1. The petitioner owns a proprietory concern manufacturing Pressure Cookers of various sizes and the concern is registered with the Director of Industries as a small-scale industry. The petitioner sells the whole of its output to M/s. Vijay Trading Corporation, a partnership firm consisting of 5 partners, all of whom are unrelated to the petitioner.
2. On August 11, 1972, the petitioner submitted to the Excise authorities, the price-list in the prescribed form and in Column L5, the 'assessable value' was declared. The assessable value declared was the price at which the pressure cookers were sold by the petitioner to Messrs. Vijay trading Corporation. The petitioner requested the Excise authorities to complete the assessment on that basis for the purposes of Section 4 of the Central Excises and Salt Act, 1944. The price-list was approved by the Customs authorities on November 18, 1972. The petitioner sought confirmation and that was also given by letter dated December 15, 1972.
3. The Excise authorities served a show cause notice dated June 21, 1974 on the petitioner stating that it appears that M/s. Vijay Trading Corporation were engaged in the manufacture of pressure cookers and the price declared by the petitioner was not a wholesale cash price. The Excise authorities called upon the petitioner to show cause why the price charged by M/s Vijay Trading Corporation should not be approved as a wholesale cash price. The petitioner gave his reply on July 17, 1974 pointing out that the transactions between the petitioner and M/s. Vijay Trading Corporation were between independent parties and were at arms length and in the normal course of business. The Assistant Collector, by his order dated October 22, 1974, rejected the claim made by the petitioner and directed that the price charged by the distributor to their dealers should be taken as a wholesale cash price within the meaning of Section 4(a) of the Central Excises and Salt Act, 1944.
4. The petitioner carried an appeal but the same ended in dismissal. During the period of these proceedings, the petitioner had claimed refund of Rs. 98,900.12 as being the difference between the price charged by the distributor to their dealers and the distributor and the ex-factory price charged by the petitioner to the distributors. The respondent No. 2, by his order dated October 28, 1974 rejected the claim for refund on the strength of its earlier order dated October 22, 1974. The petitioner carried an appeal against this order also but the same ended in dismissal. These orders under challenge in this petition filed under Article 226 of the Constitution of India.
5. The excise authorities have come to the conclusion that M/s. Vijay Trading Corporation were really the manufacturers and the price charged by them to their dealers or distributors is the wholesale cash price within the meaning of Section 4 of the Central Excises and Salt Act, 1944 on three grounds. The first is that the pressure cookers manufactured by the petitioner bear the trade mark of Messrs. Vijay Trading Corporation. The second ground is that the entire production is supplied exclusively by the petitioner to M/s. Vijay Trading Corporation and the last ground is that the petitioner has no interest in the commercial sale of the products as all the expenses on advertisements are incurred by M/s. Vijay Trading Corporation. In my judgment, all these three grounds would not lead to the conclusion that the agreement between the petitioner and M/s. Vijay Trading Corporation is not at arms length. It is now well-settled that the mere fact that the trade mark of the sole purchaser appears on the product would not lead to the conclusion that the manufacturer is a company whose trade mark appears on the product. The mere fact that the entire production is supplied to M/s. Vijay Trading Corporation would also not indicate that the real manufacturers are M/s. Vijay Trading Corporation. The fact that the expenses of advertisement are borne by M/s. Vijay Trading Corporation is not sufficient to hold that transaction between the petitioner and M/s. Vijay Trading Corporation was not at arms length. The Supreme Court has held in the case of A. K. Roy and another vs . Voltas Ltd. : 1973ECR60(SC) that 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 Section 4(a) of the Act if the agreements were made at arm's length. In my judgment, even accepting that the three factors on which reliance is placed by the Excise authorities are correct, still it is difficult to come to the conclusion that the transaction was not at arms length.
6. Mr. Dalal, the learned counsel appearing for the respondents, submitted that there is not written agreement between the petitioner and M/s. Vijay Trading Corporation and that fact also indicates that the real manufacturer was M/s. Vijay Trading Corporation. The Excise authorities did not come to the conclusion that the agreement was bogus or not genuine and the mere fact that it is not in writing is not sufficient to conclude that the agreement was not at arms length. In my judgment, the orders of the Excise authorities are clearly erroneous and deserve to be set aside. The petitioner is also entitled to order of refund and the order of rejection of that claim is also required to be set aside.
7. Accordingly, the petition succeeds and the rule is made absolute in terms of prayer (a) of paragraph 19 of the petition. The respondents are also directed to refund the amount claimed by the petitioner after ascertaining the correctness of it. In the circumstances of the case, there will be no order as to costs. The respondents to refund to amount within a period of three months from to-day.