D.K. Kapur, J.
1. This Letters Patent Appeal is directed against the judgment dated 15th September, 1976, whereby Civil Writ No. 685 of 1968 was granted and the orders of the Excise authorities directing in additional payment of excise duty on the manufacture of glass shells and glass tubes by M/s. Hind Lamps Ltd., were quashed.
2. The facts giving rise to the Writ Petition can now be set out. The petitioner, M/s. Hind Lamps manufacture electric bulbs and fluorescent tubes in its factory at Shikohabad. In addition, it manufactures glass tubes and glass shells which may be described as component parts of electric bulbs and fluorescent tubes. These glass shells and components can be used by other manufacturers of electrical bulbs and fluorescent tubes. The company sells its entire production of manufactured glass shell and tubes to a Calcutta firm known as M/s. Unipro Lamp Components which in turn sells these parts to any interested buyer.
3. The excise duty was paid for the period 1961 to 1965 on the basis of the price list maintained by the petitioner which in fact meant the price at which the petitioner company was selling its glass shells and tubes to M/s. Unipro Lamp Components of Calcutta. However, in July, 1965, the Central Excise authorities maintained that the price at which the goods were sold to M/s. Unipro Lamp Components was not the proper wholesale price. In fact, the proper price was the one at which M/s. Unipro Lamp Components sold the goods to other parties. A claim was raised by the Excise authorities for additional duty for the period 1st March, 1961, onwards, and some additional demands were raised for payment of Rs. 2,50,000/- for the back period and further demands for the future.
4. On 1st December, 1965, the Assistant Collector of Central Excise Agra, passed an order holding that there was a special relationship between the petitioner and M/s. Unipro Lamp Components and the price charged was not the real value of the goods. In fact, the price charged by M/s. Unipro Lamp Components from individual purchasers was the real value and formed the basis of the assessment. An appeal to the Collector, Central Excise against the order was dismissed. A revision to the Central Government failed, but some relief was granted with regard to items of excise duty which were barred by time. The only question before the Writ court was to determine whether the basis of assessment had been rightly altered by the Excise authorities.
5. The learned Single Judge held that the excise duty had to be paid of the wholesale cash price and this was not the price at which M/s. Unipro Lamp Components was selling the goods. It was the sale at the factory gate which determined the real value of the goods. After referring to the judgments of the Supreme Court in A. K. Roy and another v. Voltas Ltd., : 1973ECR60(SC) and Atic Industries Ltd. v. H. H. Dave, Asstt. Collector of Central Excise and others, : 1978(2)ELT444(SC) , it was concluded that the right basis for computing the excise duty was the price charge by the company from M/s. Unipro Lamp Components at the company's factory gate. It was also held that the duty had to be charged on the manufacturing cost plus the manufacturing profit and if duty was charged on the basis of M/s. Unipro Lamp Component's price then this would mean that the duty was being charged on the selling cost plus the selling profit. The learned Single Judge rejected the contention that a special price was being charged from M/s. Unipro Lamp Components. It was also observed :-
'That there is a special relationship is an argument that only fogs the issue in debate. These glass goods are amongst the goods 'chargeable with duty', the amount of duty to be charged being made dependent upon the 'value' or the 'price' of the goods. How is the value or price to be ascertained The assessable value is the price. The price to be ascertained is the wholesale cash price less trade discount for which goods of the like kind and quality are sold or are capable of being sold at the time and place of manufacture or production. This is the meaning and connotation of the statutory expression : 'the wholesale cash price'.
6. The conclusion of the learned Single Judge is challenged in this appear by the Union of India on various grounds. It is contended that the present case is fully covered by the judgment of the Supreme Court in the Voltas's case. It is claimed that the ratio of the said case has not been properly applied to the fact of this case. To understand this contention, it is necessary to refer in passing to the circumstances which led to the Voltas's case. M/s. Voltas Limited was engaged in the business of manufacturing air-conditioners, water coolers and component parts which were sold by the company at its own offices in Bombay, Calcutta, Delhi, Madras, Bangalore and elsewhere. Also, some of the products were sold to other dealers at a wholesale price which meant the listed price less 22 per cent discount. It was claimed by the company that the 'wholesale cash price' was determined by the said discounted price which was being charged from other wholesale dealers and this was the basis on which the excise duty had to be computed. The Central Excise Department did not accept this contention and M/s. Voltas Limited filed a writ petition in the Bombay High Court. The Bombay High Court held that the wholesale cash price was indeed the price which was being charged by M/s. Voltas Ltd., from its independent wholesale dealers and the fact that the goods were sold in retail to the company's own purchasers at a higher price did not determine the wholesale price. On appeal, this conclusion was affirmed by Supreme Court. The Supreme Court made the following observation which is pertinent to the present case :-
'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 favored 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 favored 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.'
6A. The court then referred in its judgment to the decision of the Privy Council in Vacuum Oil Co. v. Secretary of State for India in Council 1978 ELT (J 260) = 59 Ind. App. 258, wherein the appellants before the Privy council had imported at Bombay large quantities of lubricating oil which were sold direct of the customers, but never to dealers. If a consumer contracted to buy his entire requirement for a single year, he got a discount from 2 1/2 to 15 percent. The Privy Council distinguished the retail price from the wholesale price and observed that the latter was well-recognised, and used in contradistinction of the retail price and thus the price of goods sold at a discount indicated the wholesale price.
7. In the present case, the appellant relies on the fact that there is a special relationship between M/s. Hind Lamps Ltd., and M/s. Unipro Lamps Components. This special relationship is sought to be made out from certain special circumstances. These may now be indicated.
8. The shareholders of M/s. Hind Lamps Ltd., are : (i) M/s. Bajaj Electricals Ltd., Bombay (2) M/s. N. V. Philips Gloeilampenfabrieken Eindhoven, (3) M/s. Crompton Parkinson Ltd., London (4) M/s. Associated Electrical Industries (Woodwich) Ltd., Woolwhich, London, (5) M/s. Associated Electrical Industries (Ruby) Ltd., London, and (6) M/s. General Electric Co. Ltd., London. These share-holders are all manufacturers of electrical goods or electrical components and most of them are foreign companies having an international reputation. In M/s. Unipro Lamp Components Ltd., there are four partners who are : (1) M/s. Bajaj Electrical Limited (2) M/s. Associated Electricals Industries Pvt. Ltd., (3) M/s. General Electric Co. of India Pvt. Ltd., and (4) M/s. Philips India Ltd. It appears that M/s. Philips India Ltd., is the managing partner. It will be seen that though the partners are all Indian Companies, they are either the same or related companies to the share-holders of M/s. Hind Lamps Ltd. It can thus reasonably be held that there was a special relationship between the buyer and the seller. This could lead to the application of the principle set out in the Voltas's case. However, the existence of the special relationship by itself does not mean that there is a favored treatment in the sense that a lower price is being charged.
9. In order to make the principle applicable, it has also to be established that an extremely low price is being charged. There is no evidence of this type at all and this is a mere guess as far as the present case is concerned. Of course, it can be said that M/s. Unipro Lamp Components is charging more from its purchasers then the company is charging from M/s. Unipro Lamp Components, but this inevitably has to be because M/s. Unipro Lamp Components are rendering special services in this case, and also, goods have to be transported to Calcutta, and so on, before they can be sold. There is nothing extraordinary in M/s. Unipro Lamp Components charging a higher price. What has to be seen is whether the price which is being charged by the Writ Petitioner from M/s. Lamp Components is specially low. It this fact is established, only then the question of special relationship arises as will become obvious from further analysis.
10. It may at once be said that leaving aside all other considerations, this is a special type of case. The company, M/s. Hind Lamps Ltd., is manufacturing glassware of special type which cannot normally be sold to retail customers, After all, who will buy an empty glass shell to be used in making an electric bulb Who will buy a glass tube to be used in making fluorescent tubes. It can only be another manufacturer of electric bulbs or tubes. Such manufacturers are not numerous. So, the products can only be bought by a very few parties in India. When the retail buyer is normally himself a manufacturer, then the whole-seller has to be another institution and it is obvious that M./s Unipro Lamp Components is the whole-seller in this case. We are not dealing with items like air-conditioners or tooth-paste, or soap, etc., wherein there is a whole-seller and retailer in the normally understood sense. So, it cannot be said that the sale to M/s. Unipro Lamp Components is not a sale in whole-sale. Nor can it be said in the circumstances that the price charged from M/s. Unipro Lamp Components is a lower price within the meaning given in the Vlotas's case. There is no other whole-sale market for these glass tubs and fluorescent tubs. thereforee, it has to be taken for guaranteed that the sale to M/s Unipro Lamp Components is a sale in whole-sale and it is only if the price is found to be unreasonably low that it can be said that there is a favored treatment. That not being the circumstances in this case, the decision of the Supreme Court in the Voltas's case is not applicable to this case. This would be a short way of deciding the present appeal. But, for purpose of convenience, some further analysis can be made of the question which has arisen.
11. If we approach the controversy before us on more fundamentals, we must keep in mind the fact that excise duty is a tax charged on the manufacture of goods. We must keep in mind that it is not a tax on the selling price of goods. We must keep in mind that it is not a tax on the selling price of goods as is the case when a purchase or sales tax is imposed. The charging section which was applicable at the time provided that the tax or duty was to be charged on what is called the 'wholesale cash price'. In section 4(a) of the Act, sufficient details appear to describe what is meant by the 'wholesale cash price' and section 4(b) refers to another procedure to be followed if the 'wholesale stood price' cannot be ascertained... Section 4 as it then stood reads as follows :-
'4. Where under this Act, any article is chargeable with duty at a rate dependent on the value of the article, such value shall be deemed to be......
(a) the wholesale cash price for which an article of the like kind and quality is sold or is capable of being sold at the time of the removal of the article chargeable with duty from the factory or any other premises or manufacture or production, for delivery at the place of manufacture or production, of if a wholesale market does not exist for such article at such place, at the nearest place where such market exists, or
(b) Where such price is not ascertainable, the price at which an article of the like kind and quality is sold or is 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 is not sold or is not capable of being sold at such place at any other place nearest thereto.
Explanation :- In determining the price of any article under this section, no abatement or deduction shall be allowed except in respect of trade discount and the amount of duty payable at the time of the removal of the article chargeable with duty from the factory or other premises aforesaid.'
If we read the section and apply the same to the facts of the present case, we have to find out whether the price charged by M/s. Hindi Lamps Ltd., from M/s. Unipro is the is the 'wholesale cash price' or something else. The price has to be ascertained at the point of removal from the factory, so it is the price at the factory gate which is relevant. There is no material whatsoever to show that the price which was charged from M/s. Unipro was not the price at which the glass goods in question could be sold or were capable of being sold at the factory gate. In fact, the circumstances of the present case show that the only buyers for the kind of product we are dealing with would have to be another manufacturer of electric bulbs and tubes. So, we would have to ascertain what would be the price that such a manufacture would pay at the factory gate of M/s. Hind Lamps Ltd. In the absence of material to show that the price charged from M/s. Unipro is lower than the normal wholesale cash price, it must be presumed that this is the normal wholesale cash price. And, thereforee, there is no question of substituting any other price.
12. Learned counsel for the respondent in this appeal, i.e., the company, has referred to two judgments delivered by the Allahabad High Court in relation to M/s. Hind Lamps Ltd. In Hind Lamps Ltd. v. Union of India and others 1978 E.L.T. (J. 78), the question related to sale of bulbs and fluorescent tubes manufactured by the company and sold with trade marks like 'PHILIPS', 'OSRAM', 'MAZDA', 'CROMPTON', 'BAJAJ' and 'KLEERTON' by other companies who purchased these goods. It was the case of the Excise Department that these sales were not at arms length and were not entered into in the ordinary course of business. It was held by the court that the Appellate Collector of Excise had put the onus the wrong way round. It was said :-
'The petitioner company could not be expected to prove the negative. Its case throughout was that the agreements with the customer companies were commercial transactions entered into in the ordinary course of business. Ever since the company's very inception the Department has been treating the petitioner company as manufacturer which sell its goods to those customer companies only..................................................... If the Department's case was that the customer because of extra-commercial considerations, the burden was upon it to establish facts which may lead to that inference. But the appellate order is singularly silent upon this aspect. It does not give any findings which may go to indicate any extra-commercial considerations entering into the fixing ex-factory price by the petitioner company.'
13. A similar case was involved in another judgment relating to the same company, which is M/s. Hind Lamps Ltd. v. The Union of India and others 1977 E.L.T. (J. 1). In that case also, the Department had sought to apply the Central Excises and Salt Act after its amendment by contending that sales of the bulbs and fluorescent tubes to the five customer companies was a sale to 'related companies'. It was held by the court as follows :-
'It is open to the Central Excise authorities to examine whether or not the five customer Companies are favored customer and whether the prices at which the petitioner company sells its products to them are the normal prices at which such goods are ordinarily sold by a manufacturer in the course of wholesale trade for delivery at the time and place of removal. If on such scrutiny the Central Excise authorities are satisfied that the prices at which the petitioner company sells its goods to the five customer Companies are not such normal prices, it would be open to the Central Excise authorities to ascertain such normal prices and to levy excise duty on the petitioner company on the basis of such normal prices. But the Central Excise authorities cannot treat the prices at which the five customer companies sell such products to wholesale dealers or to the public, as the value thereof for the purpose of levy of excise duty on the petitioner company.'
This conclusion is entirely in accord with what has been stated above.
14. It may be noted that in modern day commercial transactions, there can be a variety of dealings between parties. There can be a manufacturer who sells goods to a whole-seller for direct sale in the retail market. There can be a manufacturer who sells directly to a retail customer and there can be a manufacturer whose products are sold only to other manufacturers for being incorporated in those manufacturers' products. The intricacy of modern technology requires a number of ancillary parts being incorporated in the finished product. For instance, in a motor car, there may be a thousand different parts of which some are made by small manufacturers who specialise in things like batteries, dynamo, self-starters, etc. In the case of refrigerators, there may be manufacturers making small parts like shelves, starters or compressors, and so on. Such products are sold directly to the main manufacturers or through an intermediary. The present case deals with exactly this type of case. The glass tubes and shells are completely useless for the ordinary purchaser. No purchaser could possibly want them except if he happens to be a manufacturer of electric bulbs and tubes. There is, thereforee, an extremely limited market for such products. This is a case of a manufacturer selling to another manufacturer for incorporation in another product which is eventually to be sold to the retail customer. In such a case, the sale by M/s. Hind Lamps Ltd., to a firm which consists of a partnership of manufacturers of bulbs and tubes seems to be the normal and most natural out-let for selling the product. It is difficult to understand who else could be a whole-seller for the purpose of selling such products. The inevitable conclusion is that in such a case the sale to M/s. Unipro must be described as a sale to a whole seller and in the absence of any material showing that the price is low or M/s. Unipro is a favored customer, as observed in the judgment of the Allahabad High Court cited above, it cannot be held that the Excise Department is entitled to take into account the selling price of M/s. Unipro is being indicative of the true wholesale price.
15. It may equally be noted that a consideration of the price at which M/s. Unipro sells the goods would take into account all sorts of other factors and costs which do not enter into the pricing system which the manufacturer uses. In addition to the price paid to M/s. Hind Lamps Ltd., M/s. Unipro would normally add the cost of transport, any sales tax that may be payable and its own profit. Thus, M/s. Unipro's price, as far as its own customers are concerned, would not at all be the proper basis for fixing the true whole-sale price as far as M/s. Hind Lamps Ltd., is concerned.
16. For these reasons, we uphold the judgment of the learned Single Judge and dismiss this appeal with costs.