1. The first petitioners manufacture, in the name of M/s. Precision Die-Cast Industries, grinders-cum-mixers and pay excise duty in respect thereof. In paragraph 3 of the petition it is alleged that the first petitioners have appointed M/s. Rallis India Limited as their sole distributors. Rallis India is independent company. The sale of the products by the first petitioners to Rallies India are on principal to principal basis and at arms length and there is no extra commercial benefit given to Rallis India. Upon the said products the first petitioners affix name plates bearing the Rallis India brand name. There is no affidavit-in-reply filed by the respondents controverting the statements made in paragraph 3 of the petition.
2. In respect of the excise duty payable, the first petitioners have filed a price list showing the price paid by Rallis India to them as the assemble value of the said products. On 11th June, 1974 the first petitioners received a notice to show cause why they should not be required to make payment of what was described as 'short levy' of excise duty in the sum of Rs. 1,24,473.35/- in respect of 6,057 grinders-cum-mixers cleared during the period from 12th June, 1973 to 31st October, 1973. The ground for this was stated to be that, in as much as the said products bore the Rallis India brand name, the price at which Rallis India sold the said products should be in the assemble value thereof for the purpose of excise duty. On 26th September 1974 the second respondent passed an order. He stated therein that, as per the existing orders, the prices charged by the brand name owners to their consumers should be the basis for deciding the assessable value. Accordingly, since the first petitioners had declared their own price in the price list instead of the price of the brand name owner the demand for the difference of the duty was justified. The first petitioners thereupon were required to make payment of a sum of Rs. 1,02,660.60/- towards excise duty, said to be short levied and to make provision by way of a bank guarantee of Rs. 2,33,488/- for further short-falls. On 15th October, 1974 the first petitioners preferred an appeal before the Appellate Controller. On 15th October, 1975, the Appellate Controller by a cryptic order upheld the reasoning of the second respondent. On 7th April, 1976 the first petitioners filed a revision application before the first respondent. On 3rd May/2nd August 1978 an order was passed in the revision application upholding the levy, but on a different ground. It was stated in the order that the question that arose for decision was whether the sole distributor or distributor of goods was the same thing as a whole-sale dealer, as contemplated under Section 4 of the Central Excise and Salt Act, 1944. The first respondent observed that, in law, the word 'distributor' was understood as a person or a firm who distributed the goods of a particular manufacturer and not one who bought the goods from the manufacturer, like a whole-sale dealer. A distributor, therefore, stood on an entirely different footing from a whole-sale dealer. The price at which the goods were given to the distributor was not the whole-sale cash price contemplated under Section 4. This price had to be determined on the basis of the value at which the sole distributor sold the goods subsequently to various whole-sale dealers in the open market. In view of this the price charged by Rallis India to whole-sale dealers was the correct assessable value under Section 4.
3. This petition was filed on 26th April, 1979 challenging the orders of the second respondent, the order in appeal and the order in revision.
4. It was contended by Mr. Andhyarujina, learned counsel for the petitioners, that the case was wholly covered by authorities. In Attic Industries Limited v. H. H. Dave, Assistant Collector of Central Excise and others, : 1978(2)ELT444(SC) , it was held, judgment in A. K. Roy v. Voltas Limited : 1973ECR60(SC) , that 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 a 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 purchased goods from the manufacturer and sold 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 might be noted that the 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. It was the first immediate contact between the manufacturer and the trade that was made decisive for determining the wholesale cash price which was to be the measure of the value of the goods for the purpose of excise. The second or subsequent price, even through, on wholesale basis, was not material. There could not be no doubt that where the manufacturer sold the goods manufactured by him in the 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 would represent the value of the goods from the purpose of assessment of excise. That would be the wholesale cash price for which the goods were sold at the factory gate within the meaning of Section 4(a). The price received by the wholesale dealer who purchased the goods from the manufacturer and his turn sold them in wholesale to other dealers was irrelevant to the determination of the value and the goods were not chargeable to excise on that basis.
5. This judgment clearly demonstrates the fallacy of the reasoning adopted by the first respondent in the order passed in revision. Mr. R. L. Dalal, learned counsel for the respondents, however, laid emphasis upon the fact that Rallis India was described as the first petitioner's distributor. He referred me to the decision of the division bench of this in Amar Dye-Chem Limited and another v. Union of India and another, 1981 E.L.T. 348. The court held that the distributor normally was an agent of the manufacturer for the purpose of distributing the goods to the consumers. He was not a buyer of goods from the manufacturer on his own account and did not himself pay the price of the goods purchased before the goods were passed on to the consumer. But, merely by the use of the word 'distributor' in the list filed by the petitioner, it could not be said that the distributor was a related person. What was material was real substance of the transaction. If the distributor bought the goods and the price was the sole consideration of the sale and the transaction was at arms length, he could not be categorised as a related person. In the case of a buyer who purchased, the goods on payment of a commercial price, from the manufacturer and the transaction in affection was a sole, such a buyer even through a kind of distributor was different from the distributor who acted as an agent of or on behalf of the manufacturer. In such a case the distributor was in fact the wholesale buyer and the property and the goods passed such a buyer. It is difficult to see how judgment furthers the respondents' case. It is averred in the petition and, indeed, has been averred at all the times by the first petitioners before the authorities that they sold their products to Rallis India on an outright basis in a arms length transaction. There is no statement by the authorities which disputes this. There is no affidavit-in-reply which disputes the correctness of the averment made in the petition. It must, therefore, be accepted that this was the real nature of the transaction between them. This being so, it is immaterial that Rallis India is described as the distributor of the first petitioners.
6. The second respondent and the Appellate Collector proceeded upon the basis the price at which Rallis India sold the said products represented the true assessable value thereof for the purpose of excise upon the basis that the labels of Rallis India were attached to the said goods. This court in Ceramics and Electrical Industries Private Limited and another v. Union of India and others 1981 E.L.T. 358, has held that merely because, before the delivery of the goods to the wholesale buyer, the manufacturer put the labels of the wholesale buyer on the goods would not make the wholesale buyer the manufacturer thereof, nor could it be said for that reason that the goods were manufactured on behalf of the wholesale dealer wholesale buyer. By reason of the lable the goods did not change their identity. They remain the same. This, Mr. Dalal, did not dispute.
7. This discussion makes it clear, Therefore, that the grounds taken by the second respondent and the Appellate Collector on the one hand and by the first respondent in revision on the other cannot be sustained. The petition must, therefore, be made absolute in terms of prayers (a) and (b)-(ii) & (iii). The refund of Rs. 1,02,660.60/- to be made within 3 months from today. The bank guarantee given by the petitioners to the respondents in the sum of Rs. 2,33,448/- shall stand discharged. The respondents to pay to the petitioners the cost of the petition.