excise duty and sales-tax were succinctly explained in In re : Central Provinces and Berar Sales of Motor Spirit and Lubricants Taxation Act, 1938, AlR 1939 Federal Court 1 = 1939 FCR 18 = 1978 E.L.T. (J 269) Gwyer, C.J., described excise duty thus : "........... its primary and fundamental meaning in English is still that of a tax on articles produced or manufactured in the taxing country and intended for home consumption." While dealing with the contention advanced on behalf of the Government of India that an excise duty which might be imposed on home-produced goods at any stage from production to consumption, the learned Chief Justice observed : "This is to confuse two things, the nature of excise duties and the extent of the federal legislative power to impose them." After referring to Blackstone and Stephen's Commentaries, the learned Chief Justice proceeded to state : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or consumed by the owner or even destroyed before they can be used. If duty is imposed on the goods manufactured or produced when they issue from the manufactory, then the duty becomes leviable independently of the purpose for which they leave it and irrespective of what happens to them later. On the other hand, a duty on the sale of goods cannot be levied merely because goods have been manufactured or produced. Nor can it be levied merely because the goods have been consumed or used or even destroyed. The right to levy the duty would not at all come into existence before the time of the sale. It cannot at all be levied unless the goods are actually sold, and may not be leviable if they are transferred in some other form. Thus, a duty on goods manufactured or produced is distinct, separate and independent from a duty on their sale and (except probably at the stage of the first sale) there seems to be no good reason why they may not co-exist without overlapping." 19. The Federal Court again in The Province of Madras v. Messrs. Boddu Paidanna Sons - AIR 1942 F.C. 33=1978 E.L.T. (J 272), in the context of a question that arose under the Madras General Sales Tax Act, 1939, re-state ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s he has first manufactured or produced it; but he is liable, if at all, to a sales-tax because he sells and not because he manufactures or produces; and he would be free from liability if he chose to give away everything which came from his factory." 20. The Judicial Committee, in Governor-General in Council v. Province of Madras - AIR 1945 P.C. 98=1978 E.L.T. (J 280), approved the views expressed by the Federal Court in regard to excise duties. In the said case, learned Simonds, speaking for the Board, observed : "An exhaustive discussion of this subject, from which their Lordships have obtained valuable assistance, is to be found in the judgment of the Federal Court in 1939 FCR 18 (AIR 1939 FC 1). Consistently with this decision, their Lordships are of opinion that a duty of excise is primarily a a duty levied on a manufacturer or producer in respect of the commodity manufactured or produced. It is a tax on goods not on sales or the proceeds of sale of goods. Here, again, their Lordships find themselves in complete accord with the reasoning and conclusions of the Federal Court in the Boddu Paidanna case, 1942 FCR 90; (AIR 1942 FC 33)." Adverting to the decision of Boddu Pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oes not affect the essence of the duty, but only relates to the machinery of collection for administrative convenience. Whether in a particular case tax ceases to be in essence an excise duty, and the rational connection between the duty and the person on whom it is imposed ceased to exist, is to be decided - on fair construction of the provisions of a particular Act." 23. In Union of India v. Delhi Cloth and General Mills - AIR 1963 S.C. 791 = 1977 E.L.T. (J 199), their Lordships of the Supreme Court observed : "The 'manufacture' which is liable to excise duty under the Central Excises and Salt Act, 1944, must therefore be the 'bringing into existence of a new substance known to the market'. he definition of `Manufacture' in Section 2(f) does not equate mere `processing' to `manufacture'." 24. In In Re : Sea Customs Act, 1878-(AIR 1963 S.C. 1760), their Lordships of the Supreme Court observed : " ....taxable event in the case of duties of excise is the manufacture of goods and the duty is not directly on the goods but on the manufacture thereof. We may in this connection contrast sales-tax which is also imposed with reference to goods sold, where the taxable event is the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a wholesale market did not exist for such article at such place, the wholesale cash price of the article at the nearest place when such market existed was to be taken into account. Clause (b) enacted that, where such price was not ascertainable, the price at which an article of the like kind and quality was sold or was 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 was not sold or was not capable of being sold at such place, at any other place nearest thereto. 29. It may be noted that a provision, similar to the one enacted in Section 4 of the Act, as it stood prior to the amendment, was embodied in the Sea Customs Act, 1878 and Section 30 providing for the procedure to determine the real value on which customs duty was levied read as follows :- **** The meaning of - term'wholesale price' occurring in Section 30(a) of the Sea Customs Act came up for consideration in Vacuum Oil Company v. Secretary of State - AlR 1932 P.C. 168=1978 E. L.T (J 260). In the said case, the appellants befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the distributors information as to their future requirements and placed consolidated orders accordingly with the manufacturers in Canada. The retail price charged by the distributors to the public was that stated in a price list issued by the appellants and current at the time of the arrival of vehicles in India, and the price payable by the distributors to the appellants was the same price less a discount of 20 per cent. The distributors had to pay that price before obtaining delivery, which was given "free on rail". On arrival in India, the vehicles were not completely assembled, and were so delivered to the distributors, an agreed allowance against the price being made by the appellants. On the question whether Section 30(a) or Section 30(b) of the Sea Customs Act, 1878 applied for the purpose of finding out of the real value of goods for levy of customs duty, the Privy Council held that the price charged by the appellants to the distributors excluding the assembling allowance was the "wholesale case price, less trade discount" for which the vehicles were sold "at the time and place of importation" within the meaning of Section 30(a) of that Act, the terms of which are mor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to consumers at list prices and the sales so effected amounted to 90 to 95 per cent of its production during the relevant period. It also sold its articles amounting to 5 to 10 per cent of its production to its 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 prices fixed by the respondent and the respondent would sell the articles to them at the list prices less 22 per cent discount. Dealers were also required under the agreements to provide service to units sold in their territory. Excise duty on the basis of ad valorem value was imposed on air-conditioners, water coolers and parts of water coolers from 1-3-1961. The respondent claimed, in accordance with Section 4(a) that the list prices after deducting the discount of 22 per cent allowed to the wholesale dealers, should be taken to be the `wholesale cash price' for ascertaining the real value of the articles. The claim was resisted by the authorities and the respondent was, therefore, constrained to file a Writ Petition in the High Court of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 sales to the wholesale dealers did not cease to be wholesale sales merely because the wholesale dealers had entered into agreement with the respondent under which certain commercial benefits were conferr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th 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 number of such wholesale dealings. The fact that the appellant sold 90 to 95 per cent of the articles m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... throughout the period relevant to the appeal, sold by them in the wholesale units to two wholesale buyers, namely, ICI (India) Ltd. (hereinafter referred to as ICI), and Atul Products Ltd (hereinafter referred to as Atul). These sales were effected in respect of 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 per cent to Atul. The price charged by the appellants to ICI and Atul was a uniform price described as "the basic selling price" less trade discount of 18 per cent. 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 ICl and Atul were at a higher price, though with trade discount. ICI charged a higher price, but allowed 10 per cent trade discount while Atul charged a slightly lower price and allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts thereupon appealed to the Supreme Court, after obtaining certificate of fitness from the High Court of Gujarat. The Supreme Court held that the assessable value of dye-stuffs manufactured by the appellants must be taken to be the price at which they were sold to the appellants by ICI and Atul less 18% trade discount, and not the price charged by ICl and Atul to their dealers. After referring to the decision in A.K Roy v. Voltas Ltd. (supra) and quoting the observations, in estenso, of Mathew J., in the said case with approval, Bhagwati J., speaking for the Court, observed: "In fact, the present case is much stronger than the Voltas' case (supra). In Voltas' case (supra), 90 to 95 per cent of the production was sold by the manufacturer in retail and only a small percentage, namely, 5 to 10 percent was sold in wholesale and yet the price charged by the manufacturer to the wholesale dealers less trade discount of 22% was taken as 'the wholesale cash price' for assessment of value under Section 4(a). Here, on the contrary, no retail sales at all were effected by the appellants and the entire production was sold in wholesale to ICI and Atul under agreements entered into with them. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ected. It violates two basic principles underlying imposition of excise duty. Bhagwati J., proceeded to add : "The value of the goods for the purpose of excise must take into account only the manufacturing cost and the manufacturing profit and it must not be loaded with post-manufacturing cost or profit arising from post-manufacturing operation. The price charged by the manufacturer for sale of the goods in wholesale would, therefore, represent the real value of the goods for the purpose of assessment of excise duty. If the price charged by the wholesale dealer who purchases the goods from the manufacturer and sells them in wholesale to another dealer were taken as the value of the goods, it would include not only the manufacturing cost and 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 consumer after a series of wholesale transactions. In fact, the more common and less expensive the goods, there would be greater possibility of more th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 condition is, therefore, inescapable that the assessable value of the dye-stuffs manufactured by the appellants must be taken to be the price at which they were sold by the appellants to ICI and Atul less 18% trade discount, and not the price charged by ICI and Atul to their dealers." 34. In an unreported judgment dated 24-9-1976 of a Division Bench of this Court consisting of Sambasiva Rao and Punnayya JJ., in Coramandel Fertilisers Limited v. Union of India and Others (W.P. Nos. 1400 to 1403/1976), the petitioner common in all the four Writ Petitions was Coramandel Fertilisers Limited, a company incorporated under the Companies Act, 1956 and engaged in manufacture of fertilisers and sale of the same, its place of manufacture being situate at Visakhapatnam. Admittedly, uniform freight charges were collected by the company at its factory gate irrespective of the place of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o form part of the manufacturing costs and thus they are also to be included in the real value including only the manufacturing costs and the manufacturing profit. Anything other than the manufacturing costs and manufacturing profit is not within the purview of Section 4(a)." 36. Dealing with the contention advanced by Mr. Subrahmanya Reddy on behalf of the Union of India, based upon the conclusion of Bhagwati J., in paragraph 13 of the judgment in Atic Industries v. Asst. Collector, Central Excise (supra), that the price charged by the manufacturer to the first wholesalers, be they referred to distributors or wholesalers, was the wholesale cash price and that it was that wholesale cash price less trade discount and excise duty which should be the basis of imposition of excise duty in view of the language of Section 4, their Lordships observed : "We are unable to accept this argument of Mr. Subrahmanya Reddy in its entirety. It is clear from the observations of Mathew J., in Voltas case ,(1974) 2 SCJ 94, which were approved by the Supreme Court in Atic Industries v. Assistant Collector, Central Excise, AIR 1975 SC, 960 that the excise duty, which is a duty payable on manufactur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Leave Appln. No. 858/1974) [since reported in 1977 E L.T. (J 113) in which a contrary view was taken, was dissented from by the Division Bench. 38. We may also observe that the High Court of Kerala in Madras Rubber Factory Ltd., v. Asst. Collector of Central Excise, Kottayam and others, 1977 E.L.T. (J 85) = 1976 TLR 1263, the High Court of Bombay in Union of India v. Mangslnka Industries Pvt Ltd., 1979 (4) E.L.T. (J 158) = 1976 TLR 1891, the High Court of Karnataka in Union of India v. I.T.C. Ltd., 1976 TLR 2003, the High Court of Madhya Pradesh in Universal Cables v. Union of India, 1977 E.L.T. (J 92) = 1977 TLR 1825, and the High Court of Allahabad in I.T.C. Ltd. v. Union of India, 1977, E.L.T. (J 29)=1977 TLR 2060, also took the same view as that expressed by the Division Bench in Union of India v. Vazir Sultan Tobacco Co. Ltd. (supra). It is also noticed in ITC. Ltd. v. Union of India, 1977 E.L.T. (J 29)=1977 TLR 2060 that the Madras High Court in W.P. Nos. 784 and 7143 of 1975, 2274, 2275 and 3163 of 1975, also took the same view. 39. Having noticed the decided cases on the scope of Section 4 of the Act, as it stood prior to its amendment, we now examine the ambit of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emoval to the place of delivery shall be excluded from such price. Section 4(4)(d) provides for deduction of certain items from the value arrived at under Section 4(1)(b) or Section 4(1)(b). Section 4(4)(d)(i), while providing for inclusion of the cost of packing in the value of the goods, where the goods are delivered at the time of removal in packed condition, permits deduction of the cost of the packing from the value if the packing is of a durable nature and is returnable by the buyer to the assessee. In other words, even the cost of initial or first packing, if it is of a durable nature and is returnable by the buyer to the assessee is liable to be deducted from the value of the goods. It, therefore, follows that the cost of secondary packing of the goods is not liable to be included in the assessable value. Section (4)(d)(ii) provides for deduction from the value of the goods, the amounts of the duty of excise, sales-tax and other taxes, if any, payable on such goods and the trade discount. 41. It is not denied that the assessees in this batch of Writ Petitions are not governed either by Section 4(1){b) or Section 4(2) of the Act. Though it is urged in Writ Petition Nos. 26 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice" 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 ..... 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 of the goods for the purpose of excise." In Union of India v. Vazir Sultan Tobacco Co. Ltd., Hyderabad and others (supra), it may be recalled that the very same argument was advanced before a Division Bench of this Court by the learned counsel for the Union of India and repelled. We must add that we are in complete agreement with the reasoning of the Division Bench in repelling the contention. It may be noted that in both the cases of the Supreme Court reported in A. K. Roy v. Voltas Ltd. (supra), and Atic Industries Ltd. v. H.H. Dave, Asstt. Collector of Central Excise and Others (supra), there was no controversy that in the first wholesale cash price were included post-manufacturing expenses or profits. It was not laid down in eit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mended even after the substitution of the new Section 4. If the `normal price' were to be construed as to take within its ambit anything except the manufacturing cost and manufacturing profit, the impost ceases to be excise duty and the rational nexus between the duty and the person upon whom it is imposed ceases to exist, as it amounts to tax on sale, which under Entry 54 of List II of Schedule VII to the Constitution, exclusively falls within the domain the State Legislature and the Parliament has no legislative competence to make of any law with regard to it. It, therefore, follows that under the new Section 4 of the Act, it is not permissible to include in the assessable value any element of post-manufacturing costs or profits attributable to post-manufacturing operations. 45. Our view also gains support from the decision of a single judge of the Madras High Court in Nagpal Petro-Chem, Limited, Madras-58 v. Assistant Controller of Central Excise Madras - 1979, E.L.T. (J 117), the unreported decision of a Division Bench of the Patna High Court in Tata Engineering and Locomotive Company Limited v. S N. Guha Thakurta, Superintendent of Central Excise, Jamshedpur and Others - 197 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incial Legislatures. Their Lordships of the Supreme Court observed :- "Looking at the scheme of the Act, its object and purpose, its true nature and character and the pith and substance the conclusion is inevitable that the Act was within the legislative competence of the General Legislature and although there may be certain matters otherwise within the legislative competence of the Provincial legislature they are necessarily incidental to effective legislation by the Central Legislature. The various provisions of the Act and the Rules made thereunder were, in our opinion, essentially connected with the levying and collection of excise duty and in its true nature and character the Act remains one that falls under Item 45 of List 1 and the incidental trenching upon the Provincial field of Item 27 or 29 would not affect its constitutionality because the extent of invasion of the Provincial field may be a circumstance to determine the truth pith and substance but once that question is determined the Act, in our opinion, would fall on the side of Central field and not that of the Provincial field." In the latter case, their Lordships held that the pith and substance of the Act [Kar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... list or catalogue of the post-manufacturing costs, expenses or profits liable to be excluded from the `normal price' for the purpose of imposition of excise duty, it is difficult to enumerate. In the Voltas' case, it was held that the real value should be found after deducting the selling costs and selling profits, The view was reiterated in Atic Industries' case. 51. In Madras Rubber Factory v. The Assistant Collector of Central Excise - 1978 E.L.T. (J 595), it was held by a single Judge of the Kerala High Court that there might be post-manufacturing operations in respect of goods produced, such as freight incurred in conveying the goods to sales-depots, godown charges and other expenses. Discussing the question further, the learned Judge observed : "There may by manufacturing concerns haying their own marketing and sales organisation. Goods may be sold through or to any particular dealer or agent with whom the company may enter into a contract for the sale of its products. That is in cases where the company may have no sales organisation of its own. But where it has one, the price it ultimately receives includes not only the manufacturing cost and all the post-manufacturing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g points. He was also justified in directing the Excise Authorities to determine what portion of the advertisement expenses incurred by the manufacturer can be allowed to be deducted depending upon how far it can be traceable to the selling operation and not attributable to the manufacturing operation or manufacturing profit. The items referred to above are not exhaustive but only illustrative of the nature of deductions which have to be made before arriving at the assessable value for the purpose of Section 4, clause (a)." 54. In I.T.C. Limited v. Union of India - 1977 E.L.T. (J 29), it was claimed by the assessee that the expenses incurred under the following heads were post-manufacturing expenses and that, therefore, they did not form part of the wholesale cash price for the purpose of determining the assessable value : (a) Marketing and distribution expenses; (b) Advertising expenses; (c) Freight on Cigarette and smoking mixture; (d) Interest. Adverting to the claim, a Division Bench of the Allahabad High Court "It is not denied that no sale of articles manufactured by the petitioner is made at Saharampur. The wholesale market for those articles exist at certain o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... must be wholly unconnected with and unrelated to the manufacture or production of the goods. It is needless to state that the authorities should be satisfied that the post-manufacturing costs or expenses claimed by the assessees are actually incurred. 55. We may, however, observe that except in Writ Petition Nos. 1532, 2601 and 2602 of 1976, in the other six Writ Petitions the assessees question the validity or the legality of inclusion of the post-manufacturing costs, expenses and profits attributable to post-manufacturing operations, in the `normal price' for the purpose of levy of excise duty. Our decision in that behalf, therefore, governs those six Writ Petitions. 56. We now examine the other contentions raised in each of the Writ Petitions. 57. In Wit Petition No. 5948 of 1975, eleven out of the twelve authorised wholesale dealers of the petitioner-company are treated as related persons within the meaning of the third provision to Section 4(1)(a) of the Act and that the excise duty is levied on the goods manufactured by the petitioner company on the basis of the price charged by those authorised wholesale dealers from their buyers. It is true that some of the partners o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded as a process incidental or ancillary to the completion of the manufactured product. The same view was taken by the High Court of Karnataka, Calcutta and Maharashtra. 59. Admittedly, the petitioner-company first packs its dry cell batteries in what are known as Display boxes and later in cartons. It is alleged by the petitioner that the dry cell batteries produced are sold just as batteries and are not covered by any kind of wrapper, that the packing in Display boxes by the petitioner is only to enable the movement of batteries freely and conveniently and that further packing in cartons by long distance transport is also for safety in transit and handling. It is true that, under Section 4(4)(d), it is enacted that where the goods are delivered at the time of removal in a packed condition, the assessable value includes the cost of such packing, except the cost of the packing, which is of a durable nature and is returnable by the buyer to the assessee. The requirement of 'durability' of the packing, if insisted upon for allowance of the cost of the packing from the assessable value, would render the cost of the packing as an element of manufacturing activity, which it is certain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the petitioner-company must be upheld. 63. In Writ Petition No. 1532 of 1976, the only question raised by the petitioner-company is the legality of levy of excise duty on the cost of jute bags in which the excisable goods manufactured by the Company were packed and sold between 1-10-1975 to 8-1-1976. Admittedly, even after the amended Section 4 came into force, till 4-12-1975 the excise authorities did not include the cost of jute bags in the assessable value. However, from 5-12-1975 to 8-1-1976, the excise authorities made a demand in a sum of Rs. 2,08,791.05 towards excise duty on the cost of jute bags. The petitioner objected to the demand, but, however, paid the amount under protest. For the earlier period between 1-10-1975 and 4-12-1975, a demand was subsequently made by the 3rd respondent in a sum of Rs. 3,85,835.46 towards excise duty on the cost of jute bags on the ground that by mistake the sum was not collected earlier. For the reasons assigned by us, whole dealing with the claim of exclusion of the cost of packing in Writ Petition No. 5948 of 1975, we hold that the cost of jute bags in which the goods of the company were packed and sold is not liable to be included in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and wholly unconnected with the manufacture of the goods. The fact that the petitioner-company charges uniform frieght would not make any difference. In fact, in the unreported decision dated 24-9-1976 of a Division Bench of this Court in Writ Petition Nos. 1400 to 1403 of 1976, the claim of Coramandel Fertilisers Limited, a company incorporated under the Companies Act, 1956 with its factory situate at Visakhapatnam for exclusion of equalised freight charged by it on its goods irrespective of places of delivery of the goods, was upheld. It is true that the decision was rendered under Section 4 of the Act, as it stood prior to the amendment. In our opinion, the decision equally holds good under the amended Section 4 of the Act also. It is not necessary to dwell at length on the other claim of the petitioner for exclusion from the assessable value of the goods, the cost of secondary packing of the goods in wooden boxes as the same is conceded by the authorities in the counter filed by them. 65. In Writ Petition Nos. 217 and 218 of 1978, the petitioner-company has no sole selling agents and the sales of its goods are effected through its Regional Offices/godown at Calcutta, Delhi, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... particulars of the expenses claimed cannot be furnished. Only provisional price lists can be submitted. It is, therefore, just that the excise authorities should, in the first instance, act upon the provisional price lists reserving its right to determine the quantum of duty finally on submission of final price lists after completion of the annual audit of the petitioner-company. 68. In the result, in Writ Petition No. 5948 of 1975, a Writ of Mandamus shall issue directing the 2nd respondent therein to fix from 1-10-1975, as the 'normal price' under Section 4 of the Act, the price charged by the petitioner on its goods sold to its recognised wholesale dealers and to assess or levy, collect or recover any excise duty from the petitioner on the price charged by the petitioner to its wholesale dealers, after deducting from the price, the post-manufacturing costs and expenses inclusive of the cost of the Display boxes and cartons, in which the goods of the petitioner are packed and sold, as also the post-manufacturing profits arising out of the post-manufacturing operations. 69. In Writ Petition Nos. 819, 2194 and 1115 of 1976, a Writ of Mandamus shall issue directing respondents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd expenses inclusive of cost of transport of its goods to its Regional offices/godowns and post-manufacturing profits and also the trade discount allowed by the petitioner in accordance with the normal practice of the wholesale trade irrespective of the fact that the facility is not extended to the sales on credit. A direction shall also issue to respondents 2 and 3 to refund to the petitioner any amounts of excise duty illegally recovered from the petitioner from 18-6-1977 by including in the wholesale price realised by the petitioner at its Regional Offices/godowns, the post-manufacturing costs, expenses and profits, provided the claim is not barred by limitation. 73. We would like to add that the claims of the assessees for exclusion of the post-manufacturing costs, expenses and profits from the assessable value of their goods should be determined and adjudicated upon in accordance with the principles laid down and the observations made by us in this judgment. 74. The Writ Petitions are ordered accordingly. In all the circumstances of the case, we, however, direct the parties to bear their own costs. 75. Immediately after pronouncement of our judgment Sri K. Subrahmanya R ..... X X X X Extracts X X X X X X X X Extracts X X X X
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