TMI Blog1979 (12) TMI 67X X X X Extracts X X X X X X X X Extracts X X X X ..... be a variety of trade discount, while determining the wholesale cash price of three of its products, has been rejected by the excise authorities in the process of approval of price lists. 2. The petitioner carries on the business of manufacturing and selling different varieties of fertilisers. Three of its products are. (1) Urea, (2) Ammonium Sulphate (hereinafter referred to as `A.S.' for short) and (3) Ammonium Sulphate Phosphate (hereinafter referred to as `A.S.P.' for short). Fertilizers of all sorts (excluding natural, animal or vegetable fertilizers when not chemically treated) were at the material time subject to levy of excise duty at the rate of 15 per cent ad valorem under Item 14 HH of the First Schedule of the Act. The sale price of fertilizers is fixed by the Government from time to time under the provisions of the Fertilizers (Control) Order, 1957 (hereinafter referred to as `the Control Order') issued under section 3 of `The Essential Commodities Act, 1955. Under the provisions of the Control Order, a manufacturer was required by the Central Government, at the material time, to supply fertilizers manufactured by him for sale in specified States. The petitioner wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t rates to buyers situate in different regions or group of regions, depending upon the distance between the factory of the petitioner and the place of business of those buyers. 3. In addition to the regional discount the petitioner also gave quantitative discount on bulk purchases of fertilizers made by buyers. Quantitative discount used to be given at a uniform rate to all buyers, irrespective of whether they were carrying on business in one State or the other. We shall at a later stage give further particulars with regard to these two kinds of discount allowed by the petitioner to the dealers with whom it carried on business. At this stage, suffice it to say that for the purposes of determination of the value of fertilizers for the assessment of excise duty, which, as earlier stated, is levied on ad valorem basis, the petitioner claimed that under section 4, it should be allowed to deduct the regional discount and the quantitative discount which were offered by it to buyers. This claim succeeded partly. Quantitative discount was allowed to be deducted from the wholesale cash price but not the regional discount. The ground on which the claim with regard to deduction of regional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uty, the net assessable value in respect of Urea should be computed at Rs. 803-13 p. per metric ton and in case of A.S. at Rs. 454-13 p. per metric ton when those products were sold on wholesale basis after giving quantitative and regional discount, as the case may be. By a communication dated January 15, 1974, the petitioner was informed that the Assistant Collector, Central Excise, Baroda Division-lI had approved the net assessable value in respect of Urea and A.S. with effect from January 1, 1974 as follows :- Urea .... Rs. 830/- per M.T. A.S. .... Rs. 470/- per M.T. 5. It would appear that the Assistant Collector disallowed the deduction of quantitative and regional discount, while determining the wholesale cash price and although, in fact, the petitioner offered such discounts to its buyers, if the requisite conditions were fulfilled, the Assistant Collector determined the wholesale cash price by wholly ignoring such discount. On April 13, 1974, the petitioner preferred an appeal to the Appellate Collector of Central Excise, Bombay against the decision of the Assistant Collector, Central Excise, Baroda-II. By an order dated July 15, 1975 the appeal was p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of the above mentioned three varieties of fertilizer from time to time. The earliest of such price lists was submitted on May 22, 1974 and it was to be effective from June l, 1974 and the last was submitted on September 15, 1975 to be effective immediately. Be it noted at this stage that in five of such price lists covering the period commencing from June 1, 1974 and ending with September 14, 1974, the net assessable value of some of the aforesaid varieties of fertilizer was arrived at after making deduction in respect of quantitative discount as well as regional discount. In the rest of the price lists covering the period from September 15, 1974 to September 30, 1975, the net assessable value in respect of each of the three varieties of fertilizer in question was arrived at after making deduction in respect of regional discount only. The Assistant Collector of Central Excise initially rejected the price lists containing the net assessable value arrived at as aforesaid and those orders, except in one case, resulted in appeals before the Appellate Collector of Central Excise. The Appellate Collector allowed all those 28 appeals and remanded the matters to the Assistant Coll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the interpretation of section there can be only one wholesale cash price else they should have made the evidence of manufacturing cost plus manufacturing profit and their sale pattern. As regards freight it is noticed that they have sold their products at their factory gate and the buyers pay the freight and it will be also post-manufacturing expenses, as per decision of Supreme Court's judgment. I do not consider inclusion of freight as part of assessable value." It would thus appear that the price fixed by the Ministry of Petroleum and Chemicals was taken to be determinative in case of A.S. in respect of some of the price lists on the ground that no positive evidence with regard to manufacturing costs and manufacturing profit was led. In other cases, the prices charged to other dealers to whom no discount was admissible were taken as determinative. The petitioner feeling aggrieved by the order of the Assistant Collector preferred an appeal to the Appellate Collector of Central Excise, Bombay on February 20, 1978. The appeal was disposed of by the impugned order, which came to be made after the present petition was filed, and which has been brought on record by an amendment. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r this question, it would be necessary to refer, at the outset, to the relevant provisions of law. 8. It requires to be clarified in the forefront that the matter is governed by Section 4 as it stood prior to its amendment by Act 22 of 1973. The amended section came into force with effect from October 1, 1975. The second period covering the price lists in question ends on September 30, 1975. For that reason, it is essential to concentrate on the true effect of Section 4 as it stood prior to its aforesaid amendment. Section 2 contains definitions and clause (d) thereof defines "excisable goods" as meaning goods specified in the first Schedule as being subject to a duty of excise, including salt. The charging Section is section 3. At the relevant time, sub-section (1) thereof, in so far as it is material, provided that there shall be levied and collected in such manner as may be prescribed duties of excise on all excisable goods other than salt which are produced or manufactured in India at the rates set forth in the First Schedule. Sub-section (2) empowered the Central Government, by notification in the Official Gazette, to fix, for the purpose of levying the excise duties, tariff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor, whether for consumption, export, or manufacture of any other commodity in or outside such place, until the excise duty leviable thereon has been paid at such place and in such manner as is prescribed in the Rules or as the Collector may require. There were three provisos to the said sub-rule which provided, inter alia, for deposit of goods without payment of duty at a place to be approved by the Collector or in an appointed or licensed warehouse or for export under bond, or for removal on part-payment of duty leviable thereon if the Central Government allows such removal, or for keeping by the Collector of an account-current with any person dealing in such excisable goods with respect to duties payable thereon instead of requiring payment of duty in respect of each separate consignment of goods. Rule 9A related to the date for determination of duty and tariff valuation and, broadly speaking, it provided that the rate of duty and tariff valuation applicable to excisable goods shall be the rate and valuation in force, in the case of goods cleared from a factory or a warehouse [subject to sub-rules (2), (3) and 3 (a)], on the date of the actual removal of such goods from such fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he charging section is Section 3, sub-section (1) which creates liability against the producer or manufacturer to pay excise duty in such manner as may be prescribed at the rates set forth in the First Schedule; (3) the Central Government is authorised to fix tariff values of any enumerated articles in the First Schedule as chargeable with duty ad valorem; such tariff values may be altered from time to time and different tariff values may be fixed for different classes or description of the same article; (4) where any excisable article is chargeable with duty at a rate dependent on the value of the article and such article is sold on wholesale basis, the value is deemed to be the wholesale cash price for which an article of the like kind and quality is sold or is capable of being sold, at the time of the removal of the article from the factory or any other premises of manufacture or production, for delivery at the place of manufacture or production or, if a wholesale market does not exist for such article at such place, at the nearest place where such market exists. In determining the wholesale cash price as aforesaid, however, two deductions are permissible and one of them is in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rendered in Special Civil Application No. 119 of 1976 [1979 E.L.T. (J407)]. 13. The meaning, scope and effect of Section 4 (1) and the statutory provisions in pari materia have been the subject matter of pronouncements of the highest Courts. The Privy Council and the Supreme Court have both expressed their views on the ambit of Section 4, clause (a) and/or identical provisions contained in the Sea Customs Act, 1878. The leading decision of the Supreme Court is in A.K. Roy v. Voltas Limited, A.I.R. 1973 S.C. 225 = 1977 E.L.T. (J177). In that case, the assessee effected direct retail sales of excisable goods manufactured by it to consumers at list prices and the sales so effected came to about 90 to 95 per cent of its production of the articles in question during the relevant period. The remaining 5 or 10 per cent of the excisable goods produced by it were sold to wholesale dealers in pursuance of agreements entered into with them. The agreements provided, inter alia, for sale of the goods at list prices less 22 per cent discount and an obligation was imposed on the dealers to give service to the units sold in their territory. Excise duty was leviable on the goods in question on ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lternative angle as follows :- "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 or 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 effect 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 cer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the "wholesale cash price" for the purpose of Section 4(a), even if these sales were made pursuant to agreements stipulating for certain commercial advantages, provided the agreements were entered into at arm's length and in the ordinary course of business." In para 20, the question as to what is the true meaning of the term "wholesale cash price" was considered and it was observed as follows :- "In Vacuum Oil Co. v. Secretary of State for India in Council, 59 Ind App 2580 (AIR 1932 PC 168), it was held that the term means the price paid by retail traders on wholesale purchase In other words, the sale must be wholesale and not a retail one in order that the price realised may be termed the "wholesale cash price". Their Lordships said that in determining the price which is to represent the real value of the goods to be taxed, "the price must be conservative in every respect and free in particular from any loading for any post importation charges incurred in relation to the goods". "The price is to be a price for goods, as they are both at the 'time', and `place' of importation. It is to be a 'cash price', that is to say a price free from any augmentation for credit or other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mers at a slightly higher price without offering any discount. The product in question was an excisable item on which duty was leviable on ad valorem basis. The question which, therefore, arose was as to how the product should be valued on a proper application of Section 4(a). The assessee contended that the value of the product should be taken to be the price at which it sold the same on wholesale basis to ICI and Atul less the trade discount of 18%. The Excise authorities, however, rejected the contention of the assessee on the ground that since the product in question was not available to any independent buyer in open market conditions at prices at which they were sold to ICI and Atul, those prices could not be accepted as the basis of ad valorem assessment. The view which ultimately prevailed with the Excise authorities was that since the product was available to any independent buyer in open market conditions at the sole distributors prices, that is to say, the prices charged by ICI and Atul to the distributors, those prices should form the basis of assessment after allowing discount of 10% on the prices charged by ICI and 2 1/2% on the prices charged by Atul. When the matter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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...... 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." The ultimate conclusion of the Supreme Court was recorded in the following words in para 13 :- "There can, therefore, be no doubt that where a manufacturer sells the goods manufactured by him in wholesale to a wholesale dealer at arm's length and in the usual course 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 conclusion 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 discou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the regional discount were at arms length and in the usual course of business. It is required to be borne in mind that at the same time that it is an admitted position, so far as the petitioner is concerned, that regional discount is not uniformly given by it to all wholesale purchasers and that the extent of regional discount depends upon the distance between the petitioner's factory and the region in which the wholesale purchaser carries on his business. The regional discount is given on different basis to wholesale purchasers carrying on business in different states or group of states and so far as the State of Gujarat is concerned, no regional discount is offered at all. Unlike quantitative discount which the petitioner gives to all its wholesale purchasers depending upon the bulk of purchases irrespective of the place at which such purchasers carry on their business regional discount is essentially a discount which might vary as between one purchaser and another or one group of purchasers and another such group of purchasers depending upon the region in which they carry on business. The basis of both the impugned orders, Exhibits 'E' and 'L', whereunder the claim of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chased. Higher discount may be offered to those who purchase the goods in greater bulk as against lesser discount to those who purchase in lesser bulk. If the view which has prevailed with the authorities in the instant case were taken to its logical conclusion and upheld, such a discount would not be allowed to be deducted in determining the wholesale cash price. Fortunately, that is not the view taken in the instant case with regard to quantitative discount but it could possibly have been taken on a parity of reasoning. The fact, therefore, that a trade discount is not uniformly given or is given at different rates to different purchasers cannot by itself disqualify it from being excluded for arriving at the true assessable value, so long as the lack of uniformity is not founded on any extra-commercial considerations. To the extent that the discount is given, manufacturing profit has gone down and to ignore it would amount to adding a non-existent fraction to the manufacturing profit and to artificially inflate the net assessable value for the levy of excise duty, which is not legally permitted, having regard to the basic concept of such levy. 18. In the next place, under the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove the excisable goods unless he has paid the duty so determined. Even in such cases, however, the approved price list will have to take into account the trade discount offered on different consignments or different classes of consignments removed during the period for which the price list remains in force. In the very nature of things, therefore, there is no warrant for implying that a trade discount would be permissible deduction only if it is allowed uniformly. 18A. In the last place, there is nothing in the enacting part of clause (a) of Section 4 which even otherwise requires any such limitation being imported for the proper working of the said provision. As explained in Voltas Limited's case, the application of clause (a) of Section 4 does not depend upon any hypothesis to the effect that at the time and place of sale any further articles of like kind and quality should have been sold. The consideration, therefore, whether, if at the time and place of sale, any further articles of like kind and quality should have been sold, trade discount at the same rate would have been allowed, is not relevant. If the real value of the goods actually sold can be ascertained by working o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove and having regard to the view prevalent in this Court on this point as reflected in the decision in Jyoti Limited's case, we are unable to agree with the decision of the Allahabad High Court in Shyam Glass Works v. Inspector of Central Excise, Sasni, - 1979 (4) E.L.T. (J 460), wherein R N. Lokur, J. has expressed the view that - "the concession of deduction for discount is given only where the discount is uniform." It may be incidentally mentioned that the Allahabad High Court does not give any reasons for reaching the conclusion that the discount must be uniform before deduction in respect thereof can be granted and that factor by itself is sufficient to detract from the persuasive value of its decision. 21. On behalf of the respondents, however, it was strenuously contended that Section 4(a) postulates the wholesale cash price not of specific goods removed from the factory in a particular consignment but wholesale cash price governing all hypothetical sales of articles of like kind and quality effected on wholesale basis at the moment of removal of the goods in question and that, therefore, in order that a trade discount could be legitimately deducted under the Explanation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s which are intended to be removed but also governing hypothetical wholesale cash price of all articles of like kind and quality removed or removable under different consignments at the same time is wholly unfounded. In fact, the submission runs counter to the ratio of the decision in Voltas Limited's case. Besides, the submission also overlooks the scheme of the relevant provisions which have been adverted to above and which clearly indicate that payment of duty is in respect of each separate consignment of goods removed from the factory and it is the wholesale cash price of that consignment which has to be determined, which might vary, because the manufacturing profit relatable to such consignment might differ, having regard to the varying rates of trade discount given on the basis of commercial considerations. The submission could have stood scrutiny provided the levy of duty was linked up only with manufacturing cost and not also with manufacturing profit, although on this point also we need not finally express any opinion. We must, therefore, reject this submission. 22. It would be appropriate to mention at this stage that our view that there need not be a uniform wholesale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose of Section 4 of the Act. "The demand made by the Excise authorities for excise duty short levied was consequently held to be wholly unjustified. This decision, in our opinion, completely supports the view which we have taken above. 23. In our considered view, therefore, the impugned decisions, in so far as they proceed on the basis that since regional discount was not uniformly given, it cannot be taken into consideration as a permissible deduction under the Explanation to Section 4 are clearly unsustainable. The decisions proceed upon a total misconstruction of Section 4 and they are based on considerations which are not germane or relevant and to that extent they are ultra vires. The wholesale cash price of Urea, A. S. and A.S.P. ought to have been determined by the excise authorities by giving deduction for regional discount given to the buyers as indicated in each price list submitted for the approval of the Assistant Collector of Central Excise, Baroda and the assessment of excise duty ought also to have been made on the said basis. 24. A writ will accordingly issue quashing and setting aside the impugned decisions and directing the Excise authorities to approve t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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