J.B. Mehta, Ag. C.J.
1. The petitioner had in this petition challenged the order of the second respondent Assistant Collector of Central Excise, at Annexure 'D' dated April 20, 1974 refusing to give the refund or make the adjustment by making 3 per cent or the additional decduction as sought under the Chartered Accountant's certificates by way of marketing expenses and for consequential refund for the period between December 1, 1972 to May 15, 1974 and for a writ not to recover excise duty by including in the wholesale cash price of the products of the petitioner the post manufacturing expenses and to approve the price list accordingly. The petitioner has two cigarette factories at Bombay and Baroda. The petitioner has stated that it follows a uniform pattern for marketing goods as it sells the products manufactured by it to distributors who in turn sell the same to the wholesale dealers. Under the self removal procedure, the petitioner had submitted from time to time the price list of its products as per Annexure 'A' which had been approved but it is now the case of the petitioner that in ignorance of the correct legal position and under a mis-apprehension and a mistake of law, these price lists had been wrongly submitted showing therein the assessable value of its products by including post manufacturing costs and expenses. This mistake came to the light after the decision in A. K. Roy v. Voltas Limited. : 1973ECR60(SC) and, therefore, an application was made on September 13, 1973 for getting a reduction of 3 per cent from the approved prices by way of marketing expenses incurred in sale of the product. Two further certificates were submitted by Chartered Accountants showing the turnover sales and distribution expenses of cigarettes for the period ending June, 1972 and 1973. In those certificates the amount of freight on cigarettes, bank charges on discounting of bills and advertisement, publicity and other sales/distribution expenses were shown to arrive at the higher percentage of 4.39 per cent for 1972 and 4.08 per cent for 1973. Accordingly the higher percentage was sought to be claimed by way of adjustment. A reply was given by the authorities by the impugned letter of April 20, 1974 pointing out that Section 4 Explanation permitted abatement or deduction of discount only. The certificates reduced by the petitioner related to turnover and sales distribution expenses showing the actual cost of manufacture and margin of manufacturing profits as contemplated in Voltas decision. Since the assessment of the product was made on prices charged to the distributors and those prices were being F.O.R. Baroda, no abatement or deduction could be allowed in respect of the two prices under Section 4. Post-selling expenses could not be treated as post manufacturing expenses and could not be transeferred to the manufacturer. In absence of actual manufacturing cost and actual manufacturing profit, no refund could be granted nor any adjustment could be considered. In view of this reply the petitioner has filed the present petition.
In the affidavit-in-reply the second respondent pointed out that the petitioner filed the first price list on July 3, 1972 stating the prices charged by the petitioner to the sole distributors. the prices charged by the petitioners to the wholesale dealers and the prices charged by the sole distributors to the wholesale dealers.
2. The prices charged to the wholesale dealers either by the petitioner by the sole distributors being the same, they were accepted for assessment. Even further price list had been submitted. The channel of marketing was stated to be the movement of product from petitioner to distributor to wholesale dealer, to retailer and consumer. Since the prices charged to distributors were uniform and constituted wholesale cash prices they were approved for assessment and duty. On the same pattern the price list had been filed on December 1, 1972 without stating or indicating the fact that the prices charged to sole distributors included post-manufacturing marketing or selling expenses, if any. When the application of September 13, 1973 was made for getting the reduction of 3 per cent from the approved price on the basis of Voltas decision and refund had been claimed, the petitioner gave an assurance to submit requisite certificates from the auditors showing the marketing expenses incurred as also the cost of manufacture and the margin of manufacturing profit. Thereafter the letter of April 13, 1974 was addressed by the petitioner with two certificates of the Chartered Accountant on the basis of which they desired to correct the aforesaid percentage mentioned in the earlier letter of September 13, 1973. The second respondent had finally replied by the aforesaid letter stating why this deduction could not be considered wherein it had pointed out the importance of disclosing the actual cost of manufacturing and margin of manufacturing profit and in absence of such actual manufacturing cost and actual manufacturing profit, no such refund or adjustment should be granted.
3. Ordinarily, as per the settled legal position, in Bhopal Sugar Industries v. Sales Tax Office A.I.R. 1967 S.C. 549 and Champalal v. Income-tax Commissioner : 76ITR692(SC) , in such taxation matters when the act provides a complete and self-contained machinary for obtaining relief against improper action taken by the authorities, the party feeling himself aggrieved by such action could not be permitted to refuse to have recourse to that machinery and to have to approach the High Court directly against that action. The remedy under the Act must be availed of where all questions of fact and law would be decided by these taxation authorities. The High Court would be slow to entertain a petition challenging an order of a taxing authority which is ex facie with jurisdiction. Such a petition would be entertained only in exceptional cases if the order on the face of it was erroneous or raised question of jurisdication or of infringement of fundamental rights.
4. That is why Mr. Bhabha tried to reply on the fact that the settled legal position in A. K. Roy. v. Voltas Ltd : 1973ECR60(SC) and Atic Industries v. Assistant Collector, Central Excise : 1978(2)ELT444(SC) which reiterated and explained the said ratio had not been applied and the whole order in the present case was an ultra vires order violating even the concept of excise to the extent that this deduction of adjustment had been disallowed by the taxing authorities. Under Section 3(1) the duty of excise has to be levied on all exciable goods which are manufactured at the rates specified in the First Schedule. For determination of value for purposes of duty under Section 4, it has been provided that where 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 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 manufacturer 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
(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 hisagent, at the time of the removal of the article chargeable with duty from such factory or other premises for delivery at the place of manufacturer 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 charged with duty from the factory or other premises aforesaid.'
The aforesaid scheme of Section 3 snd 4 shows that for the purpose of calculation of duty of excise on the basis of the value, Section 4 has provided the measure or the yard-stick. The measure adopted is of 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 or removal of the article from the factory at the place of manufacture or production, or at the nearest market place. The three essentials, therefore, are :
(1) the wholesale price as distinguished from retail price; (2) it must be cash price right then and not after a time lag which would involve interest element; and (3) it must be right there at the Factory gate or at the nearest market place. If a real buyer is not available for cash or at the factory gate or the nearest market place, one has to ascertain at what wholesale cash price the product is capable of being sold.
5. Now, if for that very produce this is possible, clause (a) would be attracted. If it is not possible because in respect of that very product there are no wholesale sales at all but only retail sales, clause (b) would be attracted on the ground that such wholesale cash price is not ascertainable and one would have to deduce the actual or potential wholesale cash price payable at the factory gate by a buyer of a similar product. The explanation in terms enacts.
6. That in determining such wholesale price of an article under Section 4, 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 gate or the manufacturing premises aforesaid. The Explanation would show that it is not the gross wholesale cash price which is contemplated but the net wholesale cash price. It is this yardstick which has to be applied to determine the real value for arriving at the excise duty under Section 4. From this nature of measure of there and then cash wholesale price the factory gate, it is apparent that in cases where there are credit sales, the whole price would have to be converted into wholesales cash price by taking into account the interest element or if there is some transportation of freight cost to carry it upto the factory gate or the nearest market place, even the freight also would have to be incidentally adjusted to translate the price on then and there basis right at the factory gate or the nearest market place. These two allowances are the adjustments arising necessarily out of the concept of the wholesale cash price at the factory gate or the nearest market place. Besides, the wholesale price being the essential concept of this measure, it is obvious that retail price could never be taken into account. In cases of only retail sales the scheme does not envisage any further inquiry for ascertaining the wholesale price of the product when the manufacturing organisation directly sells its goods through its marketing organisation only to retail customers and the case falls under section 4(b), in which event, the wholesale price of same product being not ascertainable, what is done is to adopt the actual or potential wholesale cash price payable at the factory gate of a similar product. Therefore, in both the cases the measure is of the net wholesale cash price subject only to the deduction of the trade discount as envisaged by the Explanation which is deemed to take into account everything to work out the net wholesale price and to no other adjustment. The wholesale price being thus distinguished from the retail price, it must be understood that what the measure provides is for considering the manufacturer's cost and the manufacturer's margin of profit which enters into the wholesale prie realised from the wholesaler but which does not load the price with the wholesaler's profit as well which enters the picture when there is a subsequent or the second wholesale price or the retail price. Therefore, when in this context it is emphasised that the selling cost and the selling profit should be excluded, the emphasis is on this basic concept of excise that the measure should not be of the second or subsequent wholeale price or the retail price as that would load the real price with post-manufacturing element, namely, selling cost and selling profits of the wholesale dealers. That would be clearly violative of not only the basic concept of excise where the taxing event is production or manufacture of goods but would violate even the basic the factory gate concept because the price would be loaded with post-manufacturing elements after the article has entered the stream of wholesale trade. There would be no question of post-manufacturing elements being added or the price being loaded with the selling cost and selling profit of the wholesale dealer if the measure is confined to the first wholesale cash price at the factory gate, that is, at the stage before the product enters the stream of wholesale or retail trade. Bearing these principles in mind, the true ratio of the binding decisions must now be interpreted.
7. In Vacuum Oil Co. v. Secretary of State , the Privy Council has to interpret the corresponding provisions in Sections 29 and 30 of the Sea Customs Act, 1878, which are almost identical, where also the measure of the customs duty was the sale wholesale cash price at the time and place of importation without any abatement of deduction whatever except of the trade discount or the duty payable on the importation. At page 171 their lordships pointed out that the charging Sectin 29 or Section 30 which laid down the measure of the customs duty disclosed a definite purpose. The price was described as the 'real value' of goods and the price as defined in a conservative way in every aspect the free in particular from any loading for any post importation charges incurred in relation to the goods. The price for the goods both at the time and place of importation was to be the cash price, that is to say, a price free from any augmentation for credit or other advantage allowed to a buyer; it was to be a net price, that is to say, it was a price 'less trade discount'. Their Lordships pointed out that this last expression, supplemented by these other indications confirmed in their Lordships view the conclusion that the words 'wholesale price' are used in the Section in contradiction to a 'retail price' and that not only on the ground that such was a well recognised meaning of words but because their association with the words 'trade discount' indicate that sales to the trade are those in consideration, and also because only by attacting that meaning to the word was the 'wholesale price relieved of the loading representing post importation expenses, which, as a matter of business, must always be charged to the consumer, and which in the other words of the Section already alluded to, were so carefully eliminated. Therefore the retail price charged by the manufacturing concern from its consumers for the imported machinery oil could not be held to be the wholesale cash price as envisaged in the Act. Their Lordships also emphasised that the Act did not contemplate any further inquiry in such cases to extract any such wholesale price because in such cases the alternative contemplated in clause (b) was to be adopted that context their Lordships emphasized than the wholesale price primarily was that price current for state article, the amount of which, if not a subject of daily publication in the press, was easily ascertainable in appropriate trade circles. Therefore, in cases of such retail sales direct to the consumers the case was not to fall in clause (a) but only in clause (b) where the wholesale cash price payable at the time of importation would have to be deduced of the similar product in view of the fact that such wholesale cash price of the same product was not ascertainable.
8. In the next decision in Ford Motor Company v. Secretary of State , their Lordship explained the term 'ascertainable' in a corresponding provision in Section 30 of the aforesaid Sea Customs Act. The earlier decision was relied upon as the wholesale cash price used in clause (a) was the price for hypothetical goods and was to be independent of particular circumstances affecting the goods imported so that the clause could operate only in the case of staple articles for which there was a market price or price current ascertainable from day to day. Their Lordships, therefore, observed at page 18 that if such a wholesale cash price as satisfied the description contained in Section 30(a) was ascertainable, the goods could not be dealt with under clause (b), and it was in terms emphasised that the statute was not consistent with the view that the importer's profits should in that case be excluded from the assessable value. The price to be ascertained was 'a wholesale cash price less trade discount for which goods of the like kind and quality were sold or were capable of being sold at the time and place of importation'. In the application of such a Section like Section 30 to the facts of a given case, something may depend upon the exact force attributed to the requirement that the price must be 'ascertainable'. The word, in their Lordships' opinion imported more than could be satisfied by the result of an estimate. On the other hand, the language of the Section - 'or are capable of being sold' did not exclude all possibility of arriving at the price defined by clause (a) upon the basis of an actual price, though some adjustment might be needed to eliminate the difference as for example between cash and a month's credit. Therefore, even in this decision the whole emphasis is on the aspect of ascertainable wholesale cash price right at the time and place of importation which has an element of certainty in it which excludes other inquiries except of a such small adjustments which are inherent in the very concept of such a cash price where in credit sales for arriving at the wholesale cash price the interest or freight upto the place of importation would have to taken into account. Except such inherent adjustment which is necessary because of the nature of this measure of net wholesale cash price at the place and time of importation, no other adjustment was contemplated. Therefore, in the context of cartage charges it was in terms observed at page 18 that when the wholesale price was of a sale at Bombay with delivery f.o.r. Bombay, the cartage charges had not to be apportioned so as to eliminate the proportionate cost of the journey from the boundary of the port to the railway station in Bombay. It was in terms held that the legislative intention was clearly to exclude post-importation expenses but it had to do this in a practicable manner without undue refinement and, therefore, phrase 'place of importation' or the factory gate concept in the present case had to be taken in a reasonable sense. Similarly, when the argument was pressed for the assembly charges in the case of these unassembled cars where the price list was of a car in a running order, it was held that the cartage allowance in respect of this defect had to be taken into account by considering the assembly charges by reducing the sum payable by the distributor to a price referable to the car in the condition in which it arrived at Bombay in the unassembled condition. Therefore, even though the assembling expenses were considered, when overhead expenses in respect of assembling were sought to be excluded, it was in terms pointed out by their Lordships that this had no bearing upon any matter arising under clause (a) of Section 30.
9. Both these decisions have been in terms approved in the decision in A. K. Roy v. Voltas Ltd., A.I.R. 1973 S.C. 226 which has been so vehemently relied upon in this context. In order to understand the true ratio of the Voltas decision we must determine the context of its facts and the question which have been settled by it. This manufacturing concern of air-conditioners, water coolers, etc. had its own sales organisations for sales at its various offices from which direct sales to the consumers had been done at list prices to the extent of 90 to 95 per cent of the production and the remaining quantity had been sold to wholesale dealers under agreements which contemplated a commercial advantage in the shape of servicing obligation where the wholesale price charged was the lists price less 22 per cent discount. The first question which was received by Their Lordships on the basis of the Ford Motors decision of the Privy Council on the terms of the corresponding provisions in Section 30(a). which was held to be more or less similar to Section 4(a), was that for purpose of Section 4(a) the wholesale cash price would be the price even under an agreement with the wholesale dealer stipulating for commercial advantages, if such agreement was made at arms length and in the usual course of business, and it was not necessary that such purchasers must be independent persons. They may be distributors or dealers with whom there were such commercial advantages like the service obligations and to that extent the series of High Court decisions were held to be wrong.
10. The next question which was resolved was as to the meaning of the term 'wholesale cash price'. - At page 230, Their Lordships have held as under :
'The next question is : What exactly is the meaning of the term the 'wholeale cash price' I Vaccum Oil Co. v. Secretary of State for India in Council, 59 Ind. App 258 : (AIR 1932 PC 198), it was hold that the term means the price paid by retail traders on wholesale purchase. The essence of the idea is that the purchase must be a wholesale purchase and not a retail one. 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'. In that case the appellants before the Privy Council imported at Bombay, very large quantities of lubricating oil of a particular manufacture and mark. They sold it direct to numerous customers, never to dealers. The price they charged was the same whether a large or small quantity was bought, except that if a consumer contracted to by from them all his requirements for a year, he was entitled to a discount from 2 1/2 to 15 per cent according to the quantity bought in the year. No other lubricating oil of a like kind and quality was sold in Bombay. On the question whether the appllant was bound to pay customs duty on the basis of clause (a) or clause (b) of Section 30 of the Sea Customs Act, 1878, the Privy Council held that since the sales were to customers direct, the real value of the goods cannot be ascertained under clause (a) of Section 30 and that clause (b) of Section 30 was applicable. Their Lordships said that in determining the price which is to represent the real value of the goods to be taxed, the price must be conservative in every respect and free in particular from any loading for any post importation charges incurred in relation to the goods'. The price is to be a price for goods, as they are both at the 'time', and 'place' of importation. It is to be a cash price' that is to say a price free from any augmentation for credit or other advantage allowed to a buyer it is to be a net price, that is to say it is a price, less trade discount'. Their Lordhsips, 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 such is a well-recognised meaning of the words because their association with the words 'trade discount' indicates that sales to the trade are those in contemplation, and also because only by attaching that meaning to the word is the 'wholesale price' relieved of the loading representing post importation expenses which, as a matter of business, must always be charged to the consumer, and which are liminated. Excise is a tax on the production and manufacture of goods (See Union of India v. Delhi Cloth and General Mills : 1973ECR56(SC) . 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 Sections 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. The Section postulates that the 'wholesale price should be taken on the basis of cash payment thus eliminating the interest involved in wholesale price which gives credit to the wholesale buyer for a period of time and that the price has to be fixed for delivery at the factory gate thereby eliminating freight, octroi and other charges involved in the transport of the articles. As already stated it is not necessary for attracting the operation of Section 4(a) that there should be a large number of wholesale sales. The quantum of goods sold by a manufacturer on wholesale basis is entirely irrelevant. The mere fact that such sales may be few or scanty does not alter the true position.'
Therefore, the Vacuum Oil ratio is in terms adopted and Their Lordships have made the name distinction between the 'wholesale price' and the 'retail price' by emphasising their contradistinction for the purpose of this relevant measure and in that context of making distinction between wholesale and retail price that it is emphasised that the wholesale price must be relieved on the loading representing post-importation expenses which as a matter of business must always be charged to the consumer and which must be eliminated. Their Lordships thus emphasised that the real criterion of this measure as the whole-sale cash price at the factory premises and the contention was in terms negatived that the retail sale price realised by the manufacturer from the consumers could be taken as the basis for the computation of the duty. It is in the context that the principle if further elaborated by explaining that when a sale was effected in the retail market, it took within its sweep the profit attributable to the whole-sales who having purchased the goods from the manufacturer sold it to the retailer to the consumer at a profit. The price paid by the retailer would take into account the profit which would go into the coffers of the wholesalers with which the manufacturer had nothing to do. It was in this context that Their Lordships have made this crucial observation that Section 4 provided that the real value should be found out after deducting the selling cost and selling profits and that the real value could include only the manufacturing cost and the manufacturing profit. This observation could not be read dehors this context of the relevant controversy as to whether a retail price or the wholesale price should be taken as the basis for the computation. Their Lordships were only explaining why Section 4 provided for computation on the basis of the wholesale cash price at the factory and that is why the Vacuum oil decision was realised upon which made this distinction between the wholesale and the retail price as per the well recognised meaning of these words and particularly because of their association with the words 'trade discount' which conclusively pointed out that what was contemplated were sales to the trade and it is only on the basis of this distinction that the wholesale price would be relieved of the loading representing post-importation and real value would be arrived at for the purpose of excise which is levied only on the amount representing the manufacturing cost plus the manufacturing profit but excluding the selling profits which are really from post-manufacturing operations after the product has entered the steam of trade by getting out of the factory gate. That is why Their Lordships pointed out that Section 4(a) postulated that the wholesale price should be taken on the basis of cash payment thus eliminating the interest involved in wholesale price which gave credit to the wholesale buyer for a period of time and that the price had to be fixed for delivery at the factory gate thereby eliminating freight, octroi and other charges involved in the subsequent transportation of the articles as per the true factory gate as well as the excise concept. Therefore, this decision of Their Lordships only gives the rational basis of this measure embodied in Section 4 of the wholesale cash price at the factory gate in the context of the controversy whether the retail price realised by the manufacturer in a case where the manufacturer has also the selling for sale directly to the consumers should be taken as a basis for computing the liability. When this argument is negatived by making this distinction between the wholesale and retail price, this decision could never be pressed in aid for the view that any further deductions were contemplated to be made in favour of the manufacturer on any score, which are nowhere indicated in Section 4(a). The question of giving credit for any cost incurred by the manufacturer in the cases where wholesale cash price at the factory gate was either easily available or was capable of being ascertained could not arise, as regards any alleged expenditure incurred by the manufacturer, because the Explanation to Section 4 is emphatic that in determining such wholesale price no abatement or deduction shall be allowed except in respect of any trade discount. The interest and the freight or octroi which are mentioned by Their Lordships were the necessary adjustments to give effect to this concept of wholesale cash price at the factory gate and to arrive at the net wholesale cash price. The Explanation contemplated only the deduction of the trade discount. To read this ratio in any other manner would be to add a rider to Section 4 to the effect that not withstanding the Explanation even in cases falling under Section 4(a) the manufacturer can claim some further deductions. No such question or issue arose in Voltas case or in the other two Privy Council decisions and, therefore, it would be difficult to read the ratio of Their Lordships in these two relevant paragraphs 20 and 21, except as propounding the rational basis for the provision made in Section 4 enjoining that only the wholesale cash price at the factory gate should be taken as the basis and not the retail sale price which might have been realized by the manufacturer by effecting direct sales which was the view vehemently canvassed by the excise authorities before Their Lordships. If the Voltas decision is thus read in its true setting, the claim sought to be made for other deductions from the easily ascertainable wholesale cash price except the trade discount would be wholly incomprehensible.
11. Even in the next decision in Atic Industries v. Assistant Collector, Central Excise : 1975CriLJ1732 , Their Lordships have only elaborated this true concept of excise and the factory gate concept. The context and setting of the facts in this case was that the manufacturer of dye-stuffs in this case sold its products to two wholesale buyers, namely, ICI (India) Ltd. and Atul Products Ltd., to the extent of 70 per cent at the basic selling price less trade discount of 18 per cent and they in their turn resold these dye-stuffs to consumers and other distributors. The first contention which was answered was that the wholesale dealings between the manufacturers and these two wholeale dealers ICI and Atul were purely commercial dealings at arms Length and the price charged to these wholesalers ICI and Atul less 18 per cent discount was cleraly wholesale cash price within the meaning of Section 4(a) because it made no difference that the wholesale dealings were confined only to these two wholesalers and/apart from them no independent buyers could purchase the due-stuffs in wholesale. The next contention which was answered was that the basis which had to be taken for purposes of Section 4(a) was the price charged to these first wholesalers and not to second or subsequent price to the other wholesale ditributors. In that context at page 967. Their Lordships pointed out how if second or subsequent sales were taken into account, the two basic principles of the nature of excise and the factory gate concept would be violated as under :-
'The value of the goods for the purpose of excise must take into account only the manufacturing cost and the manufacturing profit and it must not be loaded with post-manufacturing cost or profit arising from post-manufacturing operation. The price charged by the manufacturer for sale of the goods in wholesale would, therefore, represent the real value of the goods for the purpose of assessment of excise duty. If the price charged by the wholesale dealer who purchases the goods from the manufacturer and sells them in wholesale to another dealer were taken as the value of the goods, it would include not only the manufacturing cost and the manufacturing profit of the manufacturer but also the wholesale dealer's selling cost and selling profit and that would be wholly incompatible with the nature of excise. It may be noted that wholesale market in a particular type of goods may be in several tiers and the goods may reach the consumers after a series of wholesale transactions. In fact the more common and less expensive the goods, there would be greater possibility of more than one tier of wholesale transactions. For instance, in a textile trade, a manufacturer may sell his entire production 'one single wholesale dealer and the latter may in his turn sell the goods purchased by him from the manufacturer to different wholesale dealers at State level, and they may in their turn sell the goods to wholesale dealers at the district level and from the wholesale dealers at the district level the goods may pass by sale to wholesale dealers at the city level and then ultimately from the wholesale dealers at the city level, the goods may reach the consumers. The only relevant price for assessment of value of the goods for the purpose of excise in such a case would be the wholesale cash price which the manufacturer receives from sale to the first wholesale dealer, this is, when the goods first enter the steam of trade. Once the goods have entered the stream of trade and are on their onward journey to the consumer, whether along a short or a long course depending on the nature of the goods and the conditions of the trade, excise is not concerned with that happens subsequently to the goods. It is the first immediate contact between the manufacturer and the trade that is made decisive for determining the wholesale cash price which is to be the measure of the value of the goods for the purpose of excise. The second or subsequent price, even though on wholesale basis, is not material if excise were levied on the basis of second or subsequent wholesale price, it would load the price with a post-manufacturing element, namely, selling cost and selling profit or the wholesale dealer. That would be plainly contrary to the true nature of excise as explained in the Voltas' case (Supra). Secondly, this would also violate the concept of the factory gate sale which is the basis of determination of value of the goods for the purpose of excise.'
Therefore, the ratio laid down at page 968 was as under :
'There can, therefore, be no doubt that where a manufacturer sells the goods manufactured by him in wholesale to a wholesale dealer at arms length and in the usual course of business, the wholesale cash price charged by him to the wholesale dealer less trade discount would represent the value of the goods for the purpose of excise. That would be the wholesale cash price for which the goods are sold at the factory gate within the meaning of Section 4(A). The price received the wholesale dealer who purchases the goods from the manufacturer and in his turn sells the same in wholesale to other dealers would be irrelevant to the determination of the value and the goods would not be chargeable to excise on the basis. 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.'
12. Therefore, this decision only elaborates the factory gate concept or the true nature of excise in the context of this relevant controversy as to whether the first wholesale cash price is decisive or the subsequent wholesale cash price and in that event it has been held that the first immediate contact between the manufacturer and the trade is made decisive for determining the wholesale cash price which is the measure of the value of the goods for the purpose of excise. The second or subsequent price, even though on wholesale basis, is not material because if excise were levied on that basis of second or subsequent wholesale price, it would load the price with post-manufacturing elements, namely, selling cost and selling profits of the wholesale dealer which would violate both the nature of the excise and the factory gate concept. Therefore, post-manufacturing elements are emphasized only in the context of making a distinction between the first wholesale price and the subsequent price after the goods have entered the stream of trade because at the earlier stage there would be no question of loading the price with any post-manufacturing element, namely, selling cost and selling profit of the wholesale dealer as envisaged by Their Lordships.
13. Therefore, in those cases where the manufacturer sells the goods manufactured by him in wholesale to a wholesale dealer at arms length and in the usual course of business, the wholesale cash price charged by him to the wholesale dealer less trade discount, if any, as envisaged under the Explanation, would represent the real value of the good for the purpose of assessment of excise and the petitioner could hardly raise any grievance if this f.o.r. price at Baroda is taken as the basis, because that would be the wholesale cash price for which the goods in question are sold at the factory gate within the meaning of Section 4(a) before the goods have entered the stream of trade. As per this settled ratio it is only the higher price received by such a wholesale dealer who purchases the goods from the petitioner manufacturer and in his turn sells the same in wholesale to other dealers which would be irrelevant to the determination of the value and the goods would not be chargeable to excise on that basis in view of the settled legal position. In the present case that is not the grievance. Therefore, no question could arise in the present matter that the binding ratio in Voltas' case as interpreted in and elaborated in Atic Industries case had been violated in the present case and the decision of the authority in not allowing any further deduction by way of hte alleged distribution expenses is ex facie without jurisdiction.
14. Mr. Bhabha, however, vehemently relied on the fact that Section 3 is the charging Section and by recourse to Section 4, while applying this measure for determining the wholesale cash price, the concept of excise in the charging Section could not be violated. That position is already safeguard by their Lordships by this interpretation which has been put on the factory gate concept as elucidated in this decision that what is decived is when the goods first have immediate contract from the manufacturer to the trade and the first enter the stream of trade. The post manufacturing element or the selling cost and selling profit of the wholesale dealer would enter in the picture if the basis taken is the second or the subsequent price and not the first wholesale price charged by the manufacturer himself in wholesale to a wholesale dealer at arms length and the usual course of business, of course, less the trade discount envisaged by the Explanation. Such a net wholesale cash price for the goods sold at the factory gate within the meaning of Section 4(a) would be properly falling within the concept of excise. No confusion should ever be made in what is the basis of excise and its measure or the yardstick.
15. Even in Messers Chhotabhai v. Union of India : AIR1962SC1006 , Their Lordships had pointed out that a duty of excise was a tax levy on the home produced goods of a specified class or description, the duty being calculated according to the quantity or value of the goods and which was levied because of the mere fact of the goods having been produced or manufactured and was unrelated to and not dependent on any commercial transaction in them. Therefore, even when a retrospective levy was done, Their Lordships upheld such a levy as satisfying this test.
16. No doubt Mr. Bhabha vehemently relied on various decisions, by the Karnataka High Court in I.T.C. Ltd. v. The Union of India, Tax L.R. 1975 page 1644 by the Maharashtra High Court in Miscellaneous Petition No. 293 of 1974 in Indian Tobacco Company Ltd. v. Union of India, decided on December 15, 1975, and by the Kerala High Court in Madras Rubber Factory Ltd. v. Assistant Collector of Central Excise, 1975 L.L.R. (2) Kerala 407 for pointing out that apportionment principle is accepted in these decisions, especially in the items of freight and advertising expenses. Those decisions have proceeded on the assumption that Voltas' decision or the Atic decision have explained the true nature of excise and, therefore, while working out this measure under Section 4, apportionment principle must be accepted for apportioning the manufacturing cost and the marketing cost when the manufacturer has the selling organisation. These decisions, with great respect, have not borne in mind the crucial fact that in all these four binding decisions the controversy was as to the true meaning of the wholesale cash price where the distinction has to be made between the wholesale and the retail price or the first wholesale price and the second or subsequent wholesale prices. They have with great respect, ignored the very wording of the Explanation which is so emphatic and the emphasis which Their Lordships of the Privy Council had placed on the term 'easily ascertainable wholesale price' where adjustment would be only of such items as interest, freight and octroi etc. so that the measure would be truly applied by arriving at the real wholesale cash value at the factory gate at the time of the removal of the goods by taking into account the item of interest where it is a credit sale or the amount of freight charged up to the factory gate or the nearest market place to translate that price into the wholesale price there and then at the factory gate when the goods first enter the stream of trade. The whole aspect of post-manufacturing expenses would come in only after the first wholesale sale at the stage of subsequent wholesale dealings or the retail dealings and if that subsequent wholesale price or retail price is not to be the basis for this excise levy it is obvious that no adjustment could be made by way of any such apportionment which would make the whole price uncertain and not easily ascertainable as envisaged by Their Lordships. Even under Section 4(b) when the sale is direct to the consumers in retail trade, the inquiry is not into the selling cost of the manufacturer's selling organisation but for ascertaining the wholesale cash price of the similar products at the gate or the nearest place because such wholesale cash price of the aforesaid High Court decisions it could never be urged by the petitioners in the face of these aforesaid binding decisions that the authorities were adopting any ultra vires approach because Voltas or Atic, ratio has never laid down any such apportionment which would be against the plain terms of the Explanation to Section 4.
17. In fact the petitioners have not laid out the necessary foundation of facts in the petition or before the authorities. The petitioner had been asked by the authorities to give details of the manufacturing cost, the manufcturing profit by giving detailed break, up of the alleged distribution marketing activity expenses. The petitioner contended itself by producing only the certificates of the Chartered Accountant. Even the very allegation in paragraph 3 is that the petitioner is manufaturing goods at its various factories and sells products maanufactured to its distributors who in turn sell the same to wholesale dealers. The petitioner had never put the case on the basis that it had both manufacturing activity combined with the sales organisation and the nature of its arrangement with the distributors had not been disclosed and the refund claim was merely on the basis of those certificates of the Chartered Accountant which had been turned down by the authorities. The whole aspect of apportionment even if permissible would be dependent on investigation of facts and the petitioner had ample opportunity to put all the facts before the competent taxation authorities and if it failed to do so, it must thank itself and could not raise a grievance in this petition and ask this Court to quash the aforesaid order by making conjectures in petitioner's favour without any foundation of facts.
18. Mr. Bhabha wanted an oportunity to amend the petition but as the facts have to be found by the original authorities and as per the interpretation we are putting on the Voltas and Atic ratio, it would be futile to permit any such amendment at this stage because the whole question of apportionment appears to be wholly unjustified on the aforesaid binding decisions.
19. In that view of the matter this petition must fail and, therefore, the rule is discharged with no order as to costs in the circumstances of the case.
20. Mr. Bhabha applied of a certificate for appeal under Article 133(1) of the Constitution and at that stage pointed out that the Maharashtra High Court decision on Indian Tobacco Company Ltd. v. The Union of India, in Miscellaneous Petition No. 293 of 1974 had been also followed in Miscellaneous Petition No. 477 of 1974 of this very petitioner company where the Maharashtra High Court had gone into the question of apportionment and had given directions for making such apportionment in the matters of advertisement expenses and freight expenses. Even though we have no foundation on facts and earlier indicated but as our interpretation of Voltas and Atic ratio is not as per the other High court decisions and as petitioner's own matter is decided differently on this question of principle, we would grant a certificate in this matter as a substantial question of law of general importance arises which, in our opinion, should be decided by the Supreme Court. The application is accordingly granted.
21. Interim stay extended for a period of one week from today on the same terms on condition that an effective Bank guarantee in furnished for the amount of Rs. 45 lakhs in respect of dues in question within a period of a fortnight before the second respondent.