P.D. Desai, J.
1. The petitioner, Gujarat State Fertilisers Company Limited, a Company incorporated under the Companies Act, 1956, challenges herein two orders; first, an order dated January 18, 1979 (Exhibit `E') passed by the Government of India in exercise of its revisional jurisdiction under section 36 of the Central Excises and Salt Act, 1944 (hereinafter referred to as `the Act') and, second, an order dated September 6, 1979 (Exhibit `L') passed by the Appellate Collector of Central Excise and Customs, Bombay, in exercise of his appellate jurisdiction under section 35 of the Act. The question which arises herein depends for its determination upon the true construction of section 4, clause (a) read with the Explanation inasmuch as under the impugned orders the petitioner's claim for deduction of 'regional discount', which it claims to be a variety of trade discount, while determining the wholesale cash price of three of its products, has been rejected by the excise authorities in the process of approval of price lists.
2. The petitioner carries on the business of manufacturing and selling different varieties of fertilisers. Three of its products are. (1) Urea, (2) Ammonium Sulphate (hereinafter referred to as `A.S.' for short). and (3) Ammonium Sulphate Phosphate (hereinafter referred to as `A.S.P.' for short). Fertilizers of all sorts (excluding natural, animal or vegetable fertilizers when not chemically treated) were at the material time subject to levy of excise duty at the rate of 15 percent ad valorein under item 14 HH of the First Schedule of the Act. The sale price of fertilizers is fixed by the Government from time to time under to provisions of the Fertilizers (Control) Order, 1957 (hereinafter referred to as `the Control Order') issued under section 3 of the Essential Commodities Act, 1955. Under the provisions of the Control Order, a manufacturer was required by the Central Government, at the material time, to supply fertilizers manufactured by him for sale in specified States. The petitioner was accordingly required to supply fertilizers manufactured by him for sale in specified States. The petitioner was accordingly required to supply its products for sale in States of Gujarat, Maharashtra, Madhya Pradesh, Rajasthan, Haryana, Uttar Pradesh, Punjab, Andhra Pradesh, Karnataka and Union Territory of Delhi. The maximum retail prices of different varieties of fertilizers were also fixed by the Central Government under the Control Order. In other words, the fertilizers in respect of which maximum retail prices were fixed could not be sold by the retail dealers at a price exceeding the uniform retail price fixed by the Central Government. Urea, A.S. and A.S.P. were the varieties of fertilizers inrespect of which maximum retail prices were accordingly fixed by the Central Government at the material time. The petitioner was required to supply those varieties of fertilizers to dealers carrying on business in aforesaid States, some of which are situate at a considerable distance from the factory of the petitioner, which is located in Baroda in the State of Gujarat. Those dealers were required to incur the cost of transporting the fertilizers supplied to them to distant places and to incur other incidental expenditure. Since the maximum retail prices were fixed, as aforesaid, it was found by the petitioner that on that account those dealer were not able to carry on their business in its products without incurring losses. Besides, those varieties of fertilizers were supplied to those dealers also by other manufacturers whose factories were situate at a closer distance from their place of business. The cost of transportation and other incidental expenses incurred by the dealers in procuring fertilizers from those other manufacturers would ordinarily be at a lower scale than that which the dealers had to incur in relation to the goods supplied by the petitioner. SInce the retail sale prices were uniform, dealing in fertilizers procured from the petitioner would ordinarily be a less productive proposition for those dealers. In order, therefore, to maintain the sale of fertilizers at a uniform retail price fixed by the Central Government and, at the same time, to ensure that it could carry on the manufacture and sale of its products in a competitive market, by taking a practical view of the situation, the petitioner decided to give regional discount at different rates to buyers situate in different regions or group of regions, depending upon the distance between the factory of the petitioner and the place of business of those buyers.
3. In addition to the regional discount the petitioner also gave quantitative discount on bulk purchases of fertilizers made by buyers. Quantitative discount used to be given at a uniform rate to all buyers, irrespective of whether they were carrying on business in one State or the other. We shall at a later stage give further particulars with regard to these two kinds of discount allowed by the petitioner to the dealers with whom it carried on business. At this stage, suffice it to say that for the purposes of determination of the value of fertilizers for the assessment of excise duty, which as earlier stated, is levied on ad valorem basis, the petitioner claimed that under section 4, it should be allowed to deduct the regional discount and the quantitative discount which were offered by it to buyers. This claim succeeded partly. Quantitative discount was allowed to be deducted from the wholesale cash price but not the regional discount. The ground on which the claim with regard to deduction of regional discount was disallowed substantially is that the said discount was not given uniformly to all the buyers who were situate in different regions and that the discount varied depending upon the distance between the factory of the petitioner and the place of business of the buyers. The question, which falls for determination, therefore, is whether, on a true construction of section 4, clause (a) read with the Explanation, it is essential that trade discount should be given uniformly so that it could be taken into consideration as an allowable deduction from wholesale cash price.
4. A few further facts will require to be stated in order to come to grips with the problem precisely presented in this case. The memo of Writ Petition does not set out all those in detail. However, reading the relevant averments in the Writ Petition along with the Annexures, it has been possible for us to cull out the relevant facts earlier stated, two orders are impugned herein. The first order, Annexure the period from January 1, 1974 to May 31, 1974 and the second order the period from June 1, 1974 to September 30, 1975. In the first period of fertilizer involved are Urea and A.S. On December 20, 1973, the petitioner submitted revised price lists in respect of Urea and A.S. effective from January 1974 to the Assistant Collector of Central Excise, Baroda Division-II for his. The material particulars furnished in the form of declaration submitted the petitioner were as follows :-
-----------------------------------------------------------------Name Quantity Ex-factory Trade discountof the wholesalercom- price per value perdity Metric Ton Metric Ton.-----------------------------------------------------------------Rs. Rs.(1)Urea 50 Kg. 830-00 (i) A uniform quantita- (i) 803-13tive discount at Rs.26.87 per M.T. to allcustomers purchasingwholesale 1,00,000 M.T.and more during a year.(ii) A uniform discount (ii)803-13at Rs. 26.87 per M.T. towholesale buyers inHaryana, Punjab andUttar Pradesh.(2) A.S. 50 kg. 470-00 A uniform quantitative 454-13discount at Rs. 15-87per M.T. to all customerspurchasing in wholesale60,000 M.Ts. and moreduring a year.-----------------------------------------------------------------
It would appear, therefore, that the petitioner claimed that for the purpose of levy of excise duty, the net assessable value in respect of Urea should be computed at Rs. 803-13 p. per metric ton and in case of A.S. at Rs. 454-13 p. per metric ton when those products were sold on wholesale basis after giving quantitative and regional discount as the case may be. By a communication dated January 15, 1974, the petitioner was informed that the Assistant Collector, Central Excise, Baroda Division-II had approved the net assessable value in respect of Urea and A.S. with effect from January 1, 1974 as follows :-
Urea..... Rs. 830/- per M.T.
A.S...... Rs. 470/- per M.T.
5. It would appear that the Assistant Collector disallowed the deduction of quantitative and regional discount, while determining the wholesale cash price and although, in fact, the petitioner offered such discounts to its buyers, if the requisite conditions were fulfilled, the Assistant Collector determined the wholesale cash price by wholly ignoring such discount. On April 13, 1974, the petitioner preferred an appeal to the Appellate Collector, Central Excise, Baroda-II. By an order dated July 15, 1975 the appeal was party allowed. The operative part of the appellate order, in so far as it is material, reads as under :-
'Keeping in view the fact that the quantitative discount is allowed uniformly, I accept the appeal to the extent that the discount should be allowed, provided full yearly quota is lifted by the customer concerned failing which this will be limited to the extent of the actual goods cleared in the year. As regards regionwise discount, I reject the appeal as section 4 applies at factory-gate.'
It would appear, therefore, that quantitative discount given by the petitioner on sales of Urea and A.S. was allowed to be deducted in computing the wholesale cash price and, accordingly, the price list, in respect of A.S., in which the net assessable value per metric ton was shown to be Rs. 454-13, was wholly approved. However, the price-list in respect of Urea, in which the net assessable value per metric ton was shown to be Rs. 803.13 after making allowance for quantitative discount, was approved but it was disapproved in so far as the same assessable value was shown after giving regional discount. In other words, in respect of wholesale cash price effected in favour of buyers from Haryana, Punjab and Uttar Pradesh, the price which was approved per metric ton was Rs. 830/- unless such buyers became eligible to quantitative discount. The petitioner feeling aggrieved by the rejection of its claim in respect of regional discount preferred a revision application to the Central Government on December 5, 1975. The central Government rejected the revision application by its impugned order, Exhibit `E', holding as follows :-
'Government of India observe that the discount under Section 4 of the Central Excises and Salt Act, 1944, as it stood prior to the amendment, is available for abatement from the wholesale cash price if the same is granted uniformly to all the wholesale dealers. Since in this case only the dealers situated in the States of Haryana, Punjab and U.P. are granted such discount, the same is not admissible discount under Section 4 ibid.'
With this order ends the statement of facts relating to the first period.
6. In the second period, three varieties of fertilizer are involved. They are, Urea, A.S. and A.S.P. From June 1, 1974 to September 30, 1975, which is the interval of time involved in the second period, 29 different price lists were submitted in respect of the above mentioned three varieties of fertilizer from time to time. The earliest of such price lists was submitted on May 22, 1974 and it was to be effective from June 1, 1974 and the last was submitted on September 15, 1975 to be effective immediately. Be it noted at this stage that in five of such price lists covering the period commencing from June 1, 1974 and ending with September 14, 1974, the net assessable value of some of the aforesaid varieties of fertilizer was arrived at after making deduction in respect of quantitative discount as well as regional discount. In the rest of the price lists covering the period from September 15, 1974 to September 30, 1975, the net assessable value in respect of each of the three varieties of fertilizer in question was arrived at after making deduction in respect of regional discount only. The Assistant Collector of Central Excise initially rejected the price lists containing the net assessable value arrived at as aforesaid and those orders, except in one case, resulted in appeals before the Appellate Collector of Central Excise. The Appellate Collector allowed all those 28 appeals and remanded the matters to the Assistant Collector for de novo adjudication. The Assistant Collector of Central Excise Baroda-II thereupon issued a notice on October 20, 1976 in column 9 of Annexure `A' to the said show cause notice should not be approved. Be it noted that Annexure `A' to the show cause notice covered 21 price lists embracing the period from September 10, 1974 to September 14, 1975 and that the net assessable value shown in column 9 of the said Annexure was either the maximum price at which the fertilizer in question was sold to the buyers or the price for such fertilizer fixed by the Ministry of Petroleum and Chemicals order dated June 1, 1974, whichever was higher. In otherwords, no deduction for quantitative or regional discount was allowed from the wholesale cash price. On March 4, 1977, the petitioner showed cause. On November 21, 1977, the Assistant Collector Central Excise, Baroda-III, made an order substantially approving the net assessable value as set out in column 9 of Annexure `A' to the show cause notice. The only variation which he made was in cases where the net assessable value was fixed in accordance with the price fixed by the order of the Ministry of Petroleum and Chemicals and in such cases, he determined the net assessable value after deducting a sum of Rs. 40/- which was the equalized freight element of such price. The aforesaid decision of the Assistant Collector is supported by a speaking order and the material part of the order reads as under :-
'Their wholesale cash price for Ammonium Sulphate differs from region to region. They desire to collect Rs. 555/- from Punjab and U.P. and Haryana; and from all others Rs. 575.87. What is their cost of manufacturing and manufacturing profit has not been made known as evidence at the time of hearing. They were requested to make available the pattern of sale of different fertilizers... ... Since the same were not made known resort to fix the price as per Ministry of Petroleum and Chemicals was taken. As regards their price of 22-7-75 an amount of Rs. 603.48 has been recovered as cash from all other buyers and so that should be taken as base for assessment.
As regards the price (wholesale cash price) lists dt. 16-7-75 in respect of Ammonium Sulphate Phosphate they have charged Rs. 1817-39 per M.T. from all other dealers. According to the interpretation of section there can be only one wholesale cash price also they should have made the evidence of manufacturing cost plus manufacturing profit and their sale pattern.
As regards freight it is noticed that they have told their products at their factory gate and the buyers pay the freight and it will be also postmanufacturing expenses, as per decision of Supreme Court's judgment. I do not consider inclusion of freight as part of assessable value.'
It would thus appear that the price fixed by the Ministry of Petroleum and Chemicals was taken to be determinative in case of A.S. in respect of some of the price lists on the ground that no positive evidence with regard to manufacturing costs and manufacturing profit was led. In other cases, the prices charged to other dealers to whom no discount was admissible were taken as determinative. The petitioner feeling aggrieved by the order of the Assistant Collector preferred an appeal to the APpellate COllector of Central Excise, Bombay on February 20, 1978. The appeal was disposed of by the impugned order, which came to be made after the present petition was filed, and which has been brought on record by an amendment. The material part of the said order reads as under :-
'As far as I can make out the problem in their case is that, various percentages have been allowed as discount to buyers in different States. The Assistant Collector has disallowed all these discounts to be deducted from the assessable value on the ground that these are not at uniform rate. According to Section 4 of the Central Excises and Salt Act, 1944, as stood before its amendment, if the price was available at the factory gate and at arms' length that price should be taken for the purpose of determination of the assessable value. In this case, I under stand that the appellants are selling their goods in the State of Gujarat also and the discount allowed by them for such sales should be taken into consideration for determination of the assessable value. If, however, there is no price available at the factory gate from which the amount of discount allowed for sales at the factory gate could be deducted for the purpose of determination of the assessable value, the other provisions of sections 4 ibid should be taken into account for determining the assessable value. In this case evidently such price is available in respect of the products and there should be no difficulty in determining the assessable value with reference to only one percentage of discount which is allowed for sales at the factory gate. The appeal is partially allowed.'
It would thus appear that the petitioner's appeal succeeded only partly, in that the quantitative discount, which was uniformly allowed by it to all its buyers, irrespective of the State in which they were carrying on business, was allowed to be deducted in determining the wholesale cash price of the three varieties of fertilizer on the basis of sales effected within Gujarat. No deduction was, however, allowed in respect of the regional discount. This part of the order of the Appellate collector is the subject matter of challenge herein.
7. The foregoing narration of facts brings into sharp focus the crux of the problem : Are the excise authorities justified in law in taking the view that since regional discount is not given uniformly to all the buyers of the three varieties of fertiliser, it is not a trade discount which can enter into consideration in determining the wholesale cash price of those fertilizers under section 4, clause (a) of the Act In order to answer this question, it would be necessary to refer, at the outset, to the relevant provisions of law.
8. It requires to be clarified in the forefront that the matter is governed by section 4 as it stood prior to its amendment by Act 22 of 1973. The amended section came into force with effect from October 1, 1975. The second period covering the price lists in question ends on September 30, 1975. For that reason, it is essential to concentrate on the true effect of section 4 as it stood prior to its aforesaid amendment. Section 2 contains definitions and clause (d) thereof defines 'excisable goods' as meaning goods specified in the First Schedule as being subject to a duty of excise, including salt. The charging section is section 3. At the relevant time, sub-section (1) thereof, in so far as it is material, provided 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 or manufactured in India at the rates set forth in the First Schedule. Sub-section (2) empowered the Central Government, by excise duties, tariff values of any articles enumerated, either specifically or under general headings, in the First Schedule as chargeable with duty ad valorem and to alter any tariff values for the time being in force. Sub-section (3) provided that different tariff values may be fixed to different classes or description of the same excisable goods. Then comes section 4 and clause (a) thereof read with the Explanation is material for the purposes of the instant case. At the material time the said provision read as under :-
'Determination of value for the purpose of duty- 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 of manufacture or production for delivery at the place of manufacture or production, or if a wholesale market does not exist for such article at such place at the nearest place where such market exists, or
Explanation.- In determining the price of any article under this section, no abatement or deduction shall be allowed except in respect of the 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.'
These are the only two sections of the Act which are relevant.
9. The Central Excise Rules, 1944 (hereinafter referred to as `the Rules') inter alia, lay down the manner of assessment and collection of excise duties imposed under the Act Rule 7 provided that every person who produces, cures or manufactures any excisable goods, or who stores such goods at such time and house, shall pay the duty or duties leviable on such goods at such time and place and to such person as may be designated, in, or under the authority of the Rules, whether the payment of such duty or duties is secured by bond or otherwise. Rule 9 provides for the time and manner of payment of duty. At the relevant time, the material part of sub-rule (1) of rule 9 provided that no excisable goods shall be removed from any place where they are produced, cured or manufactured or any premises appurtenant there to be specified by the COllector, whether for consumption, export, or manufacture of any other commodity in or outside such place, until the excise duty leviable thereon has been paid at such place and in such manner as is prescribed in the Rules or as the Collector may require. There were three provisos to the said sub-rule which provided, inter alia, for deposit of goods without payment of duty at a place to be approved by the Collector or in an appointed or licensed warehouse or for export under bond, or for removal on part-payment of duty leviable thereon if the Central Government allows such removal, or for keeping by the Collector of an account-current with any person dealing in such excisable goods with respect to duties payable thereon instead of requiring payment of duty in respect of each separate consignment of goods. Rule 9A related to the date for determination of duty and tariff valuation applicable to excisable goods shall be the rate and valuation in force, in the case of goods cleared from a factory or a warehouse [subject to sub-rules (2), (3) and 3(a)], on the date of the actual removal of such goods from such factory or warehouse. Rule 49 provided that payment of duty shall not be required in respect of excisable goods made in factory until they are about to be issued out of the place or premises specified under rule 9 or are about to be removed from a store-room or other place of storage approved by the Collector.
10. In the instant case, the procedure with regard to approval of price lists has been followed and that makes it relevant to refer to the Self-Removal Procedure which was prescribed by the Government of India for the first time in 1968 by introduction of Chapter VII-A in the Rules. Rule 173-C, sub-rule (1), as it read at the material time, provided that every assessee, who produces, manufactures or warehouses goods which are chargeable with duty at a rate dependent on the value of the goods, shall file with the proper officer for his approval a price list, in such form and in such manner and at such intervals as the Collector may require, showing the price of each of such goods, and the trade discount, if any, allowed in respect thereof to the buyers. Sub-rule (2) provided that the proper Officer shall approve the price list after making such modifications as he may consider necessary so as to bring the value shown in the said list to be correct value, for the purpose of assessment as provided in section 4 of the Act. The assessee shall, unless otherwise directed by the proper Officer, determine the duty payable on the goods intended to be removed in accordance with such list. Sub-rule (3) provided that the assessee shall file a fresh list or an amendment of the list already filed, if in the list approved by the proper officers any alteration becomes necessary, Rule 173-F provided that in cases governed by rule 173-C, the assessee shall himself determine his liability for the duty due on the excisable goods intended to be removed and shall not, except as otherwise expressly provided in the Rules, remove such goods unless he has paid the duty so determined. These are the relevant rules relating to the removal of excisable goods on determination of duty by producers, manufacturers or private warehouse licences.
11. On gleaning through the aforesaid provisions of the Act and the Rules, the following feature, broadly speaking, emerge: (1) The excise duty is leviable on all excisable goods other than salt which are produced or manufactured in India; (2) the charging section is section 3, sub-section (1) which creates liability against the producer or manufacturer to pay excise duty in such manner as may be prescribed at the rates set forth in the First Schedule; (3) the Central Government is authorised to fix tariff values of any enumerated articles in the First Schedule as chargeable with duty ad valorem; such tariff values may be altered from time to time and different tariff values may be fixed for different classes or description of the same article; (4) where any excisable article is chargeable with duty at a rate dependent on the value of the article and such article is sold on wholesale basis, the value is deemed to be 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 from the factory or any other premises of manufacture or production, for delivery at the place of manufacture or production or, if a wholesale market does not exist for such article at such place, at the nearest place where such market exists. In determining the wholesale cash price as aforesaid, however, two deductions are permissible and one of them is in respect of trade discount; (5) Excise duty is payable by person who produces, cures or manufactures any excisable goods, or who stores such goods in a warehouse and the incidence therefor falls on such person; (6) No excisable goods can be removed from any place where they are produced, cured or manufactured until excise duty has been paid and the duty is chargeable only on removal of the goods from the place of manufacture or from an approved place of storage; however, in certain cases, such goods may be removed on part payment of duty, or instead of requiring the assessee to make payment of duty in respect of each separate consignment of goods removed from the place or premises specified in that behalf, the Collector may maintain an account-current of the duties payable thereon and settle such accounts at specified periods; (7) The rate of duty and tariff valuation shall be the rate and valuation in force in the case of goods cleared from a factory or a warehouse; on the date of actual removal; (8) Under the self-removal procedure price lists have to be got approved by the manufacturer from the proper officer and unless otherwise directed by the proper officer, the assessee has to determine the duty payable on the goods intended to be removed in accordance with such approved list.
12. At this stage, it may be clarified that in determining the relative scope of sections 3 and 4, the essential distinction between the concept of chargeability and that of assessment or quantification of the amount payable by way or tax or duty is required to be borne in mind. It is clear, on a bare reading of sections 3 and 4, that section 3(1) is the charging section which creates the liability to pay excise duty, whereas section 4 deals with assessment or quantification of the amount payable by way of such duty ad valorem and is, therefore, clearly in the nature of a machinery provision. Similarly the view taken by a Division Bench of the Bombay High Court (Talzapurkar and Kania,JJ.) in its decision rendered on December 15, 1975 in Misc. Petition No. 293 of 1974 - (I.T.C. vs. Union,- 1978 E.L.T. (J476) and by the Delhi High Court in Modi Rubber Ltd. vs. Union, 1978 Excise Law Times (J127). A Division Bench of this High Court (S. H. Sheth & N. H. Bhatt, JJ) also dealt with section 4 on the assumption that it is a machinery section in its decision dated February 20/21, 1979 rendered in Special Civil Application No. 119 of 1976 [1979 E.L.T. (J407)].
13. The meaning, scope and effect of section 4(1) and the statutory provisions in pari material have been the subject matter of pronouncements of the highest Courts. The Privy Council and the Supreme Court have both expressed their view on the ambit of section 4, clauses (a) and/or identical provisions contained in the Sea Customs Act, 1878. The leading decision of the Supreme Court is in A. K. Roy vs. Voltas limited, A.I.R. 1973 S.C. 225 = 1977 E.L.T. (J177), in that case, the assessee effected direct retail sales of excisable goods manufactured by it to consumers at list prices and the sales so effected came to about 90 to 95 percent of its production of the articles in question during the relevant period. The remaining 5 or 10 per cent of the excisable goods produced by it were sold to wholesale dealers in pursucnce of agreements entered into with them. The agreement provided, inter alia, for sale of the goods t list prices less 22 per cent discount and an obligation was imposed on the dealers to give service to the units sold in their territory. Excise duty was leviable on the goods in question on ad valorem value and for determining the value, it became necessary to resort to section 4. The case of the assessee was that the list price after deducting the discount of 22 per cent allowed to the wholesale dealers constituted the 'wholesale cash price' for ascertaining the assessable value of the articles. The excise authorities however, took the view that excise duty was leviable not on the footing of the 'wholesale cash price arrived at as aforesaid, but on the basis of the retail price. Before the High Court, the question was whether clause (a) or clause (b) of section 4 applied on the facts and in the circumstances of the case. 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 Supreme Court affirmed the decision of the High Court holding that the said conclusion reached by the High Court was right. The Supreme Court, in the course of its judgment has dealt with the question of the interpretation of section 4(a) and highlighted certain important aspects. In para 21 the Supreme Court considered the scope of levy of excise and the basis of assessment for the levy and observed as follows :-
'Excise is a tax on the production and manufacture or goods (see Union of India vs. Delhi Cloth and General Mills, (1963) Supp. 1 SCR 586 = (AIR 1963 SC 791). Section 4 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 arising from post-manufacturing operation, namely selling profit.'
While dealing with the concept of 'wholesale market' as projected in section 4(a) it was observed as follows :-
'We do not think 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 mare or could be sold or that the articles should be sold to so-called independent buyers.' (para 9)
In para 10, the matter was considered from an alternative angle as follows :-
'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 or 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 effect 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 order 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 any hypothesis to the effect that at the time and place of sale 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.'
In para 11, the aforesaid position with regard to sales in favour of wholesale dealers under agreements was reiterated in the following words :-
'.....mere existence of the agreements between the respondent and the wholesale dealers under which certain obligation 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 person, that would not make the price for the sales anything other than the wholesale cash price.'
In para 18, again the same aspect was re-emphasized as follows :-
'If a manufacture 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 the Act if the agreements were made at arm's length and in the usual course of business.'
In para 19, the question as to whether the determination of the 'wholesale cash price' for the purpose of section 4(a) is dependent upon the number of such wholesale dealing was considered and the following pertinent observations were made :-
'Once wholesale dealing at arm's length are established, the determination of the 'wholesale cash price' for the purpose of Section 4(a) of the
In para 20, the question as to what is the true meaning of the term 'wholesale cash price' was considered and it was observed as follows :-
'In Vaccum Oil Co. v. Secretary of State for India in Council, 59 Ind App 2580 (AIR 1932 PC 168), it was held that the terms means the price paid by retail traders on wholesale purchase...... In other words, the sale must be wholesale and not a retail one in order that the price realised may be termed the ' wholesale cash price'...... Their Lordships said that in determining the price which is to represent 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 Their Lordship, therefore held that the words the `wholesale price' were used in the section in contradistinction to a `retail price', and that not only on the ground that with words 'trade discount' indicates that sales to the trade are those in 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 are eliminate.'
In para 21, the following observations were made reiterating the same view :-
'The section postulates that the wholesale price should be taken on the basis of cash payment thus eliminating the interest involved in price which gives credit to the wholesale for a period of time and that the price has to be fixed for delivery at the factory gate thereby eliminating freight, octroi and charges involved in the transport of the articles. As already stated it is not necessary for attracting the operation of Section 4 that there should be a large number of wholesales. The quantum of goods sold by a manufacturing company on wholesale basis is entirely irrelevant. Mere fact that such sales may be few or so does not alter the true position.
In para22, the following meaning was assigned to the term'trade discount' occurring in the Explanation to section 4(a) :-
A 'trade discount' is a percentage deduction from the regular list or catalogue price of goods.'
14. In Atic Industries Ltd. v. Assistant Collector, Central Excise, A.I.R. 1975 S.C. 960=1978 E.L.T.(J444), the assessee sold on wholesale basis seventy per cent of its product to ICI and thirty per cent to Atul at the basic selling price less trade discount of 18%, during the relevant period. ICI and Autal in their turn ,resold a part a part of the product in retail to textile miles and large consumers at the basic selling price and the balance in wholesale to distributors at higher selling price with 10% trade discount in case of ICI and 2 % trade discount in case of Atul. The net selling prices charged by both of them, however,remained almost the same. The distributors, in their turn, resold the product to small consumer at a higher price without offering any discount. The product in question was an excisable item on which duty was as to how the as valorem basis. The question on a proper application of section 4(a). The assessee contended that the value of the product should be taken to be the price at which it sold the same on wholesale basis to ICI and Atul less the trade discount of 18%. The excise authorities, however, rejected the contention of the assessee independent buyer in open market conditions at prices at which they were sold to ICI and Atul, those prices could not be accepted as the basis of ad valorem assessment. The view which ultimately prevailed with the excise authorities was that since the product was available to any independent buyer in open mark conditions at the sole distributors prices, that is to say, the prices charged by ICI and Atul to the distributors, those prices should form the basis of assessment after allowing discount of 10% on the prices charged by ICI and 2 % on the prices charged by Atul. When the matter went before the High Court, it took the view that since the entire production was sold by the assessee to one or more favoured distributors, there was no wholesale market in the sense or an open market at the site of the factory where an independent buyer could purchase the goods in wholesale and that in such a case the price at which the goods were sold by the manufacturer to the favoured distributors could not be taken to be the assessable value must of the goods. In the view of the High Court, the assessable value must be taken to be the price at which the favoured distributors in their turn sold the goods in wholesale and if not in wholesale, then in retail. The High Court accordingly held that the price charged by the assessee to ICI and Atul less the trade discount could not be adopted for determining the assessable value since ICI and Atul were favoured distributors and that the view ultimately taken by the excise authorities was right. The Supreme Court, in para 6 of its decision, pointed out that the view of the High Court that section 4(a) was inapplicable, was not correct in view of the decision in Voltas Limited's case. In para 10 it was observed that since there were no retail sales at all effected by the assessee and the entire production was sold in wholesale to ICI and Atul and that the agreements entered into by and between the assessee and ICI and Atul were made at arm's length and in the usual course of business, the wholesale price charged by the assessee less trade discount of 18% was clearly the `wholesale cash price' within the meaning of section 4(a). In para 12, the true concept of the wholesale cash price envisaged by section 4(a) was expounded in the following words :-
' 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 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 assessment of excise duty... .... ... 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..... ..... It is the first immediate contact between the manufacturer and the trade that is made decisive for determining 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 ultimate conclusion of the Supreme Court was recorded in the following words in para13 :-
'There can, therefore, be no doubt that where a manufacturer sells the goods manufactured by him in wholesale to a wholesale dealer at arm's 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 gate within the meaning of section 4(a) .... .... .... The conclusion 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.'
15. These two decisions, in our opinion, provide sufficient guidelines for determining the controversy which has arisen before us in this matter. It is true that in Voltas Limited's case, the question of applicability of section 4(a) arose in the context of a large number of direct sales effected by the assessee to consumers at list prices and a few sales effected on who esale basis to dealers in different parts of the country in pursuance of the agreements entered into with them which, inter alia, provided that the price to be charged would be the list price less22% discount. Similarly, in Atic Industries' case the question of applicability of section 4(a) arose in the context of sales effected solely on wholesale basis in favour of only two dealers at list price less18% discount. In the present case, the question arises in the context of slightly different facts, namely, sales effected on wholesale basis to dealers in three different States at list prices less regional discount, such regional discount being not uniformly offered to all wholesale purchasers . Still, however, in our opinion, the interpretation and exposition of the concept of wholesale cash price in section 4(a), as given in the said decisions, throw considerable light on the resolution of the question which arises in the special facts of this case.
16. Before proceeding to deal with the main question, it requires to be noted that at no stage of the proceeding, a view has been taken by the excise authorities that the agreement under which regional discount is allowed by the petitioner to wholesale purchasers is not made at arms length or is not in the usual ,course of business. Even in this writ proceeding that does not appear to be the case of the respondents. The averments made in para 4 of the petition on this aspect of the case have been dealt with in para 3 of the affidavit-in-reply filed on behalf of the respondents and there is nothing in the said paragraph which would indicate that it is the stand of the respondents that the agreements in question were not made at arms length and in the usual course of business. We must, therefore, proceed on the footing that the sales effected on wholesale basis by the petitioner in favour of purchase rs from the States in question during the relevant period at its list price less the regional discount were at arms length and in the usual course of business. It is required to be borne in mind that at the same time that it is an admitted position, so for as the petitioner is concerned, that regional discount is not informally given by it to all wholesale purchasers and that the extent of regional discount depends upon sale purchaser carriers on his business. The regional discount is given in which the wholesale purchaser carries on his business. The regional discount is given on different basis to wholesale purchasers carrying on business in different States or group of States and so far as the State of Gujarat is concerned, no regional; discounts is offered at all. Unlike quantitative discount which the petitioner gives to all its wholesale purchasers depending upon the bulk of purchases irrespective of the place at which such purchasers carry on their business, regional discount is essentially a discount which might vary as between one purchaser and other or one group of purchasers and another such group of purchasers depending upon the region in which they carry on business. The basis of both the impugned orders, exhibits `E' and `l', whereunder the claim of the assessee that the net assessable value of the articles in question should be arrived at after making allowance for the regional discount is not given uniformly to all wholesale purchasers, no deduction that account could be made in determining the wholesale cash price of such articles under the provisions of section 4(a). We do not think, this view is justified on a plain reading of section 4(a). Since regional discount is indisputably given as a percentage deduction from the list price, it is a trade discount within the meaning of the Explanation to section 4(a). The Explanation does not in terms enact that a trade discount, in order to qualify for deduction thereunder, should be given on a uniform basis to all wholesale purchasers at the factory gate. Any such view would require the addition of word'uniform' before the words 'trade discount' occurring in the Explanation and that is evidently not permissible. It is not permissible to read the requirement of uniformity even by implication and we say so for the following reasons.
17. In the first place, excise being a tax on the production and manufacture of goods, the real value has to be found only on the basis of manufacturing cost and manufacturing profit. In determining the true assessable value of goods on which excise duty is leviable on ad valorem basis, the legislature contemplates deduction being given in respect of trade discount. The reason is obvious. To the extent that trade discount is allowed by the manufacturer to a purchaser, his manufacturing profit decreases. In order, therefore, to arrive at a true figure of the manufacturing profit, that part of the manufacturing profit which is given away by way of a discount has got to be deducted. When we are dealing with a provision of his nature , which expressly recognises and provides for deduction of trade discount, we cannot overlook the fact that trade discount can be and is offered by manufactures to wholesale purchasers or by wholesale purchasers or by wholesale purchasers to retail purchasers at different rates, depending upon several considerations. Take, for example the case of quantitative discount, which is linked up with bulk purchases. The said discount, though available to all bulk purchasers, is not invariably or necessarily given at the same rate, irrespective of the quantity purchased. Higher discount may be offered to those who purchase the goods in greater bulk as against lesser discount to those who purchase in lesser bulk. If the view which has prevailed with the authorities in the instant case were taken to its logical conclusion and upheld, such a discount would not be allowed to be deducted in determining the wholesale cash price. Fortunately, that is not the view taken in the instant case with regard to quantitative discount but it could possibly have been taken on a parity of reasoning. The fact, therefore, that a trade discounts is not uniformly given or is given at different rates to different purchasers cannot by itself disqualify it from being excluded for arriving at the true assessable value so long as the lack of uniformity is not founded on any extra-commercial considerations. To the extent that the discount is given, manufacturing profit and to artificially inflate the net assessable value for the levy of excise duty, which is not legally permitted, having regard to the basic concept of such levy.
18. In the next place, under the charging section 3, Excise duty is to be levied and collected on all excisable goods produced and manufactured in India 'in such manner as may be prescribed'. Under Rule 9, as it stood at the relevant time, it was not permissible to remove excisable goods from any place where they were, inter alia, produced or manufactured, until excise duty leviable thereon had been paid at such place and in such manner as might be prescribed or as the Collector might require. The third proviso to the said rule authorised the excise authorities to keep with any person dealing in excisable goods an account- current of the duties payable thereon instead of requiring such person to pay duty in respect of each separate consignment of goods removed from the premises in question. Under Rule 9A, the rate of duty shall be the rate and actual removal of such goods cleared from a factory. It cannot be gainsaid, therefore, that the various provisions of the Excise Law clearly indicate that the liability to pay excise duty arises on the removal of each consignment of goods from the factory premises and that the rate of duty is the rate and valuation which is in force on the date of actual removal. The net assessable value or the wholesale cash price for the purposes of levy of duty on ad valorem basis must necessarily be determined, therefore, on the basis of the manufacturing cost and manufacturing profit qua each consignment of goods removed from the factory on a given day and if in respect of a particular consignment of goods, which is removed from ,the factory, the assessee is able to show that a trade discount at a particular rate has been allowed to the wholesale purchaser and that consequently his manufacturing profit has correspondingly gone down, the net assessable value or the wholesale cash price of such of such consignment for the purpose of levy of duty will have to be determined after giving deduction from the list price in respect of such trade discount. Of course, in cases governed by the self-removal procedure, when excisable goods are chargeable with duty at a rate dependent upon the valuation of the goods, the duty payable on the goods has to be determined by the assessee in accordance with the approved price list, which is revisable from time to time and he cannot, unless he has paid the duty so determined. Even in such cases, however, the approved price list will have to take into account the trade discount offered on different consignments of different classes of consignments removed during the period for which the price list remains in force. In the very nature of things, therefore, there is no warrant for implying that a trade discount would be permissible deduction only if it is allowed uniformly.
18A. In the last place, there is nothing in the enacting part of clause (a) of section 4 which even otherwise requires any such limitation being imported for the proper working of the said provision. As explained in Voltas Limited's case, the application of clause (a) of section 4 does not depend upon any hypothesis to the effect that at the time and place do sale any further articles of like kind and quality should have been sold. The consideration, therefore, whether, if at the time and place of sale, any further articles of like kind and quality should have been sold, trade discount at the same rate would have been allowed, is not relevant. If the real value of the goods actually sold can be ascertained by working out manufacturing cost and manufacturing profit in respect of those goods, such real value alone becomes the net assessable value. In other words, if there is an actual price for the goods themselves at the time and place of sale and such price is arrived at after giving deduction for the trade discount actually given, that is the wholesale cash price within the meaning of section 4(a) and price represents the real value of the goods. If the trade discount is not uniform, the wholesale cash price may differ from case to case and it would still be the wholesale cash price governing the transaction in question.
19. It would be appropriate to mention at this stage that in the view which we are taking we are supported by the decision of a Division Bench of this Court (J. M. Sheth & S. N.Patel, JJ.) rendered in First Appeal No. 713 of 1968 on September 12/13, 1974. Union of India vs.Joyti Limited, Baroda.-1978 Excise Law Times(1238). One of the questions which was raised for consideration of the Court in that case was the same which has arisen here in, namely, whether on a true construction of section 4(a) trade discount can be allowed to be deducted from the wholesale cash price, although it was not uniformly given. The excise authorities had disallowed deduction of trade discount on the ground that the same was not uniformly given. The Division Bench found that the that trade discount was given in that case uniformly to all the wholesale dealers at the rate 15%. The Division Bench, however, went on to consider the question whether a trade discount to be eligible for deduction must be shown to have been uniformly given. The finding which the Division Bench recorded on the point is as follows:-
'There is nothing to warrant that such trade discount is to be given only if it is uniformly given. What is material is the determination of the wholesale cash price..... ....Mr. Kaji is right in his submission that trade discount is bound to vary, if some dealers take guarantee of selling larger bulk. Different percentages may be given for various reasons. What is necessary is to determine the wholesale cash price i.e., what is no condition laid down by the legislature in the Act that is to be given only if it is uniformly given.' (Para 31).
20. In view of the reasons given above and having regard to the view prevalent in this Court on this decision in Jyoti Limited's case, we are unable to agree with the decision of the Allahabad High Court in Shyam Glass Works vs. Inspector of Central Excise, Sa sni,-1979 Excise Law Times (J460), wherein R. N. Lokur, J.has expressed the view that - 'the concession of deduction for discount is given only where the discount is uniform'. It may be incidentally mentioned that the Allahabad High Court does not give any reasons for deduction in respect thereof can be granted and that factor by itself is sufficient to detract from the persuasive value of its decision.
21. On behalf of the respondents, however, it was strenuously contended that section 4(a) postulates the wholesale cash price not of specific goods removed from the factory in a particular consignment but wholesale cash price governing all hypothetical sales of articles of like kind and quality effected on therefore, in order that a trade discount could be legitimately deducted under the Explanation to section 4(a), such discount must be shown to have been uniformly given. This board submission was sought to be reinforced with the plea that section 4 is not merely a machinery section and that is truly provides the measure of tax and that in the very nature of things, therefore, there must be uniformity in the measure and for articles of like kind and quality produced in the same factory and removed at the same time there cannot be different wholesale prices depending upon the terms of agreement between the manufacturer and purchaser. In our opinion, the submission is not well-founded. In the first place, the submission proceeds upon a misapprehension of the true scope and purpose of section 4. As earlier pointed out, section 4 is essentially a machinery section which operates not at the stage of levy but at the stage of assessment. It has been connected with a view to facilitating the determination of the value of an excisable article chargeable with duty at a rate dependent on the value of such article. It cannot, therefore, be elevated to the pedestal of a charging section. In the next place, as earlier pointed out, upon every consignment of excisable goods removed from the factory at a given point of time, duty becomes leviable. When the rate of such duty is dependent on the value of the article, the assessing authority will have to determine the value. Section 4 provides the legislative formula for the determination of value and though the formula will apply uniformly in all cases, the result or product of the application of such formula might conceivably differ from consignment to consignment or from one class of consignment to another. In the last place, the consignment of goods under assessment can, under clause (a), conceivably be a solitary one. At the time and place of removal, there need not necessarily be other consignments of similar class in order to determine the wholesale cash price. The application of clause (a) does not also 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, that is to be taken as the wholesale cash price. The assumption, therefore, that under clause (a) there must necessarily be a wholesale cash price which governs not merely the specific goods which are intend to be removed but also governing hypothetical wholesale cash price of all articles of like kind and quality removed or removable under different consignments at the same time is wholly unfounded. In fact, the submission runs counter to the ratio of the decision in Voltas Limited's case. Besides, the submission also overlooks the scheme of the relevant provisions which have been adverted to above and which clearly indicate that payment of duty is in respect of each separate consignment of goods removed from the factory and it is wholesale cash price of that consignment which has to be determined, which might vary, because the manufacturing profit relatable to such consignment might differ, having regard to the varying rates of trade discounts given on the basis of commercial considerations. The submission could have stood scrutiny provided the levy of duty was linked up only with manufacturing cost and not finally express any opinion. We must, therefore, reject this submission.
22. It would be appropriate to mention at this stage our view that there need not be a uniform wholesale cash price applicable in regard to the goods of same kind quality finds support from the decision of the Madras High Court in Sharda Silicate and Chemical Industries vs. Collector of Central Excise, Coimbatore,- 1979 Excise Law Times (J 20). The assessee in that case sold its product, which was an excisable item on which duty was leviable on ad valorem basis, at different rates to different customers who fell in three main categories. In the first category fell purchasers (soap manufacturers) who procured all their requirements from the assessee, the second category consisted of purchasers (soap manufactures) who procured their requirements partly from the assessee and partly from others. The third category comprised of purchasers other than soap manufacturers. The excise authorities took the view that the lowest sale price which was offered to the purchasers in the category could not be taken as a genuine wholesale cash price for the purpose of assessment and that the higher price charged can alone be taken as the wholesale cash price for the purpose of section 4. The assessee urged before the High Court that it was liable to pay duty only on the price actually realized by it even though such price varied from customer to customer so long as the variation was solely motivated by trade considerations. Koshal, J referred to the decision in Voltas Limited's case and observed that in view of the observations in that decision, it could not be disputed that excise duty was leviable on the prices charged by the manufacturer, provided it is charged on a wholesale so long as those concessions are motivated by trade considerations and do not flow from extra-commercial considerations. As regards the case before him, the learned judge observed that there was no allegation that the of lows prices charged from the two categories of customers was by considerations other than trade considerations. In fact, a very commercial basis for giving more liberal trade concessions to one of the categories of customers was established. In the light of those facts and circumstances, the learned Judge held that 'the price charged by the petitioner firm from each of its customers, even though it varies from customer to customer, has to be taken as the wholesale cash price for the purpose of Sec. 4 of the Act. 'The demand made by the excise authorities for excise duty short levied was consequently held to be wholly unjustified. This decision, in our opinion, completely supports the view which we have taken above.
23. In our considered view, therefore, the impugned decisions, in so far as they proceed on the basis that since regional discount was not uniformly given, it cannot be taken into consideration as a permissible deduction under the Explanation to section 4, are clearly unsustainable. The decisions proceed upon a total misconstruction of section 4 and they are based on considerations which are not germane or relevant and to that extent they are ultra vires. The wholesale cash price of Urea, A.S. and A.S.P. ought to have been determined by the excise authorities by giving deduction for regional discount given to the buyers as indicated in each price list submitted for the approval of the Assistant Collector of Central Excise, Baroda and the assessment of excise duty ought also to have been made on the said basis.
24. A writ will accordingly issue quashing and setting aside the impugned decisions and directing the excise authorities to approve the price lists and to assess excise duty on the consignments of the above mentioned three excisable articles in accordance with law and in the light light of the observations made in this judgment.
25. Rule is accordingly made absolute with no order as to costs.