1. The matter arising in these two petitions are connected. O.P. 1290 of 1973 is the main petition and therefore I will first refer to the facts of that petition. The petitioner is the Madras Rubber Factory Limited, a company registered under the Companies Act. It is engaged in the business of manufacturing automobile tubes, tread rubber with cushion etc. These goods are sold under the trade name 'Mansfield'. The petitioner is having a factory at Kottayam in which factory the manufacture of automotive tubes and other rubber products was commenced from 1970.
2. The petitioner company has sales and technical organisation independent of the manufacturing units. There is no ex-factory price for the products manufactured by the petitioner and normally no contract is entered into for the sale of the products for delivery at the factory gate. On the other hand the goods are sent over to the sales depots of the petitioner company situated in various places in India and irrespective of the distance of the depots from the factory or its location goods are sold at a uniform price in all these depots. There are two prices fixed for the products, one the billing price and the other the price at which it is sold to the consumers. The billing prices are the prices at which the goods are sold at the depots to dealers. As stated earlier this is the same all over India. The prices at which the dealers are to sell these goods to the consumers are again uniform throughout India.
3. The petitioner has all along been paying excise duty under Section 3 of the Central Excises and Salt Act, 1944 on the basis of the billing price of the goods manufactured. The said section provides for the levy of excise duty on all excisable goods which are produced or manufactured in India at the rates set forth in the First Schedule to the Act. Section 4 of the Act deals with determination of value for the purpose of duty. It read:
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 productions, or 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 to her premises for delivery of 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.'
4. It is evident from Section 4 that the value to be adopted for the purpose of assessment to duty is not the price at which the manufacturers actually sells the goods at the sales depots or the price at which goods are sold by the dealers to the customers, but a factional price contemplated by the section. The controversy has arisen because the petitioner company, which was paying excise duty on its billing price objected to such payment later and contended that the price at which the goods are sold to its dealers throughout India cannot be taken to be the price on which excise duty is to be determined under Section 4 of the Act. Excise duty is leviable on the value of goods as manufactured. That takes into account manufacturing cost and manufacturing profit. There may be post manufacturing operations in respect of goods produced such as freight incurred in conveying the goods to the sales depots, godown charges and other expenses. No doubt when the goods are sold ultimately these may become part of the cost structure. But these are not components in the cost of the goods manufactured.
5. In other words if manufacturers cost and margin of profit, along is to be taken into account to determine manufacturers price these are irrelevant. There may be 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 of a point where the goods are sold after post-manufacturing 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.
6. Section 4(a) refers to the wholesale cash price for which an article is sold or is capable of being sold and the time is that of removal of article chargeable with duty and the place of manufacture or production. It is further provide in the section that if wholesale market does not exist for such article at the factory site the price is to be as at the nearest place where such market exists. It is not as if what is cotemplated under the section is a physical market for the goods may be that actually there is no physical market for the particular category of goods at the place where the factory is situated. But if the goods could be sold wholesale at that place the price that could be fetched as at such fictional market is what is to be reckoned for the purpose of Section 4(a). There may be goods for which at the factory gate even a fictional market cannot be assumed for it is possible the goods may not find a potential for sale at that place. It is then that the latter part of the section would operate for, then the price would be that at nearest place where such market could exist.
7. If this be the correct position, then the petitioner is justified in contending that the bill price realised on the goods when sold to dealers at the various sale depots in India should not be taken to be the value on which duty is to be levied, for, such bill price would include the manufacturing cost, the way of freight etc. in taking the goods from Kuttayam to various sales depots in India until they are disposed of and possibly a trading profit. Whether the last element is also involved in this particular case is not a matter on which I am called upon to express my opinion in view of the course which I purpose to adopt in this petition. Suffice to say that the Excise authorities were right in their stand that they are entitled to levy duty on the billing price without making allowance for all Items of operation subsequent to manufacture. What all Items should be deducted from the bill price is a matter which calls for examination by the authorities competent to levy the excise duty. The stand taken by the respondents, the Superintendent of Central Excise, the Collector, Central Excise and Customs and the Central Government cannot be sustained.
8. In the view that I have taken here, I am supported by the observations made by the Supreme Court in the recent decision in A.K. Roy v. Voltas Ltd. - AIR 1973 SC 225=(1973 Tax LR 1710). The court said in that case thus--
'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 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 tor 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 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 any hypothesis to the effect that at the time and place of sale, any further articles of like kind and quality should have been sold. If there is an actual price for the goods themselves at the time and place of sale and if that is a ''wholesale cash price,' the clause is not inapplicable for want of sale of other goods of a like kind and quality.'
9. The said passage was cited with, approval by the Supreme Court in Atic Industries v. Asstt. Collector, Central Excise. - AIR 1975 SC 960=(1975 Tax LR 1515). I have only to respectfully follow these decisions and apply the rule laid down by the Supreme Court to the cases before me.
10. Hence the petitioner is entitled to succeed in O.P. No. 1290 of 1975. The respondents will levy excise duty on items manufactured by the petitioner taking into account the manufacturing cost and the manufacturer's profit and that would be determined in accordance with what has been said in the judgment.
11. The connected petition O.P. No. 1524 of 1973, if for refund of the amounts wrongly collected as excise duty in the past. Of course, no relief was obtained from the department by the Petitioner in the light of the view taken by it. But in the light of what I have said about the liability to pay excise duty, the question calls for a fresh approach. Since I am directing the authorities to look into the matter of the liability of the petitioner that should apply equally well to the prayer for refund also. That also will be gone into afresh in the light of what has been said in this judgment. The petitioner are allowed as indicated. Parties are directed to suffer costs.