1. The question that falls to be decided in this writ appeal is about the determination of the excisable value of the motor vehicles and certain other products manufactured by the respondents Messrs Ashok Leyland Ltd., for the purpose of excise duty under the Central Excises and Salt Act, 1944 (for Short the Act). The appeal has been filed by the Union of India against the judgment of a learned Single Judge of this court allowing the writ petition filed by the respondents in W.P. No. 4764 of 1978.
2. The facts giving rise to the question for determination in the writ appeal may briefly be stated as follows - The respondents sell their products to the main dealers appointed by them. They enter into agreement with the main dealer. The price at which the respondents sell their products to the main dealers varies with the price at which the main dealer sells the same products. It is contention of the Union of India that the main dealer appointed by the respondents is only a distributor or a sole selling agent and consequently, will be a related person within the meaning of the definition of the word under Section 4(4)(c) of the Act. The statutory authorities in that view held that the respondents would be liable to pay excise duty on the price at which the main dealer sells the products to the customers. The respondents filed the writ petition before this court challenging the stand of the Union of India and other statutory authorities and contended that the main dealer would not be a related person within the meaning of the Act. This contention was accepted by the learned single Judge, who by his judgment dated 28-9-1981, allowed the writ petition. It is, in these circumstances, the Union of India has filed this writ appeal.
3. At the outset it is necessary to refer to Section 4 of the Act as far as it is relevant.
'4(1) Where under this Act the duty of excise is chargeable on any excisable goods with reference to value, such value shall subject to the other provisions of this section, be deemed to be -
(a) the normal price thereof, that is to say, the price at which such goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and place of removal, where the buyer is not related person and the price is the sole consideration for the sale,
(i) * * * *(ii) * * * * (iii) Where the assessee so arranges that the goods are generally not sold by him in the course of wholesale trade except to through a related person, the normal price of the goods sold by the assessee to or through such related person shall be deemed to be the price at which they are ordinarily sold by the related person in the course of wholesale trade at the time of removal to dealers (not being related persons) or where such goods are not sold to such dealers the lealess (being related persons) who sell such goods in retail;
(b) * * * *(2) * * * *(3) * * * * (4) For the purposes of this section -
(a) * * * *(b) * * * * (c) related person means a person who is so associated with the assessee that they have interest, directly or indirectly, in the business of each other and includes a holding company, a subsidiary company, a relative and a distributor of the assessee, and any sub-distributor of such distributor.
Explanation :- * * * *'
From the above definition it is clear that the value of excisable goods, for the purpose of levy of excise duty is the normal price of the excisable goods. The normal price is the price at which the goods are sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and place of removal. The buyer should not be a related person. The price must be the sole consideration for the sale. In other words, the normal price should not be the price at which goods are sold by the assessee to a related person. The point of time with reference to which the price has to be determined is the time of delivery of the excisable goods in the course of wholesale trade. The definition of related person in terms of Section 4(4)(c) of the Act consists of two parts. Under the first part, a related person means a person who is so associated with the assessee that they have interest, directly or indirectly in the business of each other. The second part includes a holding company, a subsidiary company, a relative and a distributor of the assessee and any sub-distributor of such distributor as a related person.
4. Webster's dictionary gives several meanings of the word 'distribute' as follows : (1) to divide among several or many to deal out; apportion; allot; (2) to spread out so as to cover a surface or a space; (3) to divide or separate, as into classes, orders, kinds, or species to classify; assort; as specimens, letters etc. The same meaning is found in the Oxford's Concise dictionary, Murry's Standard dictionary gives a somewhat better definition. The second meaning attached to the word is 'to spread or disperse abroad, through a whole space or over a whole surface; properly, so that each part of the space or surface receives a portion; less definitely, to spread generally scatter'. The distributor can therefore be only either an agent who sells goods for and on behalf of a manufacturer or a person who physically distributes the goods on behalf of the manufacturer. In the ordinary commercial parlance, also, the word distributor is understood as an agent or one who distributes goods to consumers. Such an agent who acts for and on behalf of the manufacturer earns a commission. He cannot be termed a buyer of goods from the manufacturer on his own account. He does not himself pay the price for the goods before the goods are passed on to the consumers. Suffice it to say, a distributor is only an agent or a sole selling agent if he may be so described on behalf of the manufacturer.
5. The ambit and scope of the meaning of the word related person and distributor as used in S. 4(4)(c) of the Act arose for consideration before the Bench of the Delhi High Court in Jay Engineering Works Ltd. v. Union of India, 1981 ELT 284, Jay Engineering Works Ltd., manufactures electric fans and regulators. The said electric fans and regulators were sold by the company to dealers appointed by it and also directly to customers from its own shop in the State of West Bengal and Andaman and Nicobar Islands. In respect of the rest of the country about 90% of the company's sales were effected to Usha Sales Ltd., and to some extent directly to bulk institutional buyers. The statutory authorities under the Central Excises and Salt Act, 1944, took the view that the assessable value for the purpose of excises duty was the price at which Usha Sales Ltd., sold the goods after purchasing the same from the assessees. On the other hand, the assessee's contention was that the assessable value of the goods should be the price by which the assessee sold the goods to Usha Sales Ltd., and not the resale price of Usha Sales Ltd. to other dealers. It was urged on behalf of the Union of India, that Usha Sales Ltd. were only distributors of the assessees and fell within the meaning of related person as defined in Section 4(4)(c) of the Act. Ranganathan J. speaking for the Bench rejected the contention. The learned Judge observed as follows :-
'The next question for consideration is whether Usha can be said to be a distributor of the assessee. The precise meaning of the expression distributor is not clear and has not been defined in the statute. This is a very wide expression which gains colour from the context in which it is employed. Its meaning is very vague, extensive, and indefinite. It ranges from a person, who, under an enforceable contract, acts as an agent of the manufacturer for the distribution of his goods to a person who at some stage or point of time distributes i.e. physically transports and sells the goods manufactured by a particular manufacturer. We have already referred to the fact that the effect of a person falling within the definition of related persons is very extensive and far reaching. It will have the effect of enabling the authorities to ignore the price at which the sale are effected to or through such persons and even to proceed right upto the stage of retail distribution for the purpose of determining the assessable value. Having regard to the very radical impact of this definition on the assessable value of the excisable goods it appears to us that this expression should be given a very restricted meaning. It will be seen that to give a very wide meaning would practically alter the entire scheme of the Excise Act. It any person who distributes a fairly good part of the goods of a manufacturer were to be treated as a distributor (and is should not be forgotten that the definition also takes in the sub-distributors of such distributor) the effect will practically be that the assessable value in many cases will be taken as the retail price of the goods.'
6. Then after referring to the observation of Bhagwati J. in Atics case, 1978 ELT (J 444) the learned Judge has observed -
'These observations have not lost their relevance even after the amendment of S. 4. This amendment was the consequence of the decision of the Supreme Court in the Voltas case (supra). In that case, the assessee company had effected direct sales to consumers in respect of 90 to 95 per cent of its production. It also sold its production. It also sold its articles to the extent of remaining 5 to 10 per cent to wholesale dealers in different parts of the country restricted the prices at which the dealers could sell the commodity and they were also required to provide service in respect of the articles sold in their territory. The attempt of the excise department to ignore the price at which the goods were sold to these dealers was negatived by the Supreme Court which held that 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 benefit 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 manufacturer. It was pointed out that the wholesale cash price had to be ascertained on the basis of transactions at arms length. If there was a special or favoured buyer to whom a specially low price was charged because of extra commercial consideration such as for example his relationship with the manufacturer, the price charged could not be the wholesale cash price.'
After referring to the various decisions of various other High Courts, the learned Judge said -
'In the light of the discussion contained above, we are clearly of opinion that Usha cannot be said to be a distributor of the petitioner company.'
7. A similar question arose for consideration before the Bench of the Bombay High Court in Amar Dye Chem. Ltd. v. Union of India, 1981 ELT 348. In the said case, the assessee had been entering into agreements with what were described as distributing agents for the purpose of sale and of distribution of the goods manufactured by it. The excise authorities took the stand that the assessable value for the levy of excise duty should be the price at which the distributors sold the goods to their dealers. This contention was raised on the basis that the distributing agents fell within the meaning of related person as defined in the Act inasmuch as they were distributors. On behalf of the assessee if was contended that the distributors to whom the assessee sold the goods were not agents of the manufacturers and that when they further sold the goods to their buyers, the sale was not on account of the manufacturer, but that the sale was on account of the distributor himself. Dealing with this contention, Chandurkar J. on behalf of the Bench observed as follows :-
'The crucial question which we must decide at the outset before we go to the challenge to a part of the provision in Section 4(1)(a) and in the third proviso to that section is what to the scope of the concept of the distributor who is included in the definition of a related person in Section 4(4)(c). It is necessary at this stage to point out that a distributor in the commercial world is understood to be a person who distributes goods of the manufacturer to the consumers and in so doing, he acts for and on behalf of the manufacturer. A distributor normally is, therefore, an agent of the manufacturer for the purpose of reaching out the goods to the consumers. The transaction between the distributor and the manufacturer in such a case is not a transaction of sale as a principal to a principal, but the distributor is in effect an agent who acts for and on behalf of the manufacturer. Such a distributor who acts for and on behalf of the manufacturer and probably earns something which is generally recognised in the commercial world as commission is not a buyer of goods from the manufacturer on his own account. Such a distributor does not himself pay price for the goods purchased before the goods are passed on to the consumers. However, in the case of a buyer who purchases goods on payment of a commercial price to the manufacturer and the transaction is in effect a sale, such a buyer is different from the kind of distributor earlier noticed though even such a buyer is different from the kind of distributor earlier noticed though even such a buyer is sometimes described as a distributor. The distributor in such a case is in fact a wholesale buyer and the property in the goods passes to such a buyer. It is wholly immaterial whether the price is paid in cash or the goods are supplied on credit. We must not, therefore, go merely by the use of the word distributor used by the petitioner manufacturer in the price list or in the forwarding letter. What will have to be ascertained in order to find out whether a distributor falls within the definition of related person is the real substance of the transaction between the manufacturer and the so called distributor.
8. The learned Judge thereafter referring to the various clauses in the agreement between the assessee and the distributing agent came to the conclusion that the agreement as constituting the distributing agent was not an agent in the sense in which it was normally used in the commercial transaction. On the other hand, he was a buyer and such a buyer would not fall within the category of related person.
9. It is in the light of these decisions, the question whether the main dealer appointed by the respondents is a distributor and consequently a related person as defined in Section 4(4)(c) has to be considered. The agreement is between Ashok Leyland Ltd. (hereinafter called Ashok) and the main dealer. In clause 4(a) of the agreement, Ashok shall sell to the main dealer and the main dealer shall purchase from Ashok their products at the wholesale prices established by Ashok in effect on the date of despatch ex Ashok's premises at Madras plus any sums for freight, delivery, Government, Municipal and other charges as may be stipulated by Ashok from time to time. Payment shall be made by the main dealer to Ashok before delivery or despatch in cash or in such other manner as may be acceptable to Ashok. The main dealer shall take prompt delivery of each and every product consigned to him in fulfillment of any order. All sales by Ashok shall be in accordance with Ashok's usual conditions of business. Under clause 4(b) Ashok has reserved a discretion to sell and deliver to the main dealer any product on credit. Under clause 2(b) Ashok shall have the right to make direct sales of its products to any purchaser within the territory without being under any liability or obligation to pay the main dealer any commission upon such sales. Ashok has reserved an absolute discretion to pay to the main dealer such commission in respect of such products so sold as it may decide. Under clause 2 Ashok has agreed to sell and supply their products to the main dealer and also granted the sole right of selling the products within the specified territory. It is unnecessary to refer to the other clauses in the agreement. From the above it is clear that the main dealer is not an agent or a distributor of the respondents as ordinarily understood in the world of commerce. The agreement is an agreement entered into not on the basis of principal and agent but principal to principal. Under the agreement the respondents have agreed to sell their products to the main dealer. The price at which the products are to be sold is the wholesale price. The main dealer is obliged to make payment before delivery or despatch in cash, or in any other manner acceptable to the respondents and the sales shall be in accordance with the respondents' usual conditions of business. Further there is an express reservation that the respondents will be at liberty to make direct sales of its products to any purchaser within the territory carved out for the main dealer. In such an event, the respondents will not be under any liability or obligation to the main dealer to pay any commission upon any such sales. Normally, in the case of a distribution right granted to a person in respect of a specified territory, the manufacturer gives a commission and will not be entitled to effect sales directly on their own, except through the distributor. If in any case, the manufacturer effects direct sales it will be obliged to give what is ordinarily understood as a overriding commission to the distributor. Such an element is conspicuously absent in the agreement under consideration. We are therefore of the view that the main dealer is not a distributor within the meaning of the definition of related person in S. 4(4)(c) of the Act. Once we come to that conclusion it must necessarily follow that the assessable value of the respondents' products for the purpose of excise duty shall not be the price at which the main dealer sells the products to his customers or dealers; the assessable value shall only be the normal price at which the respondents sell their products to the main dealer.
10. No argument was advanced before us on the question that the main dealer is a related person within the meaning of the first part of the definition in the sense that the and the respondents are so associated that they have interest directly or indirectly in the business of each other.
11. In the result, the writ appeal is dismissed. There will be no order as to costs.
The Chief Justice
12. After the judgment was delivered in the above case, learned counsel on behalf of the appellant made an oral prayer for leave to appeal to the Supreme Court under Art. 133(1) of the Constitution of India. Since the case has been decided, taking into consideration the principle laid down by the Supreme Court also, we do not consider that the case involves any substantial question of law of general importance, which, in our opinion, needs to be decided by the Supreme Court. The prayer for certificate is accordingly refused.