Full Judgment Text
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PETITIONER:
ATIC INDUSTRIES LTD.
Vs.
RESPONDENT:
H.H. DAVE, ASSTT. COLLECTOR OF CENTRAL EXCISE AND ORS.
DATE OF JUDGMENT14/02/1975
BENCH:
BHAGWATI, P.N.
BENCH:
BHAGWATI, P.N.
GUPTA, A.C.
UNTWALIA, N.L.
CITATION:
1975 AIR 960 1975 SCR (3) 563
1975 SCC (1) 499
CITATOR INFO :
E 1984 SC 420 (24,26,34,44,45)
R 1989 SC 516 (3,34)
D 1990 SC1676 (7)
RF 1992 SC2055 (6,8)
ACT:
Central Excise and Salt Act 1944--s. 3 (1) and 4(a)--Ad
valorem assessment--How made.
HEADNOTE:
The appellant, which was a manufacturer of dye-stuffs, sold
its product to, two wholesale buyers at a uniform selling
price described as "the basic selling price" less trade
discount of 18%. The wholesalers in turn sold the product
to large consumers such as textile mills and distributors.
One wholesaler sold the dye-stuff to the distributors Pat a
higher price but allowed 10% discount while the other sold
at a lower price and allowed 2-1/2% discount. The price
charged by both however was so adjusted that the net selling
price charged to the distributors was almost the same.
The excise duty chargeable under s. 3(1) of the Central
Excise and Salt Act, 1944 was ad valorem. Section 4
provided-as to how the value of an article chargeable with
duty at a rate depending on its value shall be determined
for the purpose of assessment of excise duty.
Before the excise authorities the appellants claimed that,
for the purpose of assessing the excise duty the value of
the dye-stuffs should be taken to be the price at which the
appellants sold the same to the two wholesale buyers less
trade discount allowed to these wholesale buyers. The
Superintendent of Central Excise rejected this contention
and took, for the purpose of assessment, the price at which
the wholesalers sold the dye-stuffs to the distributors. He
did not, however, allow any deduction in respect of the
discount given by the wholesalers to the distributors since
it was not uniform. On appeal the Assistant Collector of
Central Excise confirmed the assessing authority’s order.
On further appeal, the Collector of Central Excise held that
in determining the assessable value, the lower trade
discount of 21% allowed by one of the wholesalers to the
distributors only should be deducted. The appellant’s
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revision application was rejected by the Central Government
on the ground that since the dye-stuffs manufactured by the
appellant were not available to an independent buyer in open
market conditions at price at which these were sold by them
to the wholesalers these prices could not be adopted as the
basis of (id valorem assessment under s. 4 of the Act. It
was observed that these dyestuffs were available to any
independent buyer in open market conditions at the
distributors’ prices, that is, at the prizes charged by the
wholesalers to the distributors and,, therefore, these
prices should form the basis of assessment after allowing
the discount.
Dissatisfied with the decision of the Central Government the
appellant filed a petition under art. 226 of the
Constitution. The High Court held that where the entire
production was sold by a manufacturer to one or more
favoured distributors there was no wholesale market in the
sense of open market at the site of the factory where an
independent buyer could purchase the goods in wholesale and
the assessable value must therefore be taken to be the price
at which favoured distributors sell the goods in wholesale
and if not in wholesale, then, in retail. The High Court
accordingly upheld the view of the Central’ Government.
Allowing the appeal,
HELD : (1)(a) 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 the two
wholesale dealers less 18% trade discount and not the price
charged by the wholesale dealers to the distributors. [573F-
G]
564
(b) 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 s. 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 of the goods and the goods would not be chargeable
to excise on that basis. [573E-F]
(c) 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. [572F]
(d) 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 trade, excise is not concerned with
what happens subsequently to the goods. [573B-C]
A. K. Roy v. Voltas Ltd., [1973] 2 S.C.R. 1088, followed.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1868 of 1970.
From the Judgment and Order dated the 30th March, 1970 of
the Gujarat High Court in S.C.A. No. 1219 of 1966.
N. A. Palkhivala, Sol. J. Sorabji, Ashok Desai, D. B.
Engineer,
K. K. Master, and Ravinder Narain, for the appellant.
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G. L. Sanghi and Girish Chandra, for the Respondents.
The Judgment of the Court was delivered by
BHAGWATI, J.-This appeal, on, certificate of fitness
obtained under Article 133 (1) (a) of the Constitution, is
directed against a judgment of the High Court of Gujarat
dismissing Special Civil Application No. 1279 of 1966
preferred by the appellants challenging the assessments to
excise duty of certain dye-stuffs manufactured by them. The
facts giving rise to the appeal are few and may be briefly
stated as follows.
The-appellants carry on business of manufacturing dye-stuffs
in a factory situate in a small township called Atul in
Bulsar District in the State of Gujarat. The dye-stuffs
manufactured by the, appellants were, throughout the period
relevant to this appeal, sold by them in wholesale units to
two wholesale buyers, namely, ICI (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 selling 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
565
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, how-
ever, so adjusted that the net selling prices charged by ICI
and Atul to :the, distributors were almost the same. The
distributors, in their turn, resold the dye-stuffs purchased
by them from ICI and Atul to the small consumers at a
slightly higher price referred to as "small consumers
price". No discount was given by the distributors to the
small consumers.
The position which, therefore, obtained during the relevant
period was that the appellants sold the dye stuffs
manufactured by them in wholesale units, 701% to ICI and 30%
to Atul, at the basic selling price, less trade discount of
18%: ICI and Atul in their turn resold a part of the dye
stuffs in retail units to the textile mills and large
consumers at the basic selling price and the balance in
wholesale units to the distributors at higher selling prices
with 10% trade discount in case of ICI and 2-1/2% trade
discount in case of Atul, the net selling prices charged by
both of them, however, being the same; and the distributors,
in their turn, resold the dye stuffs to small consumers in
retail units at the small consumers price. It may be
pointed out that though Atul initially charged a lower
selling price and gave a trade discount of 2-1/2%, it fell
incline with ICI and adopted the same selling price as ICI
with trade discount of 10% from and after 1st May, 1963.
There was no excise duty on dye-stuffs prior to 1st March,
1961, but with effect from that date excise duty was imposed
for the first time on dye-stuffs, including those
manufactured by the appellants. The excise duty chargeable
under the relevant entry in the first Schedule read with
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section 3, sub-section (1) of the Central Excise and Salt
Act, 1944 was ad valorem, and it was, therefore, necessary
to determine the value of the dye-staffs manufactured by the
appellants for the purpose of assessing the excise duty
payable on them. Section 4 of the Act provided how the
value of an article chargeable with duty at a rate depending
on its value shall be determined for the purpose of
assessment of excise duty. It said :
"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 be deemed
to be-
(a) the whole sale 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 chargeable with duty
from the factory or any other premises of
manufacture or production, or if a wholesale
566
market does not exist for such article 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 sold or is capable of being sold
by the manufacturer or producer, or his agent,
at the time of the removal of 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."
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 aid down in section 4. The
appellants contended before the Excise Authorities that for
the purpose of assessing the excise duty, the value of the
dye stuffs manufactured by the appellants should be taken to
be the price at which the appellants sold the same in whole-
sale units to ICI and Atul, less a uniform trade discount of
18% which the appellants at the relevant time gave to these
two wholesale buyers. This contention was not accepted by
the Superintendent of Central Excise who was the original
assessing authority. He took the view that the value of the
dye stuffs for ,the purpose of assessment of excise duty
should be taken to be the price at which ICI and Atul sold
the dye stuffs to the distributors and. no deduction should
be allowed in respect of the discount given by them to the
distributors since it was not uniform, being 10% in case of
ICI and 2-1/2% in case of Atul. The appellants appealed
against the assessment to the Assistant Collector of Central
Excise, but the appeal was unsuccessful and the assessment
was confirmed. That led to the filling of a further appeal
to the Collector of Central Excise. This appeal resulted in
some gain, little though it was, as the Collector of Central
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Excise held that in determining the, assessable value, trade
discount of 21% which was given by Atul to the distributors
should be allowed to be deducted from the price charged by
ICI to the distributors. This was, however, plainly
illogical. If the price charged by ICI was taken as a
basis, trade discount of 10% should have been allowed as
that was the discount given by ICI to the distributors.
Trade discount of 21% given by Atul on the lower price
charged by it to the distributors could not be deducted from
the price charged by ICI to the distributors which was fixed
at a higher figure because of the larger trade discount of
10% given by it to the distributors. The assessable value
determined by the Collector of Central Excise was a strange
hybrid. The appellants preferred a revision application to
the, Central Government against the order of the Collector
of Central Excise. The, Central
567
Government in revision rejected the main contention of the,
appellants that the value of- the dye stuffs should be
arrived at the price at watch the same were sold by the
appellant to ICI and Atul less 18% trade discount allowed to
them. The reason for rejecting this contention was that
since dye stuffs manufactured by the appellants were not
"available to an independent buyer in open market conditions
at prices at which these are sold by them to the Sole
Distributors, M/s ICI Ltd. and M/s Atut Products Ltd., these
prices cannot be adopted as the basis of ad-valorem
assessment" under section 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
price 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 2-1/2% on the prices charged by Atul
upto 30th April, 1963 and 10% thereafter and on this basis
directed refund of the excise duty collected by the Excise
Authorities.
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 Art. 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.
1,26,229.80 illegally recovered from the petitioners and to
forbear from recovering duty from the petitioners in
respect. of the said products otherwise than on the basis of
the prices charged by the petitioners to the said wholesale
buyers viz. ICI and Atul." The Division Bench which heard
the petition took the view, following certain decisions of
the Calcutta, Mysore, Andhra Pradesh and Bombay High Courts,
that where the entire production is sold by a manufacturer
to one or more favoured distributors, there is no wholesale
market in the sense of open market at the site of the
factory where an independent buyer can purchase the goods in
wholesale and in such a case the price at which the goods
are sold by the manufacturer to the favoured distributors
cannot be taken to be the assessable value of the goods but
the assessable value must be taken to be the price at which
the favoured distributors, in their turn, sell the goods in
wholesale and if not in wholesale, then in retail. The
Division Bench accordingly held that the price charged by
the appellants to ICI and Atul less 18% trade discount could
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not be adopted for determining the assessable value of the
dye stuffs since ICI and Atul were favoured distributors and
not independent buyers and the Central Government was right
in taking the price charged by ICI less 10% trade discount
and the price charged by Atul less 2-1/2% trade discount as
the assessable value because "that was the wholesale cash
price at which the independent buyers could get these goods
in the nearest wholesale market at the relevant time." The
appellants being agerieved by the decision of the High Court
preferred the present appeal after obtaining certificate of
fitness from the High Court.
5--470SupCI/75
568
It would be seen from the judgment of the, High Court that
the only ground on which the High Court negatived the
contention of the, applicants that the price charged by the
appellants to ICI and Atul less 18% trade discount should be
taken as the assessable value was that ICI and Alul were
favoured distributors and apart from them, no independent
buyer could purchase the dye stuffs in wholesale market at
or near the place of manufacture so as to attract the appli-
cability of the first Part of section 4(.a). This is ground
of course, at one time, looked highly plausible, supported
as it was by decisions of several High Courts. But now,
after the recent decision of this Court in A. K. Roy v.
voltas Ltd.(1) it stands completely decimated. The facts of
that case are a little interesting and requires to be
noticed in order to understand the true ratio of the
decision.
The respondent in that case carried on inter alia business
of manufacturing air-conditioners, 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 terdtory. Excise duty on the basis of ad-valorem
value was imposed on air-conditioners, water-coolers and
parts of water-coolers from March 1, 1961. The respondent
claimed, in accordance with section 4(a), that the list
prices after deducting the discount of 22% allowed to the
wholesale dealers should be taken to be the wholesale cash
price, for ascertaining the real value of the articles.
This claim was resisted by the Excise Authorities and the
respondent was therefore constrained to file a writ petition
in the High Court of Bombay. The High Court allowed the
petition holding that the list prices at which the articles were
sold to’ the wholesale dealers, less 22% discount
allowed to them under the agreements, represented ’the
wholesale cash price’ and excise duty was accordingly
chargeable under section 4(a). The Excise Authorities
thereupon preferred an appeal by certificate to this Court.
The same argument was advanced before this Court on behalf
of the Excise Authorities which has found favour with the
High Court in the present case. The Excise Authorities
contended that the agreements with, the whole-sale dealers
conferred certain extra-commercial advantages upon them, and
so, the sales to them were not sales to independent
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purchasers but to favoured ones, and, therefore, the price
charged would not represent the "wholesale cash price" as
mentioned in s. 4(a) of the Act. They argued that s. 4(a)
visualizes a wholesale market at the place of manufacture
where articles of like
(1) [1973] 2 S.C.R. 1088.
569
kind and quality are sold or could be sold and that it also
postulates a market where any wholesale purchaser can
purchase the articles, and, as no articles of a like kind
and quality were sold, at or near the place of manufacture,
and as the wholesale sales were confined to the favoured
buyers, there was no wholesale market at the place of
manufacture. It was further argued that "articles of a like
kind and quality" is a phrase which suggests goods other
than those under assessment and that one must disregard the
price fetched by the sale of the goods themselves.
speaking on behalf of the Court, explained the true scope
and meaning of section 4(a) and its applicability in a
situation of this kind in the following words
"We do not think that for a wholesale market
to exist, it is necessary that there should be
a market in the physical sense of the term
where articles of a like kind or quality are
or could be sold or that the articles should
be sold to so-called independent buyers.
Even if it is assumed that the latter part of
S. 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 whichconfer certain,
commercial advantages upon them. In
other words, the sale to the wholesale
dealers did not cease to bewholesale sales
merely because the wholesale dealers hadentered
into agreement with the respondent under which
certain commercial benefits were conferred
upon them in consideration of their
undertaking to do service to the articles
sold, or because of the fact that no other
person could purchase the articles wholesale
from the respondent. We also think that the
application of clause (a) of s. 4 of the Act
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. If there is an actual
price for the goods themselves at the time and
place of sale and if that is a ’wholesale cash
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Price’. the clause is not inapplicable for
want of sale of other goods of a like kind and
quality.
570
The learned Judge then referred to the decision of the
Privy Council in Ford Motor Company of India Limited v.
Secretary of State India in Council(1) and pointed out that
:
"This case is an authority for the proposition
that mere existence of the agreements between
the respondent and the wholesale dealers under
which certain obligations were undertaken by
them like service to the articles, would not
render the price any the less the ’wholesale
cash price. TO put it in other words, event
if the articles in question were sold only to
wholesale dealers on the basis of agreements
and not to independent persons, that would not
make the price for the safes anything other
than the ’wholesale cash price. The argument
that what was relevant to determine the
’wholesale cash price, under cl. (a) of s. 30
of the Sea Customs Act, 1878, was the price of
goods of a like kind and quality was negatived
by the Privy Council by saying that goods
under assessment may, under el. (a) be con-
sidered as members of their own class even
though at the time and place of importation
there are no other members and that the price
obtained for them may correctly represent the
price obtainable for goods of a like kind and
quality at the time and place of importation."
Then, with reference to the decisions of the various High
Courts, which had taken a different view, the learned Judge
observed : "We do not think that these decisions, in so far
as they hold that the price of sales to wholesale dealers
would not represent the wholesale cash price for the purpose
of s. 4(a) of the Act merely because the man*, facturers had
entered into agreements with them stipulating for commercial
advantages, are correct", and proceeded to add :
"If 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 s. 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 whole-
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(1) 65 I.A.32.
571
sale cash price for the purpose of s. 4(a) of
the Act may, not depend upon the number of
such wholesale dealing. The fact that the
respondent sold 90 to 95 per cent of the
articles manufactured to consumers direct
would not make the, price of the wholesale
sales of the rest of the articles any the less
the ’wholesale cash, price’ for the purpose of
S. 4(a), even if these sales were made
pursuant to agreements stipulating for certain
commercial advantages, provided the agreements
were entered into at arms length and in the
ordinary course of business."
it is not necessary for attracting the
operations of s. 4(a) that there should be a
large number of wholesale sales. The quantum
of goods sold by a manufacturer on wholesale
basis is entirely irrelevant. The mere fact
that such sales may be few or scanty does not
alter the true position."
On this view, it was held that the respondent was liable to
be charged with excise duty on the basis of the price
payable by the wholesale dealers, after deducting 22%
discount, under section 4 (a).
This decision provides a complete refutation of the view
taken by the High Court in the present case. In fact, the
present case is much stronger than the Voltas case (supra).
In the 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 per cent 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
s. 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. Moreover, it was not in dispute between the
parties that the agreements entered into by the appellants
with ICI and Atul were made at arms length and in the usual
course of business. It was not the case of the Excise
Authorities at any time that specially low prices were
charged by the appellants to ICI and Atul because of extra
commercial considerations or that the agreements were
anything but fair and reasonable or arrived at on purely
commercial basis. The wholesale dealings between the
appellants and lCI and Atul were purely commercial dcalings
at arms length and the price charged by the appellants for
sales in wholesale made to ICI and Atul less trade discount
of 18% was, therefore, clearly ’wholesale cash price’ within
the meaning of s. 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 at) appellants.
The Excise Authorities, robbed of what they thought was a
strong argument prior to the decision in Voltas case
(supra), then tried to
572
fall back on a subsidiary argument in an attempt to save,
the assessments. They contended that all that S. 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
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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 s. 4 (a)
as it would be the price at which the article is sold or in
any event capable of being sold in the wholesale market and
there is no reason why it should not be taken to be the
value of the article for the purpose of assessment under s.
4(a). The contention, therefore, was that the price charged
by ICI and Atul to the dealers less trade discount allowed
to them should be taken to be the assessable value of the
dye stuffs and not the price charged by the appellants to
ICI and Atul less trade discount of 18%. This contention is
without force and must be rejected. It violates two basic
principles underlying imposition of excise duty.
In the first place, as pointed out by Mathew, J., in Voltas’
case (supra), "excise is a tax on the production and
manufacture of goods-Section 4 of the Act therefore provides
that the real value should be found after deducting the
selling cost and selling profit and that the real value can
include only the manufacturing cost and the manufacturing
profit. The section makes it clear that excise is levied
only on the amount representing the manufacturing cost plus
the manufacturing profit and excludes post-manufacturing
cost and the profit arising from pos manufacturing
operation, namely, selling profit." 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 than one tier of wholesale
transactions. For instance, in a textile trade, a
manufacturer may sell his entire 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
573
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
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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 of the
goods for the purpose of excise. The second or subsequent
price, even though on wholesale basis, is not material. If
excise were levied on the basis of second or subsequent
wholesale price,, it would load the price with a postman-
factoring element, namely,. selling cost and selling profit
of the wholesale dealer. That would be plainly contrary to
the true, nature of excise as explained in the Voltas’ case
(supra). Secondly, this would also violate the concept of
the factory gate sale which is the basis of determination of
value of the goods for the purpose of excise.
There can, therefore, be no doubt that where a manufacturer
sells the needs manufactured by him in wholesale to a
wholesale dealer at arms 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 s. 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 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 discount, and not the price charged
by ICI and Atul to their dealers.
We, therefore, allow the appeal, reverse the judgment of ,
the High Court and quash and set aside the Assessments to
excise duty made by the Excise Authorities on the dye stuffs
manufactured by the appellants. We direct the respondents
to refund to the appellants forthwith the amount collected
in excess of the correct duty of excise leviable in
accordance with the principle laid down in this judgment.
The respondents will pay to the appellants costs in this
Court as well as in the High Court.
P.B.R. Appeal allowed.
574