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indo-national Limited and Vs. Union of India (Uoi) and - Court Judgment

LegalCrystal Citation
SubjectExcise
CourtAndhra Pradesh High Court
Decided On
Case NumberWrit Petition Nos. 5948 of 1975; 819, 1115, 1532, 2194, 2601 and 2602 of 1976 and 217 and 218 of 197
Judge
Reported in1979(4)ELT334(AP)
ActsSea Customs Act - Sections 30; Central Excises Act, 1944 - Sections 3, 4, 4(1) and 4(2); Constitution of India - Article 226; Central Excises (Amendment) Act, 1973; Central Provinces and Bear Sales of Motor Spirit and Lubricants Taxation Act, 1938; Government of India Act, 1935; Madras General Sales-Tax Act, 1939; Sugar Excise Act; Companies Act, 1956; Karnataka Contract Carriages (Acquisition) Act
Appellantindo-national Limited and ;ors.
RespondentUnion of India (Uoi) and ;ors.
Excerpt:
- - the petitioner has also sent to the 2nd respondent copies of the agreements entered into between the petitioner and' the authorised wholesale dealers, related and unrelated, which clearly show that those dealers are not its distributors and that the transactions entered into with them are fair and reasonable and purely on commercial basis. (a) even if there is 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 the 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.....ramanujulu naidu, j.1. as the scope or ambit of section 4 of the central excise and salt act, 1944, hereinafter called 'the act', as amended by the central excises and salt (amendment) act, 1973, which came into force on 1-10-1975, requires determination in these writ petitions, the same were heard together.2. the material averments in each of the writ petitions may be briefly stated.3. in w.p. no. 5948 of 1975, the petitioner is a limited company carrying on the business of manufacturing 'dry cell batteries' at its factory at nellore, known as 'nippo'. the petitioner follows a uniform pattern for the selling and marketing of the dry cell batteries manufactured at its' factory at a. pradesh. the petitioner does not have any sole selling agents and sells the batteries to wholesale dealers.....
Judgment:

Ramanujulu Naidu, J.

1. As the scope or ambit of Section 4 of the Central Excise and Salt Act, 1944, hereinafter called 'the Act', as amended by the Central Excises and Salt (Amendment) Act, 1973, which came into force on 1-10-1975, requires determination in these Writ Petitions, the same were heard together.

2. The material averments in each of the Writ Petitions may be briefly stated.

3. In W.P. No. 5948 of 1975, the petitioner is a limited company carrying on the business of manufacturing 'dry cell batteries' at its factory at Nellore, known as 'Nippo'. The petitioner follows a uniform pattern for the selling and marketing of the dry cell batteries manufactured at its' factory at A. Pradesh. The petitioner does not have any sole selling agents and sells the batteries to wholesale dealers in different parts of the country for ultimate distribution to consumers. The authorised wholesale dealers, to whom the petitioner sell dry cell batteries, are not the agents of the petitioner-company and they have no interest directly or indirectly in the business of the petitioner-company or in the business of each other. The sales are organised at arms-length and in the usual course of business with no extra commercial advantages offered to the wholesale dealers and none of the wholesale dealers can be characterised as favourite . buyers. The sale by the petitioner to the wholesalers is on a principal to principal basis and is by way of outright sale. Among the authorised wholesale dealers of the petitioner, there are two absolute independent buyers, Messrs. Torma) Rameshwar Das, Bargarh, Orissa and Messrs. Modern Electric Stores, Nepal. Some of the directors or partners of the rest authorised wholesale dealers are related to some of the directors of the petitioner-company but the transactions with them are purely commercial in nature and the prices charged in respect of them are fair and reasonable, arrived at on purely commerical basis. The interest is purely pecuniary and in the nature of promoting the sales of the petitioner's product. The prices charged to these wholesalers are identical to those applicable to the independent authorised dealers and all the terms of business are the same. The prices paid by all wholesale dealers to the petitioner are based purely on commercial considerations and these are no special or favoured terms to any of the wholesalers, related or otherwise. The duty of excise on the dry cell batteries produced was at all times levied ad valorem under Section 4(a) of the Act, as it stood prior to the amendment. The price recovered from the authorised wholesalers included post-manufacturing costs and expenses, viz., selling, distribution and administrative expenses. The assessable value of its by cell batteries for the purpose of Section 4(a) of the Act as it stood prior to the amendment is the price recovered by the petitioner from its authorised wholesalers less the post-manufacturing costs as laid down by the Supreme Court in the Voltas case. The petitioner, under a misapprehension of the correct legal position or under a mistake of law, submitted, from time to time, the price lists for the approval of the 2nd respondent, showing the assessable value of its products, which included all post-manufacturing expenses. In the price lists submitted to the Central Excise Officers, the petitioner had been including inadvertently, the post-manufacturing costs of (i) sales expenses, (ii) distribution expenses, and (iii) administrative expenses, even as late as December 1974. While submitting the price list on 4-9-1975, the petitioner brought, to the notice of the 2nd respondent, by a letter of even date, that as clarified by the Supreme Court, the post-manufacturing costs and the profits arising out of the post-manufacturing operations have been excluded from the assessable value for the purposes of excise duty. The petitioner has reiterated its stand in the letter addressed to the 2nd respondent on 17-9-1975. The letters dated 4-9-1975 and 17-9-1975 are marked as Annexures A and B.

4. The price list was forwarded for approval in response to a notice issued by the 2nd respondent on 20-8-1975 directing the petitioner to file its price list by 15-9-1975 in accordance with the provisions of the new Section 4(a) of the Act as introduced by the Amending Act of 1973 and brought into force with effect from 1-10-1975. By his letter dated 3-10-1975, the 2nd respondent refused to accept the price list filed by the petitioner on the ground that there are no sales direct to independent wholesale buyers at the Factory Gate and that the goods are being sold through its Distributors and that the petitioner is not entitled to claim any deduction of the post-manufacturing expenses and, the post-manufacturing profits in view of the amended Section 4(a) of the Act. Regarding pickings, the petitioner was directed to show two values for the two different pickings of Display Boxes and Cartons in which the boxes were further packed for transport to up-country buyers. The said letter is marked as Annexure C. The petitioner sent a reply to the 2nd respondent on 20-11-1975 reiterating its earlier stand that excise duty will be leviable only on the production and manufacture of goods and that the wholesale dealers who purchased from the petitioner are not distributors and that post-manufacturing expenses and post-manufacturing profits cannot be included in the assessable value of the excisable goods. The cost of Display Boxes or of the Cartons cannot be included in the assessable value of the excisable goods. The cost of Display Boxes or of the Cartons cannot be included in the normal price, for the reason that the battery cells are neither wrapped nor put in containers and that the pickings are used only for purpose of safety in transit and handling. The said letter is marked as Annexure D. The petitioner has also sent to the 2nd respondent copies of the agreements entered into between the petitioner and' the authorised wholesale dealers, related and unrelated, which clearly show that those dealers are not its distributors and that the transactions entered into with them are fair and reasonable and purely on commercial basis. The petitioner also furnished the information relating to the normal price charged to the wholesale dealers in Part I Proforma. The 2nd respondent, by his letter dated 22-11-1975, advised the petitioner to file the price list in Part IV stating that 11 of the authorised dealers are related persons and there is only one independent authorised dealer. The said letter is marked as Annexure E. The petitioner explained the position again to the 2nd respondent by its letter dated 26-11-1975 that the partners of the wholesale dealer-firms, who are related, are only a few out of several unrelated partners and as there has been no manipulation of price in favour of the related dealers, they should not be treated as favoured buyers and that therefore the price list is acceptable. The said letter is marked as Annexure F, The petitioner has also furnished to the 2nd respondent the names of the partners of all the authorised wholesale dealers by its letter dated 28-11-1975. The 2nd respondent rejected the price list furnished in Part I of the proforma by his letter dated 1-12-1975 and directed the petitioner to file the proforma in Part IV on the ground that the goods of the petitioner are being sold only through related persons. The letters dated 28-11-1975 and 1-12-1975 are' marked as Annexures G and H. The order of the 2nd respondent refusing to accept the price list submitted by the petitioner is based upon a wrong interpretation of the new Section 4(a) of the Act, thereby compelliag the petitioner to pay larger amounts of excise duties which the respondents are not entitled in law to levy and collect. The interpretation placed by the respondents on Section 4(a) of the Act is directly contrary to the following principles laid down by the Supreme Court in the Voltas case for determining the assessable value of the excisable goods sold by the manufacturer to the wholesale dealers for the purpose of the levy of excise duty.

(a) Even if there is 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 the 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.

(b) Where the manufacturer sells the goods manufactured by him in wholesale to a wholesale dealer at arms-length and in the usual course of business, the wholesale price charged by him to the wholesale dealer would represent the value of the goods for purposes of assessment of excise duty.

(c) If the post-manufacturing cost and the post-manufacturing profits are also included in the value for assessment of excise duty, it would be wholly incompatible with the nature of excise duly.

(d) If the price charged by the wholesale dealer who purchased goods from the manufacturer and sells them in wholesale or retail to another dealer were taken as the value of the goods, it would not only violate the concept of excise levy but would also violate of the 'factory gate sale' which is the basis for determination of the value of the goods for the purpose of excise duty.

(e) As the price has to be fixed for delivery at the Factory Gate, freight, octopi and other charges involved in the transport of articles are to be eliminated from the wholesale price which is subject to excise duty.

The basic principles, laid down by the Supreme Court, relating to the levy of excise duty which is in essence a tax on the manufacture or production of goods would equally govern the interpretation of the new Section 4(a) of the Act and the concept of normal price introduced by the said Section cannot bring about any difference in the determination of the value of the goods nor can it be so construed as to make it incompatible with the concept of excise duty. Any extended interpretation of Section 4(a) of the Act would render it ultra vires as beyond the legislative competence of the Parliament to enact it. It is therefore incumbent upon the respondents to interpret the amended Section 4(a) of the Act in the light of the law declared by the Supreme Court in determining the normal price of the dry cell batteries manufactured and sold by the petitioner to its authorised wholesale dealers so as to exclude the post-manufacturing costs and post-manufacturing profits from the normal price. The interpretation placed upon the 'relative' in Section 4(a)-of the Act by the respondents is also untenable in law, as the mere sale to a wholesale dealer, who is a relative, will not authorise the levy of duty on the price charged by the wholesaler, who purchases goods from the manufacturer and sells the same in wholesale to another dealer. As laid down by the Supreme Court, that course would be open to the authorities only when the agreement with the wholesale dealers confers certain extra commercial advantages on them, making them favoured buyers. The respondents are, therefore, bound under law to assess, levy and collect excise duty on various wholesale dealers who purchased batteries from the petitioner-company excluding there from the post-manufacturing costs as well as the post-manufacturing profits and the refusal of the 2nd respondent to accept the price list submitted by the petitioner is patently illegal and without jurisdiction. The rejection of the petitioner's request to delete the cost of the Display boxes and Cartons from the price charged to the wholesale dealers for the purpose of excise levy is also against law and is arbitrary. Packing is not a process incidental or ancillary to the completion of a manufactured product and hence the value of packing materials which are not excisable, cannot be taken into account. The dry cell batteries produced by the petitioner are sold just as batteries and arc not. covered by any kind of wrapper. The packing in Display boxes by the petitioner is only to enable the movement of batteries freely and conveniently and further packing in cartons' for long distance transport is also for safety in transit and handling. The petitioner, therefore, prays for a writ of certiorari or any other appropriate writ or direction or order quashing, the order dated 1-12-1975 of the 2nd respondent and directing the 2nd respondent to accept the price list submitted by the petitioner on 4-9-1975 as effective from 15-9-1975 and not assess or levy, collect or recover any excise duty from the petitioner on the price charged by the petitioner to its wholesale dealers without excluding the post-manufacturing costs and expenses and post-manufacturing profits from the price of dry cell batteries charged by the petitioner to its authorised wholesale dealers.

5. In the counter affidavit filed on behalf of the respondents, it is contended that the amendment of Section 4(a) of the Act effected by the Amending Act, 1973 was necessitated on account of the Voltas case to cover all types of commercial transactions, that the amended section does not provide for exclusion of any post-manufacturing expenses or post-manufacturing profits from the ascertained normal price, except the amount of duty of excise, sale tax and other taxes if, any, payable on such goods and the trade discount allowed in accordance with the normal practice of the wholesale trade at the time of removal in respect of such goods sold or contracted for Sale. The elements of post-manufacturing cost and the post-manufacturing profit arising from the post-manufacturing operations came into existence only after the sale of the goods. There can be no profit before sale or without sale of goods manufactured. Nothing done to promote sales constitutes 'post-manufacturing costs'. The cost of packing and the cost of transportation. are liable to be excluded from the normal price of the goods under certain specified circumstances. Admittedly, the petitioner-company employs two types of packings in its factory for the purpose of safety in transit and handling. As the goods are delivered at the time of removal in a packed condition and as the packing is not of durable nature and is not returned by the buyer to the assesses, the cost of such packing should be included in the value as enacted in Section 4(a) of the Act. Eleven out of twelve authorised dealers of the petitioner-company are related to two of the nine of the company and those two directors not only hold almost half of the share capital of the company but also occupy important positions weilding much influence in the affairs of the company. The petitioner-company generally sells its goods through those related persons and the sales are not organised at arms-length. 95.28 per cent of the total production of the goods of the petitioner-company is sold through related authorised dealers. Only 4.72 per cent of its goods are sold through unrelated authorised wholesale dealers. The firm, Messrs. Tornal Rameswar Das, Bargarh, Orissa is no doubt an independent buyer, but the percentage of sales to the said firm for the year ending 30-9-1975 was only 2.89. The total percentags of sales for the year ending with 30-9-1975 to the other firm, Messrs. Modern Electric Stores, Nepal was only .61. The sales to the said firms situate outside inside 'cannot be compared to sales in India. Thus by selling a small percentage of its goods to independent buyers the petitioner could get the whole range of their goods assessed on a manipulated price. One of the objects of the amendment of Section 4(a) is to safeguard against such manipulation. The sales to related persons are, therefore, assessable to excise duty under Section 4(a) of the Act.

6. In W.P. No. 819 of 1976, the petitioner is a limited company having its registered office and factory at Andhra Pradesh. The petitioner's business comprises of activities of manufacturing and also selling cigarettes. The petitioner follows a uniform pattern prevalent in the cigarette industry for selling and marketing its products at its factory. In the cigarette industry the wholesale buyers from the manufacturer are variously called primary wholesale buyers, stockists, main dealers, etc. In accordance with the trade practice of cigarette; manufacturers, the petitioner sells its goods in bulk to its main dealers in the course of wholesale trade for delivery at the time and place of removal, price being the sole consideration of the sale. The petitioner sells its goods to the different main dealers on orders placed by them by way of outright sale on a principal to principal basis. The main dealers are not the agents of the petitioner in any sense and they are free to sell the goods to the customers of their choice. The goods are sold ex-factory and the property in the goods passes from the petitioner to the main dealers on delivery and they are free to sell their goods in the manner they think fit. There is no arrangement or written agreement between the petitioner and its main dealers regarding the sales to be conducted by them. There are no restrictions placed on the main dealers' trading activities and they are free to sell or purchase competitive products manufactured by other persons at any place or in any area. The petitioner has no financial or other involvement with its main dealers or any interest direct or indirect in their business or they in the petitioner's. Being wholly independent buyers, the risks and rewards of their business are their own. The petitioner's sales to its main dealers are made at arms-length in the usual course of business and no extra commercial advantages are conferred upon them. The petitioner's price to its main dealers had been accepted by the authorities for the purpose of assessment. The duty of excise on cigarettes at all times was and is levied ad valorem under Section 4(a) of the Act. For the purpose of determining the wholesale cash price of its products in accordance with Section 4(a), as it stood prior to 1-10-1975, the relevant price is the ex-factory price realised by the petitioner from its main dealers less the post-manufacturing costs and expenses and post-manufacturing profits. The petitioner-company was not aware of the correct legal position that on a true construction of Section 4(a) in order to determine the 'wholesale cash price' all post-manufacturing costs and expenses incurred and all profits attributable to such post-manufacturing operations were to be excluded from the price charged to its main dealers. Even though the respondents had no authority to levy excise duty on post-manufacturing costs, they continued to do so and the petitioner was paying the same without realising the actual legal position. The total amount thus collected is about Rs. 1,59,000/-. This sum of Rs. 1,59,000/- relates to excise duty on post-manufacturing costs, expenses and profits which the petitioner is entitled to recover from the respondents and there is a duty cast on the respondents to refund the same. After ascertaining the post-manufacturing costs and expenses on the basis of the decision in the Voltas case and also on the basis of the decision of this Court dated 19-2-1975 in W.P. No. 1748 of 1974 and batch, the petitioner filed price lists under Rule 173(c) of the Central Excise Rules excluding the post-manufacturing costs and expenses. The respondents refused to approve the price lists in spite of the decisions referred to supra on the ground that, under the amended Section 4(a) of the Act, the post-manufacturing expenses are not permissible deductions. The source of power being the same, the principles laid down in the two cases equally govern the levy of excise duty under the amended Section 4(a). Apart from the post-manufacturing expenses, the petitioner is entitled to deduct sales profit also. The character of excise duty remaining the same, the amended Section 4(a) cannot be interpreted in such a way as to include the post-manufacturing expenses and the sales profit to arrive at the assessable value, thereby converting it into sales tax which is beyond the legislative competence of the Parliament to enact it. A Writ, Direction or Order particularly in the nature of Mandamus is, therefore, prayed for by the petitioner directing respondents 2 and 3 to approve the first price list dated 10-2-1976, marked as Annexure A and not to levy, collect or recover any excise duty from the the petitioner without excluding from the price charged by it all the post-manufacturing costs and expenses, to refund the excess amount of excise duty illegally recovered, for the period prior to 1-10-1975 and to grant directions to respondents 2 and 3 to permit the petitioner to clear its goods on the basis of the price lists submitted by the petitioner on 10-2-1976 and on the basis of such price lists which may be submitted by the petitioner in which the post-manufacturing costs and expenses will be excluded.

7. In the counter affidavit filed on behalf of the respondents, it is contended that in respect of the petitioner's goods the assessable value was based on the price charged by the petitioner to its dealers, that only the trade discount allowed by the petitioner and the excise duty payable on the goods are excluded from the price as laid down under Section 4(a) of the Act, as it stood prior to 1-10-1975, and that the basis of assessment was accepted by the petitioner without any protest. The claim of the petitioner that the respondents had collected from him an amount of Rs. 1,59 000/- in excess of what was payable by him towards excise duty is therefore ill founded. The petitioner submitted a price list dated 10-2-1976 to the 3rd respondent in Part I for approval. In the said price list, certain deductions towards the so-called post-manufacturing costs and expenses were claimed. It was, however, brought to light as a result of enquiries made by the Department that the dealers to whom the petitioner was exclusively selling its entire products had undertaken advertisement of the petitioner's products. The dealers of the petitioner were, therefore, classified as 'related persons' for the purpose of Section 4(a) of the Act and the petitioner was advised to submit its price lists in Part IV of the proforma.

8. In W.P. No. 1115 of 1976 the petitioner is a limited company having its registered office and factory at Ajamabad, Hyderabad. In W.P. No. 2194 of 1976 the petitioner is a limited company having its factory situate at Uppal road at Hyderabad. The business of the petitioners in both the writ petitions comprises of the activities of manufacturing and also selling cigarettes, as is the case of the petitioner in W.P. No. 819 of 1976. The averments made in the two Writ Petitions are practically the same as levelled in W.P. No. 819 of 1976. In W.P. No. 1115 of 1976 a Writ, Direction or Order, particularly in the nature if Mandamus is prayed for by the petitioner directing respondents 2 and 3 to approve the first, the second and the fourth price lists submitted by the petitioner on 25-9-1975, 12-1-1976 and 3-2-1976 respectively and not to levy, collect or recover any excise duty from the petitioner on the price charged by the petitioner to its main dealers without excluding the post-manufacturing costs and expenses and to approve the price lists which may be submitted by the petitioner in which post-manufacturing cost and expenses will be excluded from the price realised by the petitioner from its main dealers and to refund the excess duty of excise illegally recovered by including in the wholesale price of the petitioner's products, post-manufacturing costs and expenses. In W.P. No. 2194 of 1976 a Writ, Direction or Order, particularly in the nature of Mandamus directing respondents 2 and 3 to approve the first price list dated 3-5-1976 marked as Annexure A and not to levy, collect or recover any excise duty from the petitioner without excluding the post-manufacturing costs and expenses and to approve the price lists which may be submitted by the petitioner in which manufacturing costs and expenses will be excluded and to refund the excess of excise duty illegally recovered by including in the wholesale price of the petitioner's products, the post-manufacturing costs and expenses.

9. In the counter-affidavit filed on behalf of the respondents, all the contentions raised in W P. No. 819 of 1976 are reiterated. In particular, in the counter affidavit filed in W.P. No. 1115 of 1976, it is stated that a foreign company holds substantial shares both in the petitioner-company and in M/s, India Tobacco Co., Ltd., a major wholesale dealer of the petitioner-company, that M/s. India Tobacco Co., Ltd., is therefore, 'related person' within the meaning of Section 4(a) read with its third proviso and that the assessable value should be based on the price charged by the petitioner-company to its distributors other than M/s. India Tobacco Co., Ltd.

10. In W.P. No. 1532 of 1976, the petitioner is a limited company with its factory at Macherla, Guntur district. The petitioner's business comprises of manufacturing and selling cement. Cement manufactured by the petitioner is a controlled commodity, the price being fixed from time to time by the Central Government and it is incumbent on the part of the petitioner to sell its product only at the controlled rate. Any sale in excess of the controlled rate entails prosecution of the petitioner. The petitioner makes bulk supply of cement in a loose condition to various projects and there are instances where cement is sent in loose condition regularly to bulk consumers like Hyderabad Cement Products Limited. Cement is also despatched in unpacked condition in closed wagons. The petitioner also supplied cement packed in jute bags. Apart from the stockists, who purchase cement for distribution, there are other dealers who send back the empty jute bags after sale for further use. Prior to 30-9-1975, the petitioner was not including the cost of cement bags to arrive at the assessable value for the payment of excise duty and the same was being approved by the excise authorities. Even after the amended Section 4(a) came into force till 4-12-1975, the authorities of excise did not include the cost Of jute bags in the assessable value of cement packed in the same and sold. However, from 5-12-1975 to 8-1-1976, the Excise authorities made a demand in a sum of Rs. 2,08,791.05 towards excise duty on the cost of jute bags. The petitioner objected to the demand, but, however, paid the amount under protest. For the period between 1-10-1975 to 4-12-1975, a demand was subsequently made by the 3rd respondent in a sum of Rs. 3,85,835.46 towards excise duty on the cost of jute bags on the ground that, by mistake, the same was not collected earlier. The petitioner thereupon addressed the Directarate General of Supplies and Disposals, Government of India, the major purchaser of its cement, bringing to his notice the demands made. The petitioner received a communication dated 17-4-1976 marked to all cement factories and filed as Annexure B, stating that no duty is payable on the packing material and advising all the factories to claim refund of excise duty paid thereon from the Central Excise authorities. When the communication was brought to the notice of the 3rd respondent, he refused to keep the demand for the period 1-10-1975 to 4-12-1975 in abeyance. In fact, the Government of India issued a notification dated 9-1-1976 waiving payment of excise duty on the cost of packing material. The respondents are, however, threatening to collect the demanded amount and taking coercive steps for recovery of the same. The petitioner, therefore, prays for a writ of mandamus restraining the respondents from enforcing the demand notice dated 31-1-1976 for payment of excise duty of Rs. 3,85,835.46 for the period 1-10-1975 to 4-12-1975 and directing them to refund the excise duty in a sum of Rs. 2,08,791.05 paid for the period 5-12-1975 to 8-1-1976.

11. In the counter affidavit filed on behalf of the respondents, it is contended that prior to 1-10-1975 as Grey Portland Cement was capable of being sold in bulk without packing, packing charges of Grey Portland Cement were not included in the assessable value of such cement, and that under the amended Section 4 of the Act, which came into force on 1-10-1975, the basis for the purpose of valuation is the normal price i.e., the price at which the goods are ordinarily sold by the assessee to a buyer in the course of a wholesale trade for delivery at the time and place of removal where the buyer is not a related person and the price is the sole consideration for the sale. Further in Section 4(d)(i) of the Act, it is clearly laid down that 'value' in relation to assessable goods where the goods are delivered at the time of removal in packed condition includes the cost of such packing, except the cost of packing, which is of a durable nature and is returnable by the buyer to the assessee. As per the provisions of new Section 4, when Grey Portland Cement is being sold in bulk without packing, the assessable value is the price at which it is sold in loose, which is normal price of the bulk cement. In Grey Portland Cement, even though the bags are durable in, nature they are not returned by the buyer to the assessee. The value for purpose of assessment, therefore, includes the packing charges when cement is sold in bags. From 1-10-1975 to 4-12-1975, the duty of packing charges was not collected as the price list was approved due to mistake. As the duty was not time barred, a demand was issued for recovery of duty on packing charges not collected from 1-10-1975 to 4-12-1975. From 5-12-1975 onwards duty on packing charges was being paid under protest. It is true that the Government of India issued the notification dated 9-1-1976 exempting payment of duty on packing charges of Grey Portland Cement and it came into force only from 9-1-1976. It cannot be applied retrospectively. The concession granted under the notification was implemented from 9-1-1976. The collection of duty from 1-10-1975 to 8-1-1976 is, therefore, in order. The Director General of Supplies and Disposals merely tendered advice in respect of levy of duty on the packing charges and his advice or opinion is not binding upon the respondents.

12. Union Carbide India Ltd., Division : National Carbon Company, Industrial Area, Moula Ali, Hyderabad, is the petitioner in W.P. Nos. 2601 and 2602 of 1976. The petitioner is a public limited company. At all material times, the petitioner was carrying on the business of manufacture of electric dry batteries which are subject to ad valorem excise duty. The petitioner has five factories in India of which one is in Hyderabad, two in Madras and two in Calcutta. All the factories are known as National Carbon Company, being the divisions of the petitioner. The batteries manufactured by the petitioner are removed from the factory on payment of excise duty in accordance with self-removal procedure to its godowns situate in different parts of India from where the goods are sold to wholesalers. No sale or delivery of the goods is made in the course of wholesale trade at the place of removal i.e., the factory. For each type of factory, the petitioner has a uniform All-India selling price. A uniform trade discount is allowed to all wholesalers out of the said selling price. The cost of transport from the factory to the place of delivery is borne by the petitioner and the cost is arrived at with reference to the cost of transport of goods to the various godowns numbering at present about 25 as well as the cost of transport involved in delivering the goods to their ultimate place of, delivery. The batteries manufactured are initially packed in cardboard cartons, usually 25 batteries per carton. Thereafter the cartons are placed in wooden boxes to facilitate transport of the goods to the godowns. The petitioner recovers from the wholesalers an extra charge of Rs. 10/- per box to cover the cost of this secondary packing in wooden boxes in addition to the sale consideration for the batteries In the price lists submitted by the petitioner to the 3rd respondent along with its letter dated 22-9-1975, the petitioner claimed the following deductions from the price charged from its wholesalers: (a) The amount of excise duty included in the price allowable under Section 4(4) The amount of trade discount uniformly given to wholesalers under Section 4(d)(i), The cost of transportation from the factory to the various places of delivery under Section 4(a). The petitioner furnished for each type of battery different assessable values. The petitioner also claimed that the cost of secondary packing in wooden boxes not included in the price of batteries, but charged separately in the invoices, should not form part of the assessable value, The 3rd respondent directed the petitioner to submit the Price List in Part I of the proforma. The petitioner complied with the direction on 1-10-1975 under protest, but brought to the notice of the 3rd respondent that Part I of the proforma was not applicable to it as the batteries are not ordinarily sold by the petitioner to buyers in the course of wholesale trade for delivery at the time and place of removal, i.e., at the factory gate and that Section 4(1)(b) is, therefore, not applicable to the petitioner. The 3rd respondent passed an order on 4-10-1975 determining the assessable values of the batteries without making any deduction for the cost of transportation. The 3rd respondent also included the cost of secondary packing in wooden boxes in the assessable value determined by him. Aggrieved by the order of the 3rd respondent, the petitioner preferred an appeal before the 2nd respondent on 23-12-1975. The petitioner made similar claims in respect of cost of transport and cost of secondary packing in their price declarations submitted to the Assistant Collectors of Central Excise at Calcutta and Madras having jurisdiction over its factories located there. The Assistant Collector of Central Excise, Calcutta, by his order dated 9-10-1975, allowed the petitioner's claim for deduction of cost of transport, but included the cost of secondary packing in the assessable value. The petitioner preferred an appeal before the Appellate Collector, Central Excise, Calcutta in respect of the cost of secondary packing and the same is still pending. By his order dated 17-4-1976, the Assistant Collector, Central Excise, Calcutta purported to revoke his earlier order allowing deduction of the cost of transport and called upon the petitioner to pay the difference in duty short-levied. The petitioner preferred a writ petition in the High Court of Calcutta against the said order and an interim injunction was granted restraining the Assistant Collector from giving effect to his order. The Assistant Collector, Central Excise, Madras, negatived the petitioner's claim in respect of the cost of transport as well as the cost of secondary packing. The petitioner unsuccessfully appealed to the Collector, Central Excise, Madras. The petitioner, however, preferred a Writ Petition in the High Court of Madras on 29-4-1976 and the Court granted interim injunction restraining the Assistant Collector from levying duty on cost of transportation and cost of secondary packing. The 2nd respondent passed an order dated 15-4-1976, wherein he upheld the decision of the 3rd respondent as regards disallowance of the petitioner's claim to deduct the cost of transport. In response to a notice dated 12-8-1975 issued by the Collector of Central Excise, Hyderabad, the petitioner submitted a fresh price list on 26-12-1975 to the 2nd respondent, wherein the petitioner again claimed deduction, in respect of the cost of transport. No cost of secondary packing was however claimed in the said price list. The 3rd respondent passed an order on 31-12-1975, determining the assessable value in the same manner as he did previously. The petitioner preferred an appeal dated 24-2-1976 before the 2nd respondent and the same was rejected by his order dated 12-5-1976. The petitioner again pressed his claim for exclusion of the cost of secondary packing before the Collector of Central Excise, Hyderabad. Neither the 2nd respondent nor the 3rd respondent disputed the correctness of the costs of transportation from the place of removal to the various places of delivery, which have been claimed by the petitioner as deduction from the price of batteries. Respondents 2 and 3 however held that as the petitioner maintains a uniform selling price throughout the country, no deduction on account of equalised freight is admissible. Section 4(a) could be invoked and applied only where the normal price is ascertainable at the place of removal in the course of wholesale trade and not otherwise. It is implicit under Section 4(2) of the Act that there could be different assessable values in respect of the same manufactured goods in different, situations on the basis of difference in transportation costs. There is no prohibition under any law for the charging of uniform selling price by manufacturers. It could not have been the intention of the legislature to extend the relief under Section 4(2) to only those manufacturers who maintain disparity in the selling price of the products in different regions of India. It is a matter of common knowledge that almost all consumer items such as cosmetics, beverages, razor blades, canned food etc., are all sold at uniform prices throughout India by the leading manufacturers. In all such cases, the manufacturers undertake to bear the cost of transportation and other incidental charges such as packing to facilitate transportation from the factory to the places of delivery. In such cases, the normal price of such goods, within the meaning of Section 4(1)(a) cannot be said to be ascertainable and the price of the product cannot by said to be known at the place of removal. In such a situation, the appropriate provisions which can be made applicable are Section 4(1)(a) read with Section 4(2) of the Act and not Section 4(1)(a). From 8-10-1975 to 30-6-1976, the excess amount of duty illegally collected from the petitioner by declining to accept its claim for deduction of transport cost amounted to Rs. 3,10,042. In W.P. No. 2601 of 1976 an Order, Direction or Writ, particularly in the nature of Certiorari is prayed for quashing the order of the Appellate Collector of Central Excise dated 15-4-1976 and directing the 3rd respondent to approve the price lists dated 22-9-1975 (re-submitted on 1-10-1975) and to refund the excess amount of duty illegally levied and collected from the petitioner upto 30-6-1976. In W.P. No. 2602 of 1976 an order, direction or writ, particularly in the nature of certiorari, is prayed for quashing the order of the Appellate Collector of Central Excise dated 12-5-1976 and directing the 3rd respondent to approve the price list dated 26-12-1975 submitted by the petitioner and to refund the excess amount of duty illegally levied and collected from the petitioner upto 30-6-1976.

13. In the counter affidavit filed by the respondents, it is contended that the batteries manufactured in the petitioner's factory are not sold at the factory, that the goods are despatched to its depots, that the price charged by the depots constitutes assessable value as provided under the third proviso to Section 4(1)(a) of the Act aim that the element of cost of transportation of the goods from the factory of the petitioner to its depots cannot be taken into account for the purpose of determination of the assessable value of the goods. Further as a uniform or equalised freight is being charged by the petitioner in respect of its consignments to its depots, the same cannot be excluded for the purpose of ascertaining the assessable value. The petitioner's claim of exclusion from the assessable value the cost of secondary packing of the goods in wooden boxes is, however, conceded by the respondents.

14. The Alkali and Chemical Corporation of India Limited, Balanagar, Hyderabad is the petitioner in W.P. Nos. 217 and 218 of 1978. The petitioner is a public limited company having its factory among other places at Balanagar at Hyderabad. The petitioner's business comprises of the activities of manufacturing and selling, among other products, paints and varnishes. The petitioner sells its goods in bulk to industrial consumers and dealers in the course of wholesale trade, the price being the sole consideration for the same. The petitioner has no sole selling agents. The sales are effected through the regional offices/godowns of the petitioner at Calcutta, Delhi, Bombay, Madras, Ludhiana, Hyderabad, Ernakulam, Bangalore and other places. The sales to the dealers are by way of outright sale on a principal basis. The petitioner has no interest, direct or indirect, in their business or they in the petitioner's. The petitioner's sales to the dealers are made at arms-length in the usual course of business and no extra commercial considerations are involved. Certain trade discount is also allowed to all dealers on their cash purchases. The petitioner sells its goods in accordance with the normal practice of the wholesale trade to different classes of buyers including industrial consumers and the Government undertakings at different places. The petitioner has its own marketing, distribution and sales organisations and incurs expenses on their account. To market its products the petitioner spends money OP publicity. The petitioner also bears the freight for transport of the goods from the place of manufacture to the aforesaid regional offices/godowns and incurs expenditure for storage of the goods at the said regional offices/godowns. The selling prices, as shown in the petitioner's price lists, are inclusive of the post-manufacturing costs and expenses such as packing, freight, publicity, distribution and other selling expenses. By his letter dated 23-9-1977, the 2nd respondent informed the petitioner that clearance of the goods on and from 8-10-1977 should be made only after filing and getting regular price lists approved. By its letter dated 6-10-1977, the petitioner submitted four price lists namely (1) Price List No. 1/77-78 (effective from 18-6-1977) for Trade in Part II, (2) Price List No. 1A/77-78 (effective from 18-6-1977) for Trade in Part IV under protest, (3) Price List No. 2/77-78 (effective from 18-6-1977) for Industries in Part II, and (4) Price List No. 12A/77-78 (effective from 18-6-1977) for Industries in Part IV under protest (hereinafter called the 1st price list, the 2nd price list, the 3rd price list and the 4th price list respectively). The second and the fourth price lists were submitted in Part IV expressly under protest so that the clearance of the goods of the petitioner might not be interrupted. In any event, in each such price list, the petitioner claimed appropriate deductions on account of post-manufacturing expenses and selling profits and explained that the deductions claimed towards post-manufacturing expenses and selling profit were based on the latest available audited accounts pertaining to the petitioner's financial year ending with 30-9-1976, which would be adjusted in the light of actual figures for the current year when available after completion of the annual audit of the petitioner-company. By his letter dated 14-10-1977, the 2nd respondent made certain observations and called for clarifications with respect to the four price lists submitted by the petitioners on 6-10-1977. It is stated therein that in case the sales are through regional godowns only, prpforma Part II is irrelevant and Part IV alone is relevant. The 2nd respondent also invited attention to the Collector's Trade Notice No. 22/77 (SRP No. 1/77) dated 17-1-1977 wherein it is said that the provisions of proviso (iii) to Section 4(1)(a) of the Act would be attracted when any factory places all the stocks at the disposal of what they may claim to be the sales organisations situated within the same premises or in separate premises. Wholly relying on such Trade Notice issued by the Collector, the 2nd respondent stated that 'no claim for deduction of post-manufacturing expenses or profits from the prices realised would be merited if the goods are kept at the disposal of the sales organisations for marketing by the producing factory'. The petitioner gave an elaborate reply dated 28-10-1977 clarifying the various points and stating inter alia that the regional godowns are not related persons and are but part and parcel of the same organization, that the sales at the regional godowns will not make themselves through related persons and that proforma Part IV cannot be the proper form in the instant case. Finally, the 2nd respondent without giving a hearing to the petitioner, by his order C. No. V/14/30/197/77 MP(I) dated 1-11-1977, has held that the price list in Part II has no relevancy and that the price list Part IV which contains all the prices mentioned in Part II in respect of Trade as well as Industries is approved and the price list in Part II is returned without approval. As regards the post-manufacturing expenses and selling profit which the petitioner claimed as deductions, the Assistant Collector disallowed the same on the ground that they do not pertain to the current accounting year. With regard to the trade discount, the Assistant Collector observed that it was not given to buyers who buy goods on credit and he therefore disallowed the same. In the result, the Assistant Collector approved the gross prices mentioned in column 6 of the price lists in Part IV- The petitioner has paid and is paying higher excise duty than what is payable under the law, on a provisional basis from 18-6-1977 to 23-10-1977 and under protest from 2-11-1977 onwards. The petitioner has a number of regional godowns/sales offices in different parts of the country from where the sales in the course of wholesale trade are affected. The petitioner thus incurs costs and expenses by way of freight, selling expenses, etc., which have nothing to do with manufacturer as such and the petitioner is therefore entitled to deduct the post-manufacturing expenses and selling profit from the price charged to the wholesale buyers. The petitioner also sells its goods in bulk to industrial consumers and Government undertakings which are classes of buyers different from the wholesale buyers in the trade and as such the proper proforma applicable is Part II under Section 4(1)(a), proviso (i). Further the regional godowns/offices are not 'related persons' within the meaning of Section 4(a)(c) of the Act and what is involved is merely stock transfer and not sale and there is, therefore, no question of the petitioner selling its goods to or through related persons and proforma Part IV is not applicable. The trade discount is allowed by the petitioner on all cash sales to all wholesale buyers in accordance with the normal practice of the wholesale trade in respect of the goods and is not refundable on any account whatsoever. The petitioner is, therefore, entitled to exclude the said trade discount for purposes of determining assessable value. The order of the 2nd respondent is arbitrary, patently illegal, without the authority of the law and without jurisdiction. In W.P. No. 217 of 1978 the petitioner prays for issue of a Writ, Direction or Order, particularly in the nature of Certiorari. calling for the records relating to the order C. No. V/14/30/197/77 MP (I) dated 1-11-1977 of the Assistant Collector of Central Excise, I.D.O- III, Hyderabad and after declaring it as illegal, quashing and setting aside the same. The petitioner also prays for issue of a Writ, Direction or Order, particularly in the nature of mandamus directing the Assistant Collector of Central Excise, I.D.O. III, Hyderabad, to approve the assessable values as claimed by the petitioner in the 1st Price List No. 1/77-78 dated 6-10-1977 and the 3rd Price List No. 2/77-78 dated 6-10-1977 and not to levy or collect or recover any excise duty from the petitioner on the prices charged by the petitioner to its dealers and industries without excluding the post-manufacturing costs and expenses, and to approve the price lists which may be submitted by the petitioner in future in which post-manufacturing costs and expenses will be similarly excluded from the prices realised by the petitioner from the dealers and industries and to refund the excess duty of excise illegally recovered from the petitioner from 18-6-1977 by including in the wholesale price of the petitioner's, products post-manufacturing costs and expenses. In W.P. No. 218 of 1978 the petitioner prays for issue of a Writ, Direction or Order, particularly in the nature of mandamus directing the Assistant Collector of Central Excise, I.D-O. III, Hyderabad, to approve the 1st Price List No. 1/77-78 dated 6-10-1977 and the 3rd Price List No. 2/77-78 dated 6-10-1977 and not to levy or collect or recover any excise duty from the petitioner on the prices charged by the petitioner to dealers and industrialists, without excluding the post-manufacturing costs and expenses, and to approve the price lists which may be submitted by the petitioner in which post-manufacturing costs and expenses are excluded from the price realised by the petitioner from the dealers and industries, and to refund the excess duty illegally recovered by including in the wholesale price of the petitioner's products post-manufacturing costs and expenses.

15. In the common counter affidavit filed in both the writ petitions, it is contended that the petitioner's factory at Hyderabad is only a manufacturing unit, that it does not undertake sale of its goods in wholesale, but entrusts the job to its sale s organization, which established sales depots and godowns at different places all over India from where sales are effected in wholesale trade to different buyers and that generally the manufacturing unit transfers the goods under vouchers to its sales organization. Only in some isolated instances, on the advice of the sales organisations, the goods are consigned from the factory to the buyers direct. In the circumstances, it cannot be said that there are clearances of goods on sale at the factory gate. The sales are through the petitioner's regional godowns/offices who are 'related persons' as per the provisions of Section 4(4)(c) of the Act. The price list applicable under the said circumstances is to be in proforma Part IV but not proforma Part II which is applicable to assesses falling under the provisions of Section 4(1)(a)(i) of the Act. As the petitioner's case falls under the third proviso to Section 4(1)(a), the proper form of the price list applicable to the petitioner's case is proforma Part IV. As per the provisions of Section 4(a), for the determination of assessable value and the normal price deductions, such as, post-manufacturing expenses and profits are not permissible. The 2nd respondent's action in disallowing the trade discount on the ground that it is not given to the buyers who purchase on credit is based on the provisions of the Central Excise Act. When the trade discount is not given to all the wholesale buyers alike, the same is not a permissible deduction.

16. On the scope of Section 4(a) of the Act, particularly with reference to the claim for exclusion of post-manufacturing costs, expenses and profits, the contentions advanced by the respondents in the counter-affidavit in W.P. No. 5948 of 1975 are reiterated by the Excise authorities in all the other Writ Petitions, where the claim is put forward.

17. In order to appreciate the rival contentions of the parties, Section 4(a) may be usefully extracted in its entirety and it runs thus :

'4. Valuation of excisable goods for purposes of charging of duty of excise. -- (1) Where under this Act, the duty of excise is chargeable on any excisable goods with reference to value, such value, shall, subject to the other provisions of this Section, be deemed to be --

(a) the normal price thereof, that is to say, the price at which such goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and place of removal, where the buyer is not a related person and the price is the sole consideration for the sale :

Provided that --

(i) where, in accordance with the normal practice of wholesale trade in such goods, such goods are sold by the assessee at different prices to different classes of buyers (not being related persons) each such price shall, subject to the existence of the other circumstances specified in Clause (a), be deemed to be the normal price of such goods in relation to each such class of buyers;

(ii) Where such goods are sold by the assessee in the course of wholesale trade for delivery at the time and place of removal at a price fixed under any law for the time being in force or at a price, being the maximum, fixed under any such law, then, notwithstanding anything contained in Clause (iii) of this proviso, the price or the maximum price, as the case may be, so fixed, shall, in relation to the goods sold, be deemed to be the normal price thereof;

(iii) Where the assessee so arranges that goods are generally not sold by him in the course of wholesale trade except to or through a related person, the normal price of the goods sold by the assessee to or through such related person shall be deemed to be the price at which they are ordinarily sold by the related person in the course of wholesale trade at the time of removal, to dealers (not being related persons) or where such goods are not sold to such dealers, to dealers (being related persons) who sell such goods in retail;

(b) where the normal price of such goods is not ascertainable for the reason that such goods are not sold or for any other reason, the nearest ascertainable equivalent thereof determined in such manner as may be prescribed.

(2) Where, in relation to any excisable goods the price thereof for delivery at the place of removal is not known and the value thereof is determined with reference to the price for delivery at a place other than the place of removal, the cost of transportation from the place of removal to the place of delivery shall be excluded from such price.

(3) The provisions of this Section shall not apply in respect of any excisable goods for which a tariff value has been fixed under Sub-section (2) of Section 3.

(4) For the purposes of this section, --

(a) 'assessee' means the person who is liable to pay the duty of excise under this Act and includes his agent;

(b) 'place of removal' means --

(i) a factory or any other place or premises of production or manufacture of the excisable goods; or

(ii) a warehouse or any other place or premises wherein the excisable goods have been permitted to be deposited without payment of duty, from where such goods are removed;

(c) 'related person' means a person who is so associated with the assessee and they have interest, directly or indirectly, in the business of each other and includes a holding company, a subsidiary company, a relative and a distributor of the assessee, and any sub-distributor of such distributor.

Explanation, -- In this clause 'holding company', 'subsidiary company' and 'relative' have the same meanings as in the Companies Act, 1956;

(d) 'value' in relation to any excisable goods, --

(i) where the goods are delivered at the time of removal in a packed condition, includes the cost of such packing except the cost of the packing which is of a durable nature and is returnable by the buyer to the assessee.

Explanation. -- In this sub-clause 'packing' means the wrapper, container, bobbin, pirn, spool, reel or warp beam or any other thing in which or on which the excisable goods are wrapped, contained or wound

(ii) doe's not include the amount of the duty of excise, sales tax and other taxes, if any, payable on such goods and subject to such rules as may be made, the trade discount (such discount not being refundable on any account whatsoever) allowed in accordance with the normal practice of the wholesale trade at the time of removal in respect of such goods sold or contracted for sale;

(e) 'wholesale trade' means sale to dealers, industrial consumers, Government, local authorities and other buyers, who or which purchase their requirements otherwise than in retail.'

* * * *

18. Section 3 of the Act, which is the charging section, enacts 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 and manufactured in India or imported by land into any part of India as, and at the rates set forth in the First Schedule to the Act. Section 3 thus provides for levy of duties of Excise on production or manufacture of all excisable goods other than salt. It may be noted that Section 4(a) is the quantifying section, where the duty of excise is chargeable on any excisable goods with reference to value. Entry 84 in List I (Union List) of Seventh Schedule to the Constitution of India enables the Parliament to levy, by legislation, duties of excise on tobacco and other goods manufactured or produced in India except --

(a) alcoholic liquors for human consumption;

(b) opium, Indian hemp and other narcotic drugs and narcotics, but including medicinal and toilet preparations containing alcohol or any substance included in sub-paragraph (b) of this entry.

The corresponding Entry 45 in the Federal Legislative List, i.e., List I in Schedule II to the Government of India Act, 1935, was also couched in the same language as Entry 84 in List I of Seventh Schedule to the Constitution of India.

It is necessary to bear in mind the concept of 'excise duty' as interpreted and expounded in the various cases decided by the Federal Court, the Privy Council and the Supreme Court. The nature of excise duty and the distinction between excise duty and sales-tax were succinctly explained in In re : Central] Provinces and Bear Sales of Motor Spirit and Lubricants Taxation Act, 1938, AIR 1935 Federal Court 1-1939 FCR 18Gwyer, C.J., described excise duty thus :

'...its primary and fundamental meaning in English is still that of a tax on articles produced or manufactured in the taxing country and intended for home consumption.'

While dealing with the contention advanced on behalf of the Government of India that an excise duty which might be imposed on home-produced goods at any stage from production to consumption, the learned Chief Justice observed :

'This is to confuse two things, the nature of excise duties and the extent of the federal legislative power to impose them.'

After referring to Blackstone and Stephen's Commentaries, the learned Chief Justice proceeded to state :

'...a Brief examination of those duties, shows that in practically all cases it is the producer or manufacturer from whom the duty is collected. But there can be no reason in theory why an excise duty should not be imposed even on the retail sale of an article, if the taxing Act so provides. Subject always to the legislative competence of the taxing authority, a duty on home-produced goods will obviously be imposed at the stage which the authority, find to be the most convenient and the most lucrative, wherever it may be; but that is a matter of the machinery of collection and does not affect the essential nature of the tax. The ultimate incidence of an excise duty, a typical indirect tax, must always be on the consumer, who pays as he consumes or expends, and it continues to be an excise duty, that is, a duty on home-produced or home-manufactured goods, no matter at what stage it is collected.'

The learned Chief Justice also added :

'in my opinion, the power to make laws with respect to duties of excise given by the Constitution Act to the Federal Legislature is .to be construed as a power to impose duties of excise upon the manufacturer or producer of the excisable articles, or at least at the stage of, or in connection with, manufacture or production, and that it extends no further....'

Thus, the Central Legislature will have the power to impose duties on excisable articles before they become part of the general stock of the province, that is to say, at the stage of manufacture or production, and the legislature has an exclusive power to impose a tax on sales thereafter.

Sulaiman J., made the following pertinent observations :

'Obviously the power to tax the sale of goods is quite distinct from any right to impose taxes on use or consumption. It cannot be exercised at the earlier stage of import or manufacture or production, nor at the later stage of use or consumption, but only at the stage of sale. The successive stages of manufacture or production, sale, use or consumption are separate, and it is possible to impose duty at any of these stages. There is a fine distinction between taxes on the sale of goods and taxes on the goods themselves. The essence of a tax on goods manufactured or produced is that the right to levy it accrues by virtue of their manufacture or production. It is immaterial whether the goods are actually sold or consumed by the owner or even destroyed before they can be used. If duty is imposed on the goods manufactured or produced when they issue from the manufactory, then the duty becomes leviable independently of the purpose for which they leave it and irrespective of what happens to them later. On the other hand, a duty on the sale of goods cannot be levied merely because goods have been manufactured or produced. Nor can it be levied merely because the goods have been consumed or used or even destroyed. The right to levy the duty would not at all come into existence before the time of the sale. It cannot at all be levied unless the goods are actually sold, and may not be leviable if they are transferred in some other form. Thus, a duty on goods manufactured or produced is distinct, separate and independent from a duty on their sale and (except probably at the stage of the first sale) there seems to be no good reason why they may not co-exist without overlapping.'

19. The Federal Court again in The Province of Madras v. Messrs. Boddu Paidanna and Sons -- AIR 1942 F.C. 33, in the context of a question that arose under the Madras General Sales-Tax Act, 1939, re-stated the scope of excise duty therein.

The learned Chief Justice observed :

'The duties of excise which the Constitution Act assigns exclusively to the Central Legislature are, according to 1939 F.C.R. 18 (In the matter of Central Province and Bear Sales of Motor Spirit and Lubricants Taxation Act, 1938), duties levied upon manufacture or production of the commodity taxed. The tax on the sale of goods, which the Act assigns exclusively to the Provincial Legislatures, is a tax levied on the occasion of the sale of the goods. Plainly a tax levied on the first sale must in the nature of things be a tax on the sale by the manufacturer or producer; but it is levied upon him qua seller and not qua manufacturer or producer. It may well be that a manufacturer or producer is sometimes doubly hit; ... If the taxpayer who pays a sales-tax is also a manufacturer or producer of commodities subject to a central duty of excise, there may no doubt be an overlapping in one sense; but there is no overlapping in law. The two taxes which he is called on to pay are economically two separate and distinct imposts. There is in theory nothing to prevent the Central Legislature from imposing a duty of excise on a commodity as soon as it comes into existence, no matter what happens to it afterwards, whether it be sold, consumed, destroyed or given away. A taxing authority will not ordinarily impose such a duty, because it is much more convenient administratively to collect the duty (as in the case of most of the Excise Acts) when the commodity leaves the factory for the first time, and also because that duty is intended to be an indirect duty which the manufacturer or producer is to pass on to the ultimate consumer, which he could not, do if the commodity had, for example, been destroyed in the factory itself. It is the fact of manufacture which attracts the duty, even though it may be collected later; and we may draw attention to the Sugar Excise Act in which it is specially provided that the duty is payable not only in respect of sugar which is issued from the factory but also in respect of sugar which is consumed within the factory. In the case of a sales-tax, the liability to tax arises on the occasion of a sale, and a sale has no necessary connection with manufacture or production. The manufacturer or producer cannot of course sell his commodity unless he has first manufactured or produced it; but he is liable, if at all, to a sales-tax because he sells and not because he manufactures or produces; and he would be free from liability if he chose to give away everything which came from his factory.'

20. The Judicial Committee, in Governor-General in Council v. Province of Madras -- AIR 1945 P.C. 98=1978 E.L.T. (J 280), approved the views expressed by the Federal Court in regard to excise duties. In the said case, learned Simonds, speaking for the Board, observed :

'An exhaustive discussion of this subject, from which their Lordships have obtained valuable assistance, is to be found in the judgment of the Federal Court in 1939 FCR 18 (AIR 1939 FC 1). Consistently with this decision, their Lordships are of opinion that a duty of excise is primarily a duty levied on a manufacturer or producer in respect of the commodity manufactured or produced. It is a tax on goods not on sales or the proceeds of sale of goods. Here, again, their Lordships find themselves in complete accord with the reasoning and conclusions of the Federal Court in the Boddu Paidanna case, 1942 FCR 90 : (AIR 1942 FC 33).'

Adverting to the decision of Boddu Paidanna's case, 1942 FCR 90 : AIR 1942 FC 33, with approval, Lord Simonds made the following observations in pointing out the differences between excise tax and sales tax :

'The two cases, the one levied on a manufacturer in respect of his goods, the other on a vendor in respect of his sales, may, as is there pointed out, in one sense overlap. But in law there is no overlapping. The taxes are separate and distinct imports. If in fact they overlap, that may be because the taxing authority, imposing a duty of excise, finds it convenient to impose that duty at the moment when the excisable article leaves the factory or workshop for the first time on the occasion of its sale. But that method of collecting the tax is an accident of administration; it is not of the essence of the duty of excise, which is attracted by the manufacture itself.'

21. In Messrs. Chhotabhai v. Union of India -- : AIR1962SC1006 , their Lordships of the Supreme Court observed :

'In our view, a duty of excise is a tax-levy on home-produced goods, of a specified class or description, the duty being calculated according to the quantity or value of the goods and which is levied because of the mere fact of the goods having been produced or manufactured and unrelated to and not dependent on any commercial transaction in them.'

22. In R.C. Jail v. Union of India -- : AIR1962SC1281 , after adverting to the principles laid down in the three decisions, In re : Central Provinces and Berar Sales of Motor Spirit and Lubricants Taxation Act, 1938 (supra), The Province of Madras v. Messrs. Boddu Paidanna and Sons (supra), and Governor-General in Council v. Province of Madras (supra), the learned Judges observed :

'With great respect, we accept the principles laid down by the said three decisions in the matter of levy of an excise duty and the machinery for collection thereof. Excise Duty is primarily a duty on the production or manufacture of goods produced or manufactured within the country. It is an indirect duty which the manufacturer or producer passes on and the ultimate incidence will always be on the consumer. Therefore, subject always to the legislative competence of the taxing authority, the said tax can be levied at a convenient stage so long as the character of the impost, that is, it is a duty on the manufacture or production, is not lost. The method of collection does not affect the essence of the duty, but only relates to the machinery of collection for administrative convenience. Whether in a particular case tax ceases to be in essence an excise duty, and the rational connection between the duty and the person on whom it is imposed ceased to exist, is to be decided on fair construction of the provisions of a particular Act.'

23. In Union of India v. Delhi Cloth and General Mills -- : 1973ECR56(SC) , their Lordships of the Supreme Court observed :

'The 'manufacture' which is liable to excise duty under the Central Excises and Salt Act, 1944, must therefore be the 'bringing into existence of a new substance known to the market'. The definition of 'Manufacture' in Section 2(f) does not equate mere 'processing' to 'manufacture'.'

24. In In re : Sea Customs Act, 1878 -- (AIR 1963 S.C. 1760), their Lordships of the Supreme Court observed :

'...taxable event in the case of duties of excise is the manufacture of goods and the duty is not directly on the goods but on the manufacture thereof. We may in this connection contrast sales-tax which is also imposed with reference to goods sold, where the taxable event is the act of sale. Therefore, though both excise duty and sales-tax are levied with reference to goods, the two are very different imposts; in one case the imposition is on the act of manufacture or production while in the other it is on the act of sale. In neither case therefore can it be said that the excise duty or sales tax is a tax directly on the goods for in that event they will readily become the same tax.'

25. In Messrs. Shinde Brothers etc. v. Deputy Commissioner, Raichur and Ors. etc. -- AIR 1967 S.C. 1512, their Lordships of the Supreme Court, after referring to the earlier cases, observed :

'These cases establish that in order to be an excise duty (a) the levy must be upon 'goods', and (b) the taxable event must be the manufacture or production of goods. Further the levy need not be imposed at the stage of production or manufacture but be imposed later.'

26. It is, therefore, clear that excise duty is essentially a tax on the production or manufacture of excisable goods produced or manufactured within the country and unrelated to sale of the same. The duty is attracted the moment the goods are produced or manufactured. The taxable event is the manufacture of goods and the duty is not directly on the goods, but on manufacture thereof. The duty can be levied a any convenient stage, so long as the essential character of the impost, that is, it is a duty on the manufacture or production, is not lost.

27. It may be recalled that Section 4(a) of the Act provides for machinery of collection of excise duty for administrative convenience and under Section 4(a) the duty is calculated according to the value of the goods.

28. The scope of Section 4(a) of the Act, as it stood prior to the amendment, was considered in various cases decided by several High Courts and the Supreme Court and reference may be usefully made to these decisions. Section 4(a) of the Act, as it stood prior to its amendment, provided for levy of excise duty on the value of the excisable article as defined in Clause (a) or Clause (b) thereof. Clause (a) enacted that such value should be deemed to be the wholesale cash price for which an article for the like kind and quality was sold or was 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 for delivery at the place of manufacture or production. If a wholesale market did not exist for such article at such place, the wholesale cash price of the article at the nearest place when such market existed was to be taken into account. Clause (b) enacted that, where such price Was not ascertainable, the price at which an article of the like kind and quality was sold or was capable of being sold by the manufacturer or producer, or his agent, at the time of the removal 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 was not sold or was not capable of being sold at such place, at any other place nearest thereto.

29. It may be noted that a provision, similar to the one enacted in Section 4(a) of the Act, as it stood prior to the amendment, was embodied in the Sea Customs Act, 1878 and Section 30 providing for the procedure to determine the real value on which customs duty was levied read as follows : --

* * * *

The meaning of the term 'wholesale price' occurring in Section 30(a) of the Sea Customs Act came up for consideration in Vaccum Oil Company v. Secretary of State -- AIR 1932 PC. 168=1978 EL.T. (J 260). In the said case, the appellants before the Privy Council imported to Bombay very large quantities of lubricating oil of a particular manufacturing mark. They sold it direct to numerous customers, never to dealers. The price they charged was the same whether large or small quantity was bought, except that if a consumer contracted to buy from them all his requirements for a year, he was entitled to a discount from 2 1/2 to 15 per cent according to the quantity bought in the year. No. other lubricating oil of a like kind and quality was sold in Bombay. On the question whether the appellant was bound to pay customs duty on the basis of Clause (a) or Clause (b) of Section 30 of the Sea Customs Act, 1978, the Privy Council held that, since the sales were to customers direct, the real value of the goods could be ascertained under Clause (a) of Section 30 and that Clause (b) of Section 30 was applicable. Their Lordships said that, in determining the price which was 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', 'place' of importation. It is to be a 'cash price', that is to say, it is a price 'less trade discount'.' Their Lordships, therefore, held that 'the words the 'wholesale price' are used in the section in central-distinction to a 'retail price', and that not only on the ground that such is a well-recognised meaning of the words but because their association with the words 'trade discount' indicates that sales to the trade are those in contemplation, and also because only by attaching that meaning to the word is the 'wholesale price' relieved of the loading representing post-importation expenses which, as a matter of business, must always be charged to the consumer, and which in the other words of the section already alluded to are so carefully eliminated.'

30. In Ford Motor Company v. Secretary of State -- AIR., 1938 P.C. 15 the appellants before the Privy Council who imported Ford Motor vehicles from Canada to India where they had a monopoly of the supply of those vehicles, sold them only to authorised dealers or distributors, each of whom was sole agent for a retail seller of the vehicles in a particular district. The appellants obtained from the distributors information as to their future requirements and placed consolidated orders accordingly with the manufacturers in Canada. The retail price charged by the distributors to the public was that stated in a price list issued by the appellants and current at the time of the arrival of vehicles in India, and the price payable by the distributors to the appellants was the same price less a discount of 20 per cent. The distributors had to pay that price before obtaining delivery, which was given 'free on rail''. On arrival in India, the vehicles were not completely assembled, and were so delivered to the distributors, an agreed allowance against the price being made by the appellants. On the question whether Section 30(a) or Section 30(b) of the Sea Customs Act, 1878 applied for the purpose of finding out of the real value of goods for levy of customs duty, the Privy Council held that the price charged by the appellants to the distributors excluding the assembling allowance was the 'wholesale cash price, less trade discount' for which the vehicles were sold 'at the time and place of importation' within the meaning of Section 30(a) of that Act, the terms of which are more or less similar to those of Section 4(a) of the Act, as it stood prior to the amendment. The Privy Council observed at page 18 :

'If the facts of the present case and the terms of Clause (a) be placed side by side for comparison, several points of exact agreement become clear. The appellants' price to their distributors is a wholesale price within the meaning of the section as declared in Vaccum Oil Co. v. Secretary of State (59 IA 258). It is a cash price : payment was made before delivery and delivery was within a few days of the arrival of the goods. The only discount has been deducted. It is not now contended that the cars were sold at the time (September or October 1928) when the distributors made known their requirements to the appellants. The cars were invoiced a few days before arrival of the ship and the price became fixed then and not before. The sales were therefore sales at the time of importation in every reasonable sense ... The fact that the motor cars were incompletely assembled at the time of their arrival in Bombay gives rise to no difficulty; because, although the car, according to the price lists, had to be in running order, the allowance in respect of this defect was an agreed allowance, and reduced the sum payable by the distributor to a price referable to the car in the condition in which it arrived in Bombay. The allowance was deducted by the customs authorities from the price to the distributors before arriving at the price upon which duty was calculated... The price upon which customs duty has been charged appears therefore to be a wholesale cash price, less trade discount, for which the goods under assessment were in fact sold at the time and place of importation.'

31. In A.K. Roy v. Voltas Ltd, : 1973ECR60(SC) , the true meaning of the expression 'wholesale price' employed in Section 4(a) of the Act, as it stood prior to the amendment, as comprehending only the cost of manufacture or production of excisable goods and excluding thereto all post-manufacturing expenses and post-manufacturing profits were high lighted. In order to understand the principles laid down in the said decision, the facts of that case require to be noticed. The respondent in that case carried on, inter alia, the business of manufacturing air-conditioners, water coolers and their component parts. It affected direct sales to consumers at list prices and the sales so effected amounted to 90 to 95 per cent of its production during the relevant period. It also sold its articles amounting to 5 to 10 per cent of its production to its 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 prices fixed by the respondent and the respondent would sell the articles to them at the list prices less 22 per cent discount. Dealers were also required under the agreements to provide service to units sold in their territory. Excise duty on the basis of ad valorem value was imposed on air-conditioners, water coolers and parts of water coolers from 1-3-1961. The respondent claimed, in accordance with Section 4(a) that the list prices after deducting the discount of 22 per cent allowed to the wholesale dealers, should be taken to be the 'wholesale cash price' for ascertaining the real value of the articles. The claim was resisted by the authorities and the respondent was, therefore, constrained to file a Writ Petition in the High Court of Bombay. The question that was canvassed before the High Court was whether the respondent was liable to be charged with excise duty on the basis of the price of retail sales made directly to the consumers from its head office and the branch offices under Clause (b) of Section 4(a) or whether it was liable to be charged on the basis of the price payable by the wholesale dealers, after deducting the 22 per cent discount, under Clause (a) of Section 4(a). The High Court held that the price for which the articles were sold to the wholesale dealers less the discount allowed to them under the agreements represented the 'wholesale cash price' and that excise duty was chargeable under Section 4(a) of the Act. The excise authorities thereupon preferred appeal, by certificate, to the Supreme Court. The excise authorities contended before the Supreme Court that the agreements with the wholesale dealers conferred certain extra commercial advantages upon them, and so, the sales to them were not sales to independent purchasers but to favoured ones, and, therefore, the price charged would not represent the 'wholesale cash price' as mentioned in Section 4(a) of the Act. It was argued by the excise authorities that Section 4(a) visualized a wholesale market at the place of manufacture where articles of like kind and quality were sold or could be sold and that it also postulated a market where any wholesale purchaser could 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 contended that 'articles of a like kind and quality' was a phrase which suggested goods other than those under assessment and that one must disregard the price fetched by the sale of the goods themselves. The argument advanced on behalf of the excise authorities was squarely negatived by the Supreme Court. Mathew J., speaking on behalf of the Court, explained the true scope and meaning of Section 4(a) and its applicability 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 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 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 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 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 Section 4 of the Act does not depend upon the hypothesis to the effect that at the time of 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 price', the clause is not inapplicable for want of sale of other goods of a like kind and quality.'

After making a reference to the decision of the Privy Council in Ford Motor Company of India Limited v. Secretary of State for India in Council (supra), the learned Judge pointed out :

'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 even 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 sales anything other than the 'wholesale cash price'. The argument that what was relevant to determine the 'wholesale cash price' under Clause (a) of Section 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 Clause (a), be considered 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.'

Adverting to the decision of the various High Courts which had taken different views, 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 Section 4(a) of the Act, merely, because the manufacturer has entered into agreements with them stipulating for commercial advantages are correct. 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 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 ''wholesale cash price' for the purpose of Section 4(a) of the Act may not depend upon the number of such wholesale dealings. The fact that the appellant 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 Section 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.'

Addressing himself to the exact meaning of the term 'wholesale cash price' and quoting with approval, the interpretation placed on the same in Vacuum Oil Co. v. Secretary of State for India (supra) the learned Judge proceeded to add :

'Excise is a tax on the production and manufacture of goods (See Union of India v. Delhi Cloth and General Mills, (1963) Supp. I SCR 586 = AIR 1963 SC 791 Section 4(a) of the Act, therefore provides that the real value should be found after deducting the selling cost and selling profits 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 and arising from post-manufacturing operation, namely selling profit. The section postulates that the wholesale price should be taken on the basis of cash payment thus eliminating the interest involved in wholesale price which gives credit to the wholesale buyer for a period of time and that the price has to be fixed for delivery at the factory gate thereby eliminating freight, octopi and other charges involved in the transport of the articles. As already stated it is not necessary for attracting the operation of Section 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.

32. In Atic Industries Ltd. v. H.H. Dave, Asset. Collector of Central Excise and Ors. , AIR 1975 SC 960 the scope of Section 4(a) of the Act, as it stood prior to its amendment, again came up for consideration. In the said case, the appellants carried on business of manufacturing dye-stuffs in a factory situate in a small town called Atul in Balsar District in the State of Gujarat The dye-stuffs manufactured by the appellants were, throughout the period relevant to the appeal, sold by them in the wholesale units to two wholesale buyers, namely, ICI (India) Ltd. (hereinafter referred to as ICI), and Atul Products Ltd. (hereinafter referred to as Atul). These sales were effected in respect of 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 per cent 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 per cent. 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 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 per cent trade discount while Atul charged a slightly lower price and allowed 1/2 per cent trade discount. The prices were however, 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 question arose as to how the value of dye-stuffs manufactured by the appellants should be determined on a proper application of Section 4(a). The appellants unsuccessfully contended before the excise authories 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 wholesale units to ICI and Atul less a uniform trade discount of 18 per cent by the appellants given to the wholesale buyers. The appellants thereupon filed a petition before the High Court of Gujarat under Article 226 of the Constitution. A division Bench of the High Court of Gujarat, which heard the petition took the view following certain decisions of Calcutta, Mysore, Andhra Pradesh and Bombay High Courts, 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, in such a case, the price at which the goods were sold by the manufacturer to the favoured distributors could not be taken to the assessable value of the goods, but the assessable value muse be taken to be the price at which the favoured distributors, in their turn, sold in wholesale, than in retail. The Division Bench accordingly held that the price charged by the appellants to the ICI and Atul less 18% trade discount could 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 on taking the price charged by ICI less 10 per cent trade discount and the price charged by Atul less 1/2 per cent 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 thereupon appealed to the Supreme Court, after obtaining certificate of fitness from the High Court of Gujarat. The Supreme Court held that the assessable value of dye-stuffs manufactured by the appellants must be taken to be the price at which they were sold to the appellants by ICI and Atul less 18% trade discount, and not the price charged by ICI and Atul to their dealers. After referring to the decision in A.K. Roy v. Volta Ltd. (supra) and quoting the observations, in stenos, of Mathew J., in the said case with approval, Bhagwati J., speaking for the Court, observed :

'In fact, the present case is much stronger than the Voltas' case (supra). In 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 percent 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 Section 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 Alul wcrc 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 fail and reasonable or arrived at on purely commercial basis. The wholesale dealings between the appellants and ICI and Atul were purely commercial dealings 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 Section 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 appellants.

The Excise Authorities robbed of what they thought was a strong argument prior to the decision in Voltas' case (supra), then tried to fall back on a subsidiary argument in an attempt to save the assessments. They contended that all that Section 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 being sold and it does cot 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 later price, they pointed out, would equally be the wholesale cash price within the meaning of Section 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 Section 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.

Bhagwati J., proceeded to add :

'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 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 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 the post-manufacturing 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.'

33. The conclusion reached by Bhagwati J., was summed up in the following terms :

'There can, therefore, be no doubt that where a manufacturer sells the goods manufactured by him 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 Section 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 condition 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.'

34. In an unreported judgment dated 24-9-1976 of a Division Bench of this Court consisting of Sambasiva Rao and Punnayya JJ., in Coramandel Fertilisers Limited v. Union of India and Ors. (W.P. Nos. 1400 to 1403/1976), the petitioner common in all the four Writ Petitions was Coramandel Fertilisers Limited, a company incorporated under the Companies Act, 1956 and engaged in manufacture of fertilizers and sale of the same, its place of manufacture being situate at Visakhapatnam. Admittedly, uniform freight charges were collected by the company at its factory gate irrespective of the place of delivery of the fertilisers and included in the wholesale cash price of the fertilisers. The question arose as to whether freight charges collected by the Company at its factory gate could be included in the assessable value of the fertilisers for the purpose of imposition of excise duty. The learned Judges quoting with approval the principles laid down in A.K. Roy v. Voltas Ltd. (supra) and Atic Industries v. Asst. Collector, Central Excise (supra), observed :

'No doubt in neither of the two cases the question of inclusion or exclusion of freight charges arose. But certainly the question of the impost of excise duty and the nature of wholesale cash price arose into the two cases, The law on the point has been made clear by the highs Court of the land which is binding on all the Courts in India. From what we have extracted from the decisions of the Supreme Court there cannot be any possible doubt that freight charges cannot be included in estimating the wholesale cash price, since they are not part of the manufacturing and producing cost but are only post-manufacturing expenses.'

35. In Union of India v. Vazir Sultan Tobacco Co. Ltd, Hyderabad and Ors. , 1978 E.L.T. (J 461)=1978 (1) An. W.R. 263, the question of inclusion, in the assessable value of excisable goods, the manufacturing costs or profits arising from post-manufacturing operations, under Section 4(a) of the Act, as it stood prior to the amendment, was against considered in depth by the Division Bench of this Court. After adverting to the cases decided by the Federal Court, the Privy Council and the Supreme Court, the Division Bench observed :

'Thus, in the context of Section 4(a) of the Central Excises and Salt Act, 1944 and especially with reference to Section 4(a), the Supreme Court has now laid down in Voltas case, (1974) 2 SCJ 94, it the real value should be found after deducting the selling cost and selling profits and that the real value can include only the manufacturing cost and the manufacturing profit. If, in certain cases, there are costs necessarily incidental to manufacturing process, they can be rightly said to form part of the manufacturing costs and thus they are also to be included in the real value including only the manufacturing costs and the manufacturing profit. If, in certain cases, there are costs necessarily incidental to manufacturing process, they can be rightly said to form part of the manufacturing costs and thus they are also to be included in the real value including only the manufacturing costs and the manufacturing profit. Anything other than the manufacturing costs and manufacturing profit is not within the purview of Section 4(a).'

36. Dealing with the contention advanced by Mr. Subrahmanya Reddy on behalf of the Union of India, based upon the conclusion of Bhagwati J., in paragraph 13 of the judgment in Atic Industries v. Asst. Collector, Central Excise (supra), that the price charged by the manufacturer to the first wholesalers, be they referred to distributors or wholesalers, was the wholesale cash price and that it was that wholesale cash price less trade discount and excise duty which should be the basis of imposition of excise duty in view of the language of Section 4(a), their Lordships observed :

'We are unable to accept this argument of Mr. Subrahmanya Reddy in its entirety. It is clear from the observations of Mathew J., in Voltas case ,(1974) 2 SCJ 94, which were approved by the Supreme Court in Atic Industries v. Assistant Collector, Central Excise, : 1978(2)ELT444(SC) that the excise duty, which is a duty payable on manufacture or production of goods, can only be on the aggregate of manufacturing costs and manufacturing profit. As we have observed above, if there are any items of costs, which are necessarily incidental to the process of manufacture, they will also be part of the manufacturing costs. But, if it can be demonstrated by a particular manufacturer that, even on the first sale to the first wholesale dealer, there is an element other than that of manufacturing cost and manufacturing profit and thus the price charged to the first wholesaler includes post-manufacturing cost, such post-manufacturing cost must be eliminated by the excise authorities from their calculations. It must be pointed out that there may be two broad categories of manufacturers. The first category consists of manufacturers who only manufacture as in the case of Atic Industries case but do not sell the goods except to the first wholesaler . with whom they have arrived at an agreement at arms length. The second category is the category of manufacturers who not only manufacture, but also sell and incur the expenditure for the sale of goods as distinguished from manufacturing cost and manufacturing profit and if it can be demonstrated that, when the manufacturer of the second category sells the goods to the first wholesaler and incurs some post-manufacturing costs, which have entered into the calculations and that the price charged to the first wholesaler by the manufacturer includes the post-manufacturing cost, then such post-manufacturing cost must be eliminated by the excise authorities from their calculations. Applying the process of 'reading down ... it must be held that any item other than manufacturing costs, including costs which are necessarily incidental to manufacturing process and manufacturing profit, must be excluded for the purpose of arriving at wholesale cash price. If such loading of post-manufacturing costs even in the price charged by the manufacturer to the first wholesaler with whom an agreement was entered into at arms length is permitted, the concept of excise duty, being a duty payable on the manufacture or production of goods would be violated.'

37. An unreported decision dated 8-9-1976 of a Division Bench of the Gujarat High Court consisting of J.B. Mehta, Ag. Chief Justice and M.P. Thakkar J., in Golden Tobacco Co. Ltd., Bombay v. Union of India and Anr. (Special Leave Appln. No. 858/1974) [since reported in 1977 E.L.T. (J 113) in which a contrary view was taken, was dissented from by the Division Bench.

38. We may also observe that the High Court of Kerala in Madras Rubber Factory Ltd., v. Asst, Collector of Central Excise, Kottayam and Ors. 1976 TLR 1263, the High Court of Bombay in Union of India v. Mangsinka Industries Pvt Ltd., 1976 TLR 1891, the High Court of Karnataka in Union of India v. I.T.C. Ltd., 1976 TLR 2003, the High Court of Madhya Pradesh in Universal Cables v. Union of India 1977 TLR 1825, and the High Court of Allahabad in I, T.C. Ltd. v. Union of India, 1977, 1977 TLR 2060, also took the same view as that expressed by the Division Bench in Union of India v. Vazir Sultan/Tobacco Co. Ltd. (supra). It is also noticed in I.T.C. Ltd. v. Union of India, 1977 TLR 2060) that the Madras High Court in W.P. Nos. 784 and 7143 of 1975, 2274, 2275 and 3163 of 1975, also took the same view.

39. Having noticed the decided cases on the scope of Section 4(a) of the Act, as it stood prior to its amendment, we now examine the ambit of the amended Section 4(a) of the Act, with which we are concerned in this batch of Writ Petitions.

40. The amended Section 4(a) provides for determination of the value of the excisable goods in different ways depending upon the different prices at which the goods are sold to different classes of buyers and depending upon the sale being to a related person or not. Section 4(1)(a) lays down that 'normal price' will be the price at which the goods are ordinarily sold by the assessee to a buyer in the course of 'wholesale trade' for delivered at the time and place of removal where the assessee and the buyer have no interest, directly or indirectly, in the business of each other and the price is the sole consideration for the sale. Section 4(1)(a) is controlled by three provisions. The first two provisions provide for situations where 'the normal price' in the wholesale trade may be different for different classes by buyers under the circumstances mentioned therein. The first proviso deals with sale of the goods by the assessee at different prices to different classes of buyers. For purpose of levy of excise each such price shall be deemed to be 'the normal price of such goods in relation to each such class of buyers. The second proviso deals with sale by the assessee at a price fixed under any law for the time being in force or at a price, being the maximum, fixed under any such law. Under those conditions, 'the normal price' will be the price so fixed by such law. The third proviso deals with the price in cases where the assessee sells goods only to a related person. In such cases, 'the normal price' shall be deemed to be the wholesale price at which the related person sells to dealers not being related persons. In the absence of such dealers, the price that the retail dealer pays to a related person shall be 'the normal price'. Section 4(1)(b) provides that where normal price of such goods is not ascertainable in one or other manner indicated in Section 4(1)(a), the value will be determined in such manner as may be prescribed. Section 4(2) is residuary in character and it applies only to such cases where the price of any excisable goods at the place of removal is not known and the value thereof is determined with reference to the price for delivery at a place other than place of removal. In cases covered by Section 4(2), the cost of transportation from the place of removal to the place of delivery shall be excluded from such price. Section 4(4)(d) provides for deduction of certain items from the value arrived at under Section 4(1)(a) or Section 4(1)(b). Section 4(1)(b)(i), while providing for inclusion of the cost of packing in the value of the goods, where the goods are delivered at the time of removal in packed condition, permits deduction of the cost of the packing from the value if the packing is of a durable nature and is returnable by the buyer to the assessee. In other words, even the cost of initial or first packing, if it is of a durable nature and is returnable by the buyer to the assessee is liable to be deducted from the value of the good. It, therefore, follows that the cost of secondary packing of the goods is not liable to be included in the assessable value. Section 4(a) provides for deduction from the value of the goods, the amounts of the duty of excise, sales-tax and other taxes, if any, payable on such goods and the trade discount.

41. It is not dented that the assessees in this batch of Writ Petitions are not governed either by Section 4(1)(b) or Section 4(2) of the Act. Though it is urged in Writ Petition Nos. 2601 and 2602 of 1976, that the provisions of Section 4(a) read with Section 4(2) of the Act would govern the assessee therein, it is evident from the material averments made therein that the normal price of the goods manufactured by the petitioner therein for delivery at the place of removal is either ascertainable or is known. The contention of the excise authorities that the provisions of Section 4(a) governing the petitioner in the said two Writ Petitions must be given effect to.

42. It is urged by the learned counsel for the assessees that the fountain or the source of power to levy duties of excise on excisable goods contained in Entry 84 in List I of Seventh Schedule to the Constitution of India remaining the same and the charging Section 3 of the Act remaining in tact and not having been amended, the interpretation placed on Section 4(a) of the Act, as it stood prior to its amendment, equally applies to the amended Section 4(a) of the Act, and that 'the normal price' assessable to duty should be arrived at after deducting from the price charged by the manufacturer on his goods on the first sale of the same, the selling cost, the selling profit and all other post-manufacturing costs, expenses and post-manufacturing profits.

43. On the contrary, it is urged by the learned counsel for the Union of India that the value assessable to duty is the price charged by the manufacturer on first sale of his goods and that except for the permissible items of deduction from the said value enacted in Section 4(a) of the Act, no other expenses under whatever head are liable to be deducted from the price. In other words, if at or near the factory, there is a wholesale price for the excisable goods, subject to the permissible deductions enacted in Section 4(a) of the Act, no deduction from the said price, of any post-manufacturing expenses or profits, under whatever head, can be claimed. Reliance is placed upon the following observations in paragraphs 12 and 13 of the judgment of Bhagwati J., in Atic Industries Ltd. v. H.H. Dave, Asstt. Collector of Central Excise and Ors. ((supra):

'The wholesale dealings between the appellants and ICI and Atul were purely commercial dealings at arms length and the price charged by the appellants for sales in wholesale made to ICI and Atul lets trade discount of 18% was, therefore, clearly 'wholesale cash price' within the meaning of Section 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 appellants...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.'

In Union of India v. Vazir Sultan Tobacco Co. Ltd., Hyderabad and Ors. (supra), it may be recalled that the very same argument was advanced before a Division Bench of this Court by the learned counsel for the Union of India and repelled. We must add that we are in complete agreement with the reasoning of the Division Bench in repelling the contention. It may be noted that in both the cases of the Supreme Court reported in A. K. Roy v. Voltas Ltd. (supra), and Atic Industries Ltd. v. H.H. Dave, Asset. Collector of Central Excise and Ors. (supra), there was no controversy that in the first wholesale cash price were included post-manufacturing expenses or profits. It was not laid down in either of the two decisions that in every case, invariably, the first wholesale cash price of the goods charged by the manufacturer would never take in post-manufacturing expenses or post-manufacturing profits or other expenses wholly unconnected with and unrelated to manufacture of the goods. To accede to the submission of the learned counsel for the Union of India would be to ignore the true character of the impost of excise duty that is a duty on manufacture or production of excisable goods.

44. As noted already, excise duty payable under the charging Section 3, being a tax on manufacture, it can only be on manufacturing cost and manufacturing profit and the assessable value cannot be loaded to any extent by any other cost or profit which is unrelated to manufacturer. In other words, to arrive at the real value of the goods for the purpose of levy of duty, the price of the goods must be free from being loaded with post-manufacturing costs and expenses. If the price charged by the manufacturer or producer to his first buyer includes post-manufacturing costs or expenses which are unrelated to the manufacture or production, the price must be relieved of such loading arising out of the inclusion of post-manufacturing expenses and costs for the purpose of determining the assessable value. For the purpose of determining the assessable value under Section 4(a) of the Act, as it stood prior to 1-10-1975, the 'wholesale cash price' was to be ascertained. After the amendment from . 1-10-1975, the 'normal price' is to be ascertained. Section 3 of the Act authorising the levy of excise duty on the manufacture and production of goods, it may be noted, is left in tact and has not been amended by the Amending Act of 1973. What is more, the concept of 'Factory Gate sale' which was the basis for determination of the assessable value under Section 4(a) of the Act, as it stood prior to the amendment, is re-affirmed in the amended section and in the definition of 'normal price' contained in the amended Section 4(a), the element of sale of goods for delivery at the time and place of the removal has been preserved. The basis of excise duty, therefore, continues to be the manufacturing cost and manufacturing profit and the amendment of Section 4(a) does not and cannot, in any way, alter the basis of the levy of excise duty contained in Section 3 of the Act, remaining the same, untouched and un-amended even after the substitution of the new Section 4(a). If the 'normal price' were to be construed as to take within its ambit anything except the manufacturing cost and manufacturing profit, the impost ceases to be excise duty and the rational nexus between the duty and the person upon whom it is imposed ceases to exist, as it amounts to tax on sale, which under Entry 54 of List II of Schedule VII to the Constitution, exclusively falls within the domain the State Legislature and the Parliament has no legislative competence to make of any law with regard to it. It, therefore, follows that under the new Section 4(a) of the Act, it is not permissible to include in the assessable value any element of post-manufacturing costs or profits attributable to post-manufacturing operations.

45. Our view also gains support from the decision of a single judge of the Madras High Court in Nagpal Petro-Chem, Limited, Madras-58 v. Assistant Controller of Central Excise Madras -- 1919, Excise Law Times (J 117), the unreported decision of a Division Bench of the Patna High Court in The Tata Engineering and Locomotive Company Limited v. S.N. Guha Thakurta, Superintendent of Central Excise, Jamshedpur and Ors. -- 1977 E.L.T. (J 14), and the unreported decision of a Division Bench of the Allahabad High Court [Hind Lamps Ltd. v. U.O.I., 1977 E.L.T. (J 1), wherein also the scope of the amended Section 4(a) of the Act was considered.

46. A learned single Judge of the Kerala High Court in the Madras Rubber Factory Ltd. v. The Assistant Collector of Central Excise, Kottayam and Ors. -- 1978 E.L.T. (J 595)' no doubt, took a contrary view on the scope of the amended Section 4(a) of the Act. As borne out by paragraph 14 of his judgment, the learned Judge very much relied upon the conclusions in the Text Book 'Legislative, Executive and Judicial Powers in Australia' by W.A. Wynes, Fifth Edition. As observed by their Lordships of the Supreme Court in Mis. Chhotabhai v. Union of India (supra) no assistance could be derived from the decisions of the Privy Council in appeals from Canada or the decisions of the American Supreme Court or of the Australian High Court, for the interpretation of the scope or content of the term 'duties of excise in Entry 84 of the 'Union List'. Even otherwise, we dissent from the judgment of the learned single Judge of the Kerala High Court, as, in our opinion, the interpretation placed by him upon the amended Section 4(a) of the Act is not only not warranted by the provisions of the charging Section 3 of the Act, but also opposed to the basic concept of the excise duty.

47. It is, however, urged by the learned counsel for the Union of India that even if the amended Section 4(a) of the Act incidentally trenches upon the exclusive field of the State Legislature by taking within its ambit the post-manufacturing expenses and profits, the constitutional validity of Section 4(a) of the Act is unaffected, as in pith and substance the Act is within the legislative competence of the Parliament, Reliance is placed upon the decisions in Chatturbhai M. Patel v. The Union of India and Ors. , 1960 S.C.J. 224, and The State of Karnataka and Anr. v. Ranganatha Reddy etc. : [1978]1SCR641 . In the first case, the validity of the Act legislated under Entry No. 45 of List I of the Government of India Act (corresponding to Entry No. 84 in List I of the Seventh Schedule to the Constitution of India) was challenged on the ground that it impinged upon the legislative field covered by items Nos. 27, 29 and 31 of List II of the Government of India Act exclusively assigned to the Provincial Legislatures. Their Lordships of the Supreme Court observed : --

'Looking at the scheme of the Act, its object and purpose, its true nature and character and the pith and substance the conclusion is inevitable that the Act was within the legislative competence of the General Legislature and although there may be certain matters otherwise within the legislative competence of the Provincial legislature they are necessarily incidental to effective legislation by the Central Legislature. The various provisions of the Act and the Rules made thereunder were, in our opinion, essentially connected with the levying and collection of excise duty and in its true nature and character the Act remains one that falls under Item 45 of List 1 and the incidental trenching upon the Provincial field of Item 27 or 29 would not affect its constitutionality because the extent of invasion of the Provincial field may be a circumstance to determine the truth pith and substance but once that question is determined the Act, in our opinion, would fall on the side of Central field and not that of the Provincial field.'

In the latter case, their Lordships held that the pith and substance of the Act [Karnataka Contract Carriages (Acquisition) Act] assailed therein had to be looked into and that an incidental trespass would not invalidate the law.

48. The propositions of law enunciated by their Lordships of the Supreme Court are unexceptionable. No conflict of legislative competence of the Parliament and that of the State Legislature is really raised in this batch of Writ Petitions. The doctrine of pith and substance comes into play only when there is overlapping of one legislative field over the other. The contention put forward by the assessees is that the levy of excise duty on the post-manufacturing costs, expenses and profits is not within the scope of Section 4 read with Section 3 of the Act. It may be recalled that in the Voltas' case and the Atic Industries' case decided by the Supreme Court, though it was contended that Section 4 of the Act, as it stood prior to the amendment, comprehended within its ambit, the post-manufacturing costs, expenses and profits for the purpose of levy of excise duty, its validity was not sought to be sustained by invoking the doctrine of pith and substance. In our opinion, the doctrine of 'reading down' but not the doctrine of 'pith and substance' is to be invoked In these cases. The doctrine of 'reading down' was enunciated succinctly by their Lordships of the Supreme Court in Johrimal v. The Director of Consolidation Holdings, Punjab and Anr., : [1967]3SCR286 , in the following terms :

'The principle is that if two constructions of a statute are possible, one of which would make it intra vires and the other ultra vires, the Court must lean to that construction which would make the operation of the section intra vires. The reason is that no intention can be imputed to the Legislature that it would exceed its own jurisdiction. It is a well established rule that a statute has to be so read so as to make it valid; it has to be construed at restages valet quarm pareat.'

49. Section 4(a) of the Act must, therefore, be construed as authorising the levy of excise duty on the manufacturing cost of the goods and manufacturing profit of the manufacturer. In other words, the normal price for the purpose of levy of duty must be free from being loaded with post-manufacturing costs, expenses and profits which are unrelated to the manufacture or production of the goods.

50. We must, however, observe that an exhaustive list or catalogue of the post-manufacturing costs, expenses or profits liable to be excluded from the 'normal price' for the purpose of imposition of excise duty, it is difficult to enumerate. In the Voltas' case, it was held that the real value should be found after deducting the selling costs and selling profits. The view was reiterated in Atic Industries' case.

51. In Madras Rubber Factory v. The Assistant Collector of Central Excise -- 1978 E.L.T. (J 595), it was held by a single Judge of the Kerala High Court that there might be post-manufacturing operations in respect of goods produced, such as freight incurred in conveying the goods to sales-depots, godown charges and other expenses. Discussing the question further, the learned Judge observed :

'There may by manufacturing concerns having their own marketing and sales organisation. Goods may be sold through or to any particular dealer or agent with whom the company may enter into a contract for the sale of its products. That is in cases where the company may have no sales organisation of its own. But where it has one, the price it ultimately receives includes not only the manufacturing cost and all the post-manufacturing expenses but manufacturer's profit as well as trader's profit. Trading profit cannot be taken into account for determining the price for the purpose of levy of excise duty. Therefore in a case where the price realised is a price at a point where the goods are sold after post-manufaturing operations, it may be that the cost-structure may include (1) manufacturing cost, (2) manufacturer's profit, (3) freight and other charges, and (4) the trading profit. Only the first two of these are to be taken into account for the purpose of levy of excise duty, for, it is on the goods as manufactured and deliverable at the factory gate that duty has, to be levied.'

52. In Union of India v. Mansingka Industries Private Limited, 1979 E.L.T. (J 158), the cost of packing of hydrogenated vegetable oil in tins was treated as post-manufacturing cost. Also incurring of freight charges for transporting the excisable goods was held to be not forming part of the value for the purpose of assessment of excise duty.

53. In Union of India v. I.T.C. Limited (supra), reference was made to the order of the Central Board of Revenue dated 16-10-1967 in the appeal of Bata Shoe Co., (P) Limited relied upon by the learned counsel for the respondents therein for the purpose of establishing that it was possible to apportion the assessable value of the whole price under Section 4(a) of the Act (prior to the amendment) in the light of the principles laid down in the Voltas' case, In the order relied upon, the Central Board permitted deduction from the wholesale prices, certain percentages thereof under different heads viz., distribution charges, traveling expenses, advertisement expenses, insurance, charges, interest, freight, apart from trade discount, sales tax and excise duty. After adverting to the contents of the order of the Central Board of Revenue, the Division Bench observed :

'The learned single Judge was therefore justified in directing that the wholesale cash price should be determined after eliminating the expenses incurred in connection with marketing and distributing of goods, interest on the value of goods attributable to the period between the time at which the goods left the factory premises and the time at which the price was paid by he wholesaler as well as the freight, octopi and other charges involved in the transport of the articles from the factory gate to the selling points. He was also justified in directing the Excise Authorities to determine what portion of the advertisement expenses incurred by the manufacturer can be allowed to be deducted depending upon how far it can be traceable to the selling operation and not attributable to the manufacturing operation or manufacturing profit. The items referred to above are not exhaustive but only illustrative of the nature of deductions which have to be made before arriving at the assessable value for the purpose of Section 4(a), Clause (a).'

54. In I.T.C. Limited v. Union of India, 1977 E.L.T. (J 29), it was claimed by the assessee that the expenses incurred under the following heads were post-manufacturing expenses and that, therefore, they did not form part of the wholesale cash price for the purpose of determining the assessable value:

(a) Marketing and distribution expenses;

(b) Advertising expenses;

(c) Freight on Cigarette and smoking mixture;

(d) Interest.

Adverting to the claim, a Division Bench of the Allahabad High Court held :

'It is not denied that no sale of articles manufactured by the petitioner is made at Saharampur. The wholesale market for those articles exist at certain other places. For purpose of transporting these articles to those places the petitioner has to incur certain expenses, like freight and octopi. To sell the goods at each of those places the petitioner has to maintain an establishment and incur expenditure thereon. In view of the law laid down in Voltas' case and Attic's case such expenses should be regarded as post manufacturing expenses.

The Central Excise authorities have not applied their mind and examined whether expenses incurred and claimed by the petitioner or part thereof were post-manufacturing expenses. If the sale price charged by a manufacturer or producer consists of only manufacturing costs or manufacturing profit no exception can be taken; but if it includes expenses incurred on freight, advertisement, distribution, interest, or such other item as can be put in the category of post-manufacturing expenditure he is certainly entitled to claim deduction of the same while determining the wholesale cash price for the levy of excise duty under Section 4(a) of the Act.'

The decided cases referred to supra, it may be noted, furnish some instance of post-manufacturing costs or expenses or profits attributable to post-manufacturing operations. We would, however, like to hold that, besides the cost of packing, the amounts of the duty of excise, sales tax, octopi and the trade discount, permitted to be deducted from the 'normal price', as enacted in Section 4(d) of the Act, the assessees would be entitled to claim deduction, from the normal price -- (a) Expenses of publicity or advertisement in connection with the sale of the finished goods ;

(b) Expenses of storage of the finished goods, commonly known as 'godown charges' ;

(c) Charges of insurance of the finished goods ;

(d) Selling profits and selling costs inclusive of expenses of promotion of sales ;

(e) Expenses of marketing and distribution ;

(f) Freight charges ;

(g) Interest on credit sales, and the like, wholly unconnected with and unrelated to the manufacture or production of the excisable goods.

The instances given are only illustrative and by no means exhaustive. It is for the authorities to decide in each case whether the deductions claimed by the assessees are; in the nature of post-manufacturing costs, expenses or profits arising out of the post-manufacturing operations. In other words, the deductions claimed for being allowed, must be wholly unconnected with and unrelated to the manufacture or production of the goods. It is needless to state that the authorities should be satisfied that the post-manufacturing costs or expenses claimed by the assessees are actually incurred.

55. We may, however, observe that except in Writ Petition Nos. 1532, 2601 and 2602 of 1976, in the other six Writ Petitions the assessees question the validity or the legality of inclusion of the post-manufacturing costs, expenses and profits attributable to post-manufacturing operations, in the 'normal price' for the purpose of levy of excise duty. Our decision in that behalf, therefore, governs those six Writ Petitions.

56. We now examine the other contentions raised in each of the Writ Petitions.

57. In Writ Petition No. 5948 of 1975, eleven out of the twelve authorised wholesale dealers of the petitioner-company are treated as related persons within the meaning of the third provision to Section 4(a) of the Act and that the excise duty is levied on the goods manufactured by the petitioner-company on the basis of the price charged by those authorised wholesale dealers from their buyers. It is true that some of the partners of eleven out of the twelve authorised wholesale dealers are related to two of the nine directors of the prisoner-company. But the mere sale to a wholesale dealer who is a relative will not authorise the levy of duty on the price charged by the wholesaler, who purchases goods from the manufacturer and sells them in wholesale to another dealer. As laid down by the Supreme Court, that course would be open to the authorities only when the agreement with the wholesale dealers sought to be treated as 'related persons' confers some extra commercial advantages to them making them favoured buyers. It is admitted by the excise authorities that, out of the twelve authorised dealers of the petitioner-company, there is an independent buyer in Orissa State though the percentage of sales to the. independent buyer is less than five. For the year ending with 30-9-1975, the percentage of sale to the said independent buyer was 2 89. It is not denied that a fully commercial price charged to the admittedly independent buyer of the petitioner-company is also charged from the other authorised wholesale . dealers of the petitioner-company. So long as there is an independent buyer of the goods of the petitioner-company from whom a fully commercial price is charged by the company, that price should be taken into consideration for the purpose of arriving at the 'normal price' even in respect of sales to the authorised wholesale dealers of the petitioner-company, treated as 'related persons'. Our conclusion derives support from the decisions in the Voltas' case and the Atic Industries' case. We are also strengthened in our view by the decisions in Nagpal Petro-chem. Limited, Madras-58 v. Assistant Controller of Central Excise, Madras, 1978 E.L.T (J 595) and The Tata Engineering and Locomotive Company Limited v. S.N. Guha Thakurta, Superintendent of Central Excise, Jamshedpur and Ors. , 1977 E.L.T. (J 14), decided by a Divison Bench of the Patna High Court. In the view we have taken on the admitted facts, it is wholly unnecessary to consider the vires of the third proviso to Section 4(a) of the Act.

58. In Writ Petition No. 5948 of 1975, the petitioner-company also claims deductions of the cost of packing of its goods from the assessable value. In E.I.D. Party Limited v. Union of India, 1978 Excise Law Times (J)(18), it was held by the High Court of Madras that packing could not be regarded as a process incidental or ancillary to the completion of the manufactured product. The same view was taken by the High Court of Karnataka, Calcutta and Maharashtra.

59. Admittedly, the petitioner-company first packs its dry cell batteries in what are known as Display boxes and later in cartons. It is alleged by the petitioner that the dry cell batteries produced are sold just as batteries and are not covered by any kind of wrapper, that the packing in Display boxes by the petitioner is only to enable the movement of batteries freely and conveniently and that further packing in cartons by long distance transport is also for safety in transit and handling. It is true that, under Section 4(a), it is enacted that where the goods are delivered at the time of removal in a packed condition, the assessable value includes the cost of such packing, except the cost of the packing, which is of a durable nature and is returnable by the buyer to the assessee. The requirement of 'durability' of the packing, if insisted upon for allowance of the cost of the packing from the assessable value, would render the cost of the packing as an element of manufacturing activity, which it is certainly not. The words 'of a durable nature' occurring in Section 4(a) of the Act do not have any significance and cannot be given effect to. In other words, even the cost of initial packing of the excisable goods, if it is returnable by the buyer to the assessee, is liable to be deducted from the value of the goods. It, therefore, follows that the cost of the secondary packing of the goods is not liable to be included in the assessable value. The word 'returnable' as distinguished from the word 'returned' employed to Section 4(a) of the Act is of significance. It, therefore, follows that, besides the cost of the cartons in which the Display boxes containg the dry cell batteries manufactured by the company are packed, the company is also entitled to the cost of the packing of Display boxes as it is not claimed by the excise authorities that without the Display boxes the goods manufactured by the( company cannot be consumed or utilised.

60. We should not, however, be understood as laying down that in every case every packing of the excisable goods is liable to be excluded from the assessable value as there may be cases where without the initial packing of the excisable goods the same cannot be consumed or utilised in which case the cost of the initial packing necessarily forms part of the manufacturing cost of the goods.

61. In Writ Petition Nos. 819 and 2194 of 1976, except the claim of exclusion of the post-manufacturing costs, expenses, and profits attributable to post-manufacturing operations from the assessable value of the goods manufactured by the petitioner-company therein, no other question is raised.

62. In Writ Petition No. 1115 of 1976, though it is urged by the excise authorities that a foreign company holds substantial shares in the petitioner-company and in the Messrs. India Tobacco Company, a major wholesale dealer of the petitioner-company and that Messrs. India Tobacco Company Limited is, therefore, 'related person' within the meaning of Section 4(a) read with its third proviso, it is, however, admitted in the counter-affidavit filed by the excise authorities that the assessable value of the goods would be the price charged by the petitioner-company to its wholesale dealers other than Messrs. India Tobacco Company Limited. In the light of the clear stand of the excise authorities expressed in no uncertain terms, the claim of the petitioner-company must be upheld.

63. In Writ Petition No. 1532 of 1976, the only question raised by the petitioner-company is the legality of levy of excise duty on the cost of jute bags in which the excisable goods manufactured by the Company were packed and sold between 1-10-1975 to 8-1-1976. Admittedly, even after the amended Section 4(a) came into force, till 4-12-1975 the excise authorities did not include the cost of jute bags in the assessable value. However, from 5-12-1975 to 8-1-1976, the excise authorities made a demand in a sum of Rs. 2,08,791.05 towards excise duty on the cost of jute bags. The petitioner objected to the demand, but, however, paid the amount under protest. For the earlier period between 1-10-1975 and 4-12-1975, a demand was subsequently made by the 3rd respondent in a sum of Rs. 3,85,835.46 towards excise duty on the cost of jute bags on the ground that by mistake the sum was not collected earlier. For the reasons assigned by us, whole dealing with the claim of exclusion of the cost of packing in Writ Petition No. 5948 of 1975, we hold that the cost of jute bags in which the goods of the company were packed and. sold is not liable to be included in the assessable value of the goods. We may also observe that, realising the mistake committed by the excise authorities, the Government of India also issued the notification dated 9-1-1976 exempting payment of excise duty on the cost of jute bags in which cement is packed and sold by the manufacturers of cement. The petitioner-company is, therefore, entitled to refund of the amount of excise duty on the cost of jute bags levied and collected between 5-12-1975 and 8-1-1976. The demand dated 31-1-1976 made upon the petitioner for payment of excise duty in a sum of Rs. 3,85,835.46 on cost of the jute bags for the period 1-10-1975 to 4-12-1975 is, therefore, liable to be quashed.

64. In Writ Petition Nos. 2601 and 2602 of 1976, the petitioner-company claims deduction of the cost of transport of its goods to the various godowns numbering at present to twenty-five as well as the cost of transport involved in removing the goods to their ultimate places of delivery. The petitioner-company, however, charges equalised freight on its goods to ensure uniform price for sale of its goods throughout the country. The claim is resisted by the excise authorities on the ground that no deduction on account of the equalised freight is permissible under the amended Section 4(a) of the Act and that the cost of transporation of the goods from the place of removal to the place of delivery is liable to be excluded from the 'normal price' under Section 4(a) of the Act, where the price of the goods for delivery at the place of removal is not known. The contention of the excise authorities is wholly untenable as no such restricted interpretation of Section 4(a) of the Act can be countenanced for more than one reason. Firstly, it cannot be said that the price of the goods of the company for delivery at the place of removal is not known. It may be recalled that as laid down in the Voltas' case, even if there is 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 the market in the proper sense of the term provided the articles themselves could be sold wholesale to traders. Secondly, the cost of transport of excisable goods can never be included in the assessable value of the goods as the cost is incurred subsequent to the manufacture of the goods and wholly unconnected with the manufacture of the goods. The fact that the petitioner-company charges uniform frieght would not make any difference. In fact, in the unreported decision dated 24-9-1976 of a Division Bench of this Court in Writ Petition Nos. 1400 to 1403 of 1976, the claim of Coramandel Fertilisers Limited, a company incorporated under the Companies Act, 1956 with its factory situate at Visakhapatnam, for exclusion of equalised freight charged by it on its goods irrespective of places of delivery of the goods, was upheld. It is true that the decision was rendered under Section 4(a) of the Act. as it stood prior to the amendment. In our opinion, the decision equally holds good under the amended Section 4(a) of the Act also. It is not necessary to dwell at length on the other claim of the petitioner for exclusion from the assessable value of the goods, the cost of secondary packing of the goods in wooden boxes as the same is conceded by the authorities in the counter filed by them.

65. In Writ Petition Nos. 217 and 218 of 1978, the petitioner-company has no sole selling agents and the sales of its goods are effected through its Regional Officcs/godown at Calcutta, Delhi, Bombay, Madras, Ludhiana, Hyderabad, Ernakulam, Bangalore and other places, Necessarily, all the post-manufacturing costs, expenses and profits are included in the price charged by its Regional Offices/godowns from the wholesale dealers who purchase the goods at the Regional Offices/godowns, The excise authorities seek to levy excise duty on the price charged at the Regional Offices/godowns of the petitioner from the wholesale dealers purchasing goods at the Regional Offices/godowns. By no stretch of imagination, the Regional Offices or godowns of the petitioner-company can be treated as 'related persons'. The Regional Offices are not different bodies, nor have they any separate entity. They are parts and parcel of the petitioner-organisation and the sales of the company, through its Regional Offices/godowns, cannot be regarded as sales . through 'related persons'. In fact, in the Tata Engineering and Locomotive Company Limited v. S N Guha Thakurta, Superintendent of Central Excise, Jamshedpur and Ors. , 1977 E.L.T. (J 14), it was conceded by the excise authorities that regional sales offices of the petitioner-company therein could not be treated as 'related persons'. The petitioner is, therefore, entitled to exclude from the price charged from its wholesale dealers at its Regional Offices/godowns all the post-manufacturing costs, expenses and profits for the purpose of levy of excise duty.

66. The next grievance of the petitioner-company is that the trade discount allowed by the company to its wholesale dealers is disallowed on the ground that the same is not extended to the buyers who purchase its goods on credit The stand taken by the excise authorities is wholly untenable. As laid down in the Voltas' case, a credit wholesale cannot form the basis of levy of excise duty, To quote the words of Mathew J.,

'The wholesale price should be taken on the basis of cash payment thus eliminating the interest involved in wholesale price which gives credit to the wholesale buyer for a period of time.'

67. Lastly, it is complained by the company that its claim for deduction of post-manufacturing costs, expenses and profits is being negatived or not adjudicated upon on the ground that the price lists submitted by the company do not contain full particulars of the same. It may be noted that, until completion of the annual audit of the petitioner-company, the full particulars of the expenses claimed cannot be furnished. Only provisional price lists can be submitted. It is, therefore, just that the excise authorities should, in the first instance, act upon the provisional price lists reserving its right to determine the quantum of duty finally on submission of final price lists after completion of the annual audit of the petitioner-company.

68. In the result, in Writ Petition No. 5948 of 1975, a Writ of Mandamus shall issue directing the 2nd respondent therein to fix from 1-10-1975, as the 'normal price' under Section 4(a) of the Act, the price charged by the petitioner on its goods sold to its recognised wholesale dealers and to assess or levy, collect or recover any excise duty from the petitioner on the price charged by the petitioner to its wholesale dealers, after deducting from the price, the post-manufacturing costs and expenses inclusive of the cost of the Display boxes and cartons, in which the goods of the petitioner are packed and sold, as also the post-manufacturing . profits arising out of the post-manufacturing operations.

69. In Writ Petition Nos. 819, 2194 and 1115 of 1976, a Writ of Mandamus shall issue directing respondents 2 and 3 therein to assess or levy, collect or recover any excise duty from the petitioners in the three Writ Petitions on the prices charged by the petitioners to their respective wholesale dealers from 1-10-1975 after deducting from the prices, the post-manufacturing costs, expenses and profits attributable to post-manufacturing operations. A direction shall also issue to respondents 2 and 3 in all the three Writ Petitions to refund to the petitioners therein, any amounts of excise duty illegally recovered from the petitioners by including in the wholesale prices of the petitioners' products, the post-manufacturing costs, expenses and profits for the period prior to 1-10-1975, if on the respective dates of filing of the Writ Petitions the claims of the petitioners are not barred by limitation.

70. In Writ Petition No. 1532 of 1976, a Writ of Mandamus shall issue directing respondents 2 and 3 to refund the amount of excise duty of Rs. 2,08,795 collected from the petitioner on the cost of jute bags for the period from 5-12-1975 to 8-1-1976 and also restraining them from enforcing against the petitioner the demand dated 31-1-1976 for payment of excise duty in a sum of Rs. 3,85,835.46 on the cost of jute bags for the period from 1-10-1975 to 4-12-1975.

71. In Writ Petition Nos. 2601 and 2602 of 1976, a Writ of Certiorari shall issue quashing the orders dated 15-4-1976 and 12-5-1976 passed by the 2nd respondent therein. A Writ of Mandamus shall also issue to respondents 2 and 3 therein directing them to assess or levy, collect or recover any excise duty from the petitioner on the price charged by the petitioner to its wholesale dealers from 1-10-1975 after deducting from the price the cost of transport incurred by the petitioner for removal of its goods for the purpose of sale, to its various godowns and later to their ultimate places of delivery as also the cost of secondary packings of its goods.

72. In Writ Petition Nos. 217 and 218 of 1978, a Writ of Certiorari shall issue quashing the order dated 1-11-1977 of the 2nd respondent therein. A Writ of Mandamus shall also issue directing respondents 2 and 3 therein to assess, levy, collect or recover any excise duty from the petitioner on the price charged by the petitioner from its wholesale dealers at its Regional Offices/ godowns from 1-10-1975 after deducting from the price the post-mariufacturing costs and expenses inclusive of cost of transport of its goods to its Regional Offices/godowns and post-manufacturing profits and also the trade discount allowed by the petitioner in accordance with the normal practice of the wholesale trade irrespective of the fact that the facility is not extended to the sales on credit. A direction shall also issue to respondents 2 and 3 to refund to the petitioner any amounts of excise duty illegally recovered from the petitioner from 18-6-1977 by including in the wholesale price realised by the petitioner at its Regional Offices/godowns, the post-manufacturing costs, expenses and profits, provided the claim is not barred by limitation.

73. We would like to add that the claims of the assessees for exclusion of the post-manufacturing costs, expenses and profits from the assessable value of their goods should be determined and adjudicated upon in accordance with the principles laid down and the observations made by us in this judgment.

74. The Writ Petitions are ordered accordingly. In all the circumstances of the case, we, however, direct the parties to bear their own costs.

75. Immediately after pronouncement of our judgment Sri K. Subrahmanya Reddy, the learned counsel for Union of India makes an oral application for leave to appeal to the Supreme Court. As, in our opinion, the principal question raised in this batch of writ petitions involves a substantial question of law of general importance which requires determination by the Supreme Court, the leave asked for is granted in all the writ petitions.

76. Sri K. Subrahmanya Reddy, learned counsel for the Union of India, also requests that stay of operation of our judgment may be granted. We do not see any merit in his request to suspend the operation of the entire judgment. We, however, stay the directions contained in writ petition Nos. 1532/76 and 217 and 218 of 1978 relating to refund of certain amounts specified therein till the end of July, 1979. In other respects, in those three writ petitions and in all respects in the other writ petitions, stay is refused.

77. The learned counsel for the petitioners in all the writ petitions draws our attention to the fact that, during the pendency of the writ petitions, bank guarantees have been furnished by the petitioners and pray that the same may be returned to the petitioners. The learned counsel for the Union of India opposes this request on the ground that as leave to appeal to the Supreme Court has been granted, the guarantees in each of the cases should be allowed to continue. We, however, grant the request of the learned counsel for petitioners.


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