TMI Blog1960 (2) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... m limit of the slab, the rate of duty becomes calculable at the higher rate. It is, therefore, to the interest of the manufacturer to keep the value within the lower slab and it is always the headache of the Excise authorities to ensure that this is properly calculated, so that the higher duty is not deliberately avoided. As is to be expected, in the case of a large-scale manufacturer like the petitioner, special arrangements have to be made for the levy of excise duty. Every day, thousands of cigarettes are produced and sold, and until a special machinery is set up, business could not be conducted. In this particular case, the procedure followed was as follows: The Excise authorities maintain an office at the factory site. It is the practice of the petitioner to advise the Central Excise authorities every quarter in January, April, July and October of the price structure of all brands of cigarettes produced by it. This is done by the issue of a quarterly consolidated price list. This price list is submitted to the Excise authorities, who verify the same from the market and then issue a certificate. Even before a certificate is issued, a provisional approval is made, followed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce, (3) duty, (4) stockist's price, (5) retail price per packet and per tin, and (6) remarks. It will be observed that the heading 'distributor's selling price' or the 'distributor's commission' have disappeared. At the hearing of this application, the meaning of this heading 'stockist's price' was again the subject matter of dispute. The application being adjourned, the matter was verified and it is now admitted that it means the price at which the company sells at a wholesale price to its stockists. According to the petitioner, this change in the price list was made, because, for purposes of calculation of excise duty, the particulars given in the original price list were too many, and many of the headings were completely unnecessary. According to the respondents, this change in the price list was deliberately effected, in order to avoid payment of excise duty. It is pointed out that the basis of calculation under Section 4 of the said Act, is not the price at which the company sells to its stockists or distributor, as the case may be, but the 'wholesale cash price', that is to say, the price at which the goods are capable of being sold in a wholesale market, to an independent bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itional Central Excise Duty, within ten days from the date of the notice. Sums demanded are stated to be the differential Basic and Additional Central Excise Duties chargeable on 'No. 10' brand cigarettes cleared from the factory during the period 1-10-1957 to 9-8-1958 on account of short-levy of Central Excise Duties. On the 13th November, 1958, a notice of demand was issued, purporting to be under Rule 10A of the Central Excise Rules, 1944, demanding payment of the sum of Rs. 40,726.48 nP. as Basic Central Excise Duty and Rs. 16,958.50 nP. as Additional Central Excise Duty, within ten days from the date of the notice. Sums demanded are stated to be the differential Basic and Additional Central Excise Duties on several brands of cigarettes mentioned in the notice, cleared from the factory, during various periods extending from 1-1-1958 to 21-1-1958, as mentioned in the said notice. 3.The only other fact I have to mention is that the company admittedly sells cigarettes to its stockists, who are also called distributors, under an agreement, a copy whereof is annexed to the petition and marked as Ext. 'J'. The agreement shows that the stockists or distributors are not to be conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icable would be Rule 10 and as such, they are barred by limitation. The third point that has been taken is that the abrupt change in the matter of assessment that was effected by the Excise authorities, was done without any notice to the petitioner and without telling it as to the reason why the stockists' price was not to be considered as the wholesale cash price under Section 4 of the Act, and thus the petitioner company had not opportunity of making any representation, but was suddenly confronted with demands for large sums, and that this was not in conformity with the Rules of natural justice. 4. In my opinion, both the parties have proceeded on a wrong footing and upon an incorrect interpretation of Section 4 of the Act, which I shall now proceed to consider. The relevant part of Section 4, which we have to consider runs as follows: - "4.Determination of value for the purpose of duty.—Where under this Act, any article is chargeable with duty at a rate dependent on the value of the article, such value shall be 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 artic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, for the particular article in question, that such calculation is permissible. The word 'wholesale market' must mean a place where the article in question is habitually sold to anybody who wishes to make a purchase or sale. It is actually obvious that just because a factory manufactures the articles at a particular place and sells them there to its stockists or dealers, will not by itself convert it to a wholesale market. Whether it is a 'wholesale market' at that location would depend upon a variety of questions, namely, as to whether goods were really being sold wholesale, and as to whether anybody wishing to purchase the goods could do so at the location. Doubtlessly, this is what is intended by the Excise authorities while using the expression 'independent buyer'. If a manufacturer sells to a restricted number of stockists at the location, subject to special conditions, it does not follow that there exists a wholesale market at such a location. Now, if there is no wholesale market at the location, then the location to be considered is the nearest place where such a market exists. Whether a wholesale market exists at a certain place is a question of fact, to be determined upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at which the stockists or agents are selling the same to an independent buyer in 'an open market'. It does not follow the wordings of Section 4, 'An open market' may be a market which may not be a wholesale market at all or it may be a wholesale market which does not deal with the article in question or articles of a like kind and quality, or it may not be a wholesale market which is nearest to the place where the factory is situated or the place of production for delivery etc. According to the letter, it is sufficient if it is 'an open market' which means an open market situated in any part of the country. Then again, the wholesale cash price for the articles and/or goods of a like kind, have to be calculated at a point of time when the goods are removed from the factory and not at a later date when the stockist sells to dealers etc. but this is not followed in the letter. In my opinion, the principles of calculation for assessment set out in the letter dated 5th November, 1958 are not correct, and would not lead to a proper assessment. In my opinion, therefore, the interpretation made by both the parties is wrong and the proper method of calculation should be as follows: The dete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld have fetched at the nearest wholesale market at the time of such removal etc. If there is no wholesale market at the site of the factory and/or place of manufacture etc., and 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 transaction takes place at a short distance of time, otherwise a notional calculation will have to be made as to what the wholesale cash price would have been in such a wholesale market, at the requisite point of time, for the goods in question, or goods of similar quality. In other words, what will have to be determined is as to what would be the wholesale cash price that such goods would have fetched in such a wholesale market, at or about the time when the goods were removed from the factory and/or premises of manufacture or production etc. 3. Method of calculation I have already stated above that the determination of value for the purpose of duty, is based on the wholesale cash price for which the article in question or an article of the like kind an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial or evidence upon which the excise authorities wish to depend. As I have pointed out above, the principles followed by the excise authorities in this case cannot also be supported. The principles embodied, in the letter dated 5th November, 1958, quoted above, do not accurately lay down the principles to be followed. In so far as it rejects the price at which the petitioner company sells to its stockists the stand is justified for reasons given above. It does not however, follow that the calculation can be made on the basis of the wholesale cash selling price at which the stockists or agents are selling the same to an independent buyer. Such a sale may not be either in the necessary location or at the necessary point of time, and the method of calculation would then be wrong and not in consonance with the method of calculation laid down in Section 4 of the Act. If the excise authorities depend on any price list issued by the company, it should be made plain that such price list should be drawn up in accordance with the principles mentioned above, otherwise such a price list cannot form the basis of assessment. Although the first calculation and the determination of the location e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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