# A. K. ROY & ANR v. VOLTAS LIMITED

- **Citation:** [1973] 2 S.C.R. 1089
- **Court:** Supreme Court of India
- **Decided:** 1973
- **Case number:** Civil Appeal No. 47 of 1972
- **Bench:** A. N. Grover, K. K. Mathew, A. K. Mukherjea
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/a-k-roy-anr-v-voltas-limited-5763
- **Pages:** 11

## Headnote

Central Exdses & Salt Act 1944, S. 4(a)-Bulk of sales to consumers
direct-Some goods sold also to wholesalers at 22 per cent trade discount-Duty whether to be levied on 'wholesale cash price' or on list price
of •ale to consumers-Wholesale market, what is-Ingredients of secll'on-
<
Components of 'wholesale cash price',
c
D
E
F
•
G
The respondent was a limited company and carried on, among others,
the business of manufacturing air-conditioners, water coolers and component parts thereof.
Most of its sales-to the extent of 90 to 95 per centwere made by it directly to consumers at list prices.
It, however, also
sold the articles to wholesale dealers from different parts of the country
in pursuance of agreements entered into with them. The agreements provided among other things, that the dealers should not sell the articles
sold to them except in accordance with the list prices
fixed
by
the
·respondent, that the respondent would sell them the articles at the list
prices less 22 per ce1.t discount, that the dealers will not be entitled to
any discount on the prices of accessories mentioned in the price. schedule
and that the dealers should give service to the units sold in their territory.
Excise duty on the basis of ad valorem va]ue was
imposed
on
airconditioners and parts of water coolers with effect from March 1, 1961.
The respcndent claimed, in accordance with s.4(a) of the Central Excises
and Salt Act 1944, that the list price after deducting the discount of
22 per cent allowed to the wholesale
dealers
would
constitute
the
'wholesale cash price' for ascertaining the real value dl the articles.
This
case was accepted by the excise authorities and assessments were made up
to the end of 1962 on that basis. Later however the Superintendent of
Central Excise intimated the respondent that excise
duty
would
be
assessed and levied not on the basis of wholesale cash price but on the
basis of retail price under s.4(b ) of the Act .. Assessments
for
the
period January 1, 1963 to December 31, 1963 were made on the basis
of list prices, for sales to consumers. The respondent's
appeal having
been dismissed by the first appellant, the respondent filed a writ petition
in the High Court. The High Court allowed the petition holding 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 !hat excise duty was chargeable under s.4(a)
of the Act.
Appeal to this Court was filed by certificate.
Dismissing the appeal,
HELD: (i) For a wholesale market to exist it is not necessary that
there ~houl~ be a mark~! in the physical sense of the term where articles
of a hke kind and quality are or could be sold or that the articles should
be sold to so-called independent buyers.
[109J Gl
. Even if there was no market in the physical sense of the term at or
..
H
near the place of manufacture where the articles df a like kind and quality
.,
are or cou.ld be sold, that would not in any way affect the
existence
of market m . the proper sense of the term provided the articles themselves
could be sold wh?lesale to traders, even though the articles are sold to
them on the baS1S of agreements which confer certain advantages upon
1090
SUPREME COURT REPORTS
[1973] 2 s.c.R.
them. The applica<ion of s.4(.-.) does not depend upon any hypothesis
to the effect that at the time or place of sale, any further articles of
like kind and quality should have been sold. If there is an actual price
for the go<>Qs themselves at the time and place of sl>le and if that is
o 'wholesale cash price', the clause is not inapplicable for want of sale
of other goods of like i.ind and quality. [1093 HJ
A l"
(ii) There can be no doubt that the 'wholesale cash price' boo to be
a9Certained only on the basis df transactions at arms length. Once that
is established the determination of the wholesale cash price for the purpose
of s.4(a) of the Act may not depend upon the number of such

## Text

i
A
B
A. K. ROY & ANR.
v.
VOLTAS LIMITED
December l, 1972
1089
(A. N. GROVER, K. K. MATHEW AND A. K.
MUKHERJEA, JJ.J
Central Exdses & Salt Act 1944, S. 4(a)-Bulk of sales to consumers
direct-Some goods sold also to wholesalers at 22 per cent trade discount-Duty whether to be levied on 'wholesale cash price' or on list price
of •ale to consumers-Wholesale market, what is-Ingredients of secll'on-
<
Components of 'wholesale cash price',
c
D
E
F
•
G
The respondent was a limited company and carried on, among others,
the business of manufacturing air-conditioners, water coolers and component parts thereof.
Most of its sales-to the extent of 90 to 95 per centwere made by it directly to consumers at list prices.
It, however, also
sold the articles to wholesale dealers from different parts of the country
in pursuance of agreements entered into with them. The agreements provided among other things, that the dealers should not sell the articles
sold to them except in accordance with the list prices
fixed
by
the
·respondent, that the respondent would sell them the articles at the list
prices less 22 per ce1.t discount, that the dealers will not be entitled to
any discount on the prices of accessories mentioned in the price. schedule
and that the dealers should give service to the units sold in their territory.
Excise duty on the basis of ad valorem va]ue was
imposed
on
airconditioners and parts of water coolers with effect from March 1, 1961.
The respcndent claimed, in accordance with s.4(a) of the Central Excises
and Salt Act 1944, that the list price after deducting the discount of
22 per cent allowed to the wholesale
dealers
would
constitute
the
'wholesale cash price' for ascertaining the real value dl the articles.
This
case was accepted by the excise authorities and assessments were made up
to the end of 1962 on that basis. Later however the Superintendent of
Central Excise intimated the respondent that excise
duty
would
be
assessed and levied not on the basis of wholesale cash price but on the
basis of retail price under s.4(b ) of the Act .. Assessments
for
the
period January 1, 1963 to December 31, 1963 were made on the basis
of list prices, for sales to consumers. The respondent's
appeal having
been dismissed by the first appellant, the respondent filed a writ petition
in the High Court. The High Court allowed the petition holding 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 !hat excise duty was chargeable under s.4(a)
of the Act.
Appeal to this Court was filed by certificate.
Dismissing the appeal,
HELD: (i) For a wholesale market to exist it is not necessary that
there ~houl~ be a mark~! in the physical sense of the term where articles
of a hke kind and quality are or could be sold or that the articles should
be sold to so-called independent buyers.
[109J Gl
. Even if there was no market in the physical sense of the term at or
..
H
near the place of manufacture where the articles df a like kind and quality
.,
are or cou.ld be sold, that would not in any way affect the
existence
of market m . the proper sense of the term provided the articles themselves
could be sold wh?lesale to traders, even though the articles are sold to
them on the baS1S of agreements which confer certain advantages upon
1090
SUPREME COURT REPORTS
[1973] 2 s.c.R.
them. The applica<ion of s.4(.-.) does not depend upon any hypothesis
to the effect that at the time or place of sale, any further articles of
like kind and quality should have been sold. If there is an actual price
for the go<>Qs themselves at the time and place of sl>le and if that is
o 'wholesale cash price', the clause is not inapplicable for want of sale
of other goods of like i.ind and quality. [1093 HJ
A l"
(ii) There can be no doubt that the 'wholesale cash price' boo to be
a9Certained only on the basis df transactions at arms length. Once that
is established the determination of the wholesale cash price for the purpose
of s.4(a) of the Act may not depend upon the number of such wholesal~.
dealings.
The fact that the respondent sold 90 to 95 per cent of the
articles manufactured to consumers direct wottld not make the price of
the wholesale sales of the rest of the articles anytheless the
'wholesale
cash price' for the purpose of s.4(a) even if those sales
were
made
pursuwt to agreements stipulating for certain
commercial
advantages,
provided the agreements were entered into at arms length and in the
ordinary course of business. [1097 BJ
(i;i) The Privy Council held in the case of Vacuum Oil Company
that tile words 'wholesale price' were used in contra-distinction
to
a
'retail price'. The term 'cash price' was held to mean price from any
augmentation for credit or other advantages to the buyer;
it is to be
B
c
not price t.'lat is to say 'less trade discount'. (1098 B-CJ
D
Excise is a tax on the production and manufacture of goods.
Section 4 of the Act therefore provides that the real value should be found
:rfter deducting the selling cost and selling profit and that the real value
can include only the manufacturing cost &nd the manufacturing profit.
Tbe 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
E
that the price has to be fixed for delivery 2>t the factory gate, thereby
diminating freight, octroi and other charges involved in the transport of
the articles. [1098 El
(iv) The appellant's contention that 22 per cent discount allowed to
the wholt:salers was not 'trade discount' was not raised before the High
Court and therefore would not be considered.
Ford Motor Company of 111dia Limited v. Secretary of State for India
F
i11 Council, 65 Indian Appeal, 32 Vacuum Oil Company v, Secmary of
State for India in Council 59 Indian Appeals 258, applied.
NatiOlla/ Tobacco Co. of India Ltd. v. Collector of Central Excise and
others, A.I.R. 1961 Calcutt .. 477, Union of India v. Vengunta Survaprakasa
Rao and Anothu, A.LR. 1967 Andhra Pradesh 281, Amco Batteries (P)
Ltd. HanRalore v. Assistant Collector, Cent1·al
Exci-;e,
Bangalore
and
Another, A.J.R. 1963 Mysore 216, Collector of Central Excise and O:hers
v. Shankarlal Agarwal/a, A.l.R. 1968 Calcutta 154 and Frizai Corporation v. The Collector of Central Excise, 1969 II Andhra Weekly Reporter
57, disapproved.
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 47 of
1972.
Appeal by certificate from the judgment and order dated
August 14, 17, 1970 of the Bombay High Court in Misc. Petition No. 324 of 1967.
G
H
'
4
,..
I-
;..
i~
A
B
c
D
E
F
G
~ H
•
A. K. ROY v. YOLTAS LTD. (Mathew, J.)
I 091
V. S. Desai, Govind Das, B. H. Antia and B. D. Sharma,
for the appellants.
Soli J. Sorabji, K. D. Mehta, P. C. Bhartari, and Ravinder
Narain, for tb.e respondent.
Soli J. Sorabji, D. B. Engineer, P. C. Bhartari and Ravinder.
Narain, for the intervener (Altice Industries Ltd.)
Soli J. Sorabji and H. K. Puri. for the intervener
(Bhavsar
Chemical Works).
Soil J. Sorabji, P. C. Bhartari and Ravinder Narain, for the
Intervener (Delhi Cloth & General Mills Ltd.).
MATHEW, J.-Vo!tas Ltd., the respondent here, filed a writ
petition before the High Court of Bombay, challenging the validity
of the appellate order passed by the !st appellant on May 2, 1967,
in respect of the liability of the respondent to pay excise duty for
the year 1963 and the orders of the Assistant Collector of Central
Excise relating to !he liability of the respondent to pay excise duty
for the years 1962, 1964, 1965 and 1966, as also the notice
demanding the assessed amount of Rs. 27,57,177.19. The High
Court allowed the petition. This appeal, by certificate, is against
that order.
Voltas Ltd. is a company registered under the Companies Act.
It carries on, among others, the business of · manufacturing air
conditioners, water coolers and
component parts thereof. It
organises the sales of these articles from its head office at Bombay
as also from its branch offices at Calcutta, Delhi, Madras, Bangalore, Cochin and Lucknow.
From these offices it. effects direct
sales to consumers at list prices and the sales so effected come to
about 90 to 95 per cent of its production of these articles in the
factory in question during the relevant period. Apart from these
sales, it also sells the articles to wholesale dealers from different
parts of the country in pursuance of agreements entered into with
them. The agreements with the wholesale dealers for the relevant
Fars ~o~tained terms and conditions similar to those mentioned
m Exh1blit A annex_ed to the writ petition. The agreements provided, among other thmgs, that the dealers should not sell the articles
sold to them except in accordance with the list priGes fixed by the
r~spon.dent, that the responden1 would.sell them the articles at the
lJSt. pnces less 2? per cent discou.nt, that the dealers will not be
entJtle~ to any discount on the pnces of accessories mentioned in
th~ pnce s~hed1J!e and that the dealers should give service to the
umts sold m their territory.
. Exci~e. duty on the basis of ad va/orem value was imposed on
air cond11Joners, water coolers and parts of water coolers from
March 1, 1961. The respondent's case was that the list price after
1092
SUPREME COURT REPORTS
[1973) 2 S.C.ll.
deducting the discount of 22 per cent allowed ~o. the wholes.ale
dealers would constitute the ·wholesale cash pnce for ascemunmg
me real value of the. articles. This case was accepted by the excise
authorities and assessments were made upto the end of 1962 on
that basis.
'
l.n April, 1964, the Superintendent of Central Excise int•mated
the respondent that excise duty would be assessed and levied . not
on the footing of the 'wholesale cash pnce' but on the basis of
me retail price and, by his three orders dated September 5, 1964
and one dated September 10, 1964, he assessed tne respondent to
excise duty in respect of the sales on the footing of list prices for
sale to consumers for the period from January 1, 1963, to December 31, 196J, :md a 110IJce of demand dated October 8,
1964,
was served on the respondent calling upon i•t to pay the above
sum. The respondent filed an appeal against the oruers but that
was dismissed by the 1st appellant by his order d~ted May 2, 1967
and this was the main order that was challenge_J in the writ petition.
The question that was canvassed before the High Court was
whether the respondent was liable to be charged with excise duty
on the basis ot ·the price of retail sales made by it directly to the
consumers frum its head office and branch offices under clause (b)
of s. 4 or whether It was liable to be charged on the basis of the
price payable by the wholesale dealers; after deducting the 22 per
cent discount, under clause (a) of s. 4 of the Central Excises and
Salt' Act 1944 (hereinafter reterred to as the 'Acf) '?
The High C0urt held that the price for which the articles were
sold to the whlllesale dealers less the discount allowed to them
under the agreements represented the ·wholesale cash price' and
that exise duty was chargeable under s. 4(a) of the Act.
Section 4 of the Act provides :
"4. Where upder this Act, any article is chargeable
wrth 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 o.ther premises of manufacture or production
for delivery at the place of manufacture or producllon, or if a wholesale market does not exist
for such ai1icle at such place, at the nearest
place where such market exists, or
t
A
B
c
fJ
E
F
G
H
r
A
B
c
D
E
F
G
H
A. K. ROY v. VOLTAS LTP. (Mathew, J.)
10 93
(b) where such price is not ascertainable, the price
at which an article of th6 like kind and quality
is sold or is capable of being sold by the manufacturer or producer, or his agent, at the time
of the removal of the article chargeable with duty
from such factory or other premises for delivery
at the place of manufacture or production.., or
if such article is not sold or is no~ capable of
being sold at such place, at any other place nearest
these to
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 chargeab.Je with duty from the factory or other
premises. aforesaid."
The appellants contended that the agreements with the wholesale dealers conferred certain extra-conimercial advantages upon
them, and so, the sales to them were not sales to independent
purchasers bvt to favoured ones, and, therefore, the price charged
would not represent the "wholesale cash price" as mentioned in
s. 4(a) of the Act. They argued thats. 4(a) visualizes a wholesale market at the place of manufacture where. articles of like
kind and quality are sold or could be sold and that it also postulates a market where any wholesale purchaser can purchase the
articles, and, as no articles of a ilke kind and quality were sold,
at or near the place of manufacture, and as the wholesitle sales
were confined to the favoured buyers, there· was
no wholesale
market at the place of manufacture. It was further argued that
"articles of a like kind and quality" is a phrase which suggests
goods other than those under assessment and that one must dis·
regard the price fetched by the sale of the goods themselves.
We do not think that for a wholesale market to exist, it is
necessary that there should be a market in the physical sense of the
term where articles of a like kind or quality are or could be sold
or that the articles should be sold to so-called independent buyers.
Even if it is assumed that the la!ter .part of s. 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 con.;ept
of wholesale mark:et in the context.
A wholesale market does
r,ot 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 ii there was no· market in the physical sense of
1094
SUPREME COURT REPORTS
[1973) 2 S.C.R.
the term at or near the place of manufacture where the articles of
a like kind and quality are or could bie sold, 'that. would not in any
way affect the existence of market in the proper sense of the term
provided the articles themselves coulcI be sold wholesale to traders, even though the articles are sold to 'them on the basis of
.agre>~ments w\lich confer certain commercial advantages
upon
them.
In other words, the sale 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 w~re conferred upon them in consideration of their undertakin.~ 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 s.4 of the Act docs not depend upon any'
hypothesis to the effect that at the time and place of sale, any further articles of like kind and quality should have been sold. If
there is an actual price for tfic 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 Ford Motor Company of India Limited v. Secretary of State·
for India in Counci/(1) the appellants before the Privy Council,
who imported Ford Motor vehicles from Canada to India. where
they had a monopoly of the supply of those vehicles, sold them
only to authorised dealers or' distributors, each of whom was sole
agent for a retail seller of the vehicles in a particular district. The
appellants obt.aincd from the distributors j,1formation as to their
future. requirements and placed consolidated orders acrordingly
with the manufacturers in Canada.
The retail price charged by
the distributors to th·~ public was that stated in a price list issued
by the appellants and current at the time of the arrival of vehicles
in India, and the price payable by the distributors to :he appellants was the snme price k5s a discount of 20 per cent.
The distributors had to pay that price before obtaining delivery, which
was given "free on rail".
On arrival in India the vehicles were
not completely assembled, and wet>~ so delivered to the distributors, an a.greed allowance against the price being made by the
appellants.
On the question whether s. 30(a) or 30(b) of the
Sea Customs Act 1878, applied: for the purpose of finding out
the re~l value of the .goods for levy _of customs duty, the Privy
Council held that the price charged by the appellants to the distributors ·~xcluding the assembling allowance was the "wholesale
cash price, less trade discount" for which the vehicles were sold
"at t)1e time and place of importation" within ·the meanin<> of
s. 30(a) of that Act. the terms of which are more or less shnilar
to thQse of s. 4(a) of the Act.
This case is an authority for the'
(I) 65 Indian Appeots J2,
A
B
c
D
E
F
G
H
A
B
..
c
D
E
F
' .
G
H
A •. K. ROY v. VOLTAS LTD. (Mathew, J,)
1095
proposition that mere existc1icc of the agreemenits between the
respondeni' and the wholesale dealers under which &ertain obligations were undertaken by them like service to the articles, would
not render the price any the less the 'wholesale cash prio~'. To
put it in otlier words, even if the articles in question were sold
only to wholesale dealers on the basis of agreements and not to
independept persons, that would not make the price for the sales
anything oth·~r than the 'wholesale cash price'.
The argument
that what was relevant to determine the 'wholesale cash price'
under cl. (a) of s. 30 of the Sea Customs Act, 1878, was the price
of goods of a like kind! and quality was negatived by the Privy
Council by sayin~ that' goods under assessment may, under cl.
(a) be considered as members of their own class even though at
the time and place of importation there are no other members and
that the price obtained for them may correctly represent ~he price
obtainable for goods of a like kind and quality at the time and
place qf importation.
Counsel for the appellants submitted that the preponderance
of authority in the various High Courts is in favour of the vi.ew
that in order that sales might be wholesale sales, the purchasers
must be independent persons.
In National Tobacco Co. of India Ltd. v. Collector of Central'
Excise and others(') a learned single Judge of that Court held
that the word 'wholesale market' must mean a place where articles
are habitually sold to any person who wishes to . make a purchase
and that, merely because a factory manufactures the articles at a
particular place and sells them there to its stockists or dealers
would not.. by itself, convert it irrto a wholesale market and the
question whether there is a 'wholesale market' at that location
would depend upon a variety of questions, namely, whether goods
were really being sold wholesale and whether any person wishing
1to purchase the goods could do so at the location.
The Court
also said that, in order that the price may be the 'wholesale cash
price' it is necessary that the transaction should be between a
manufacturer and an independent purchaser. In other words,
the Couvt was -0f the view that if the transaction was between a
manufacturer and a 'favoured purchaser', the price paid by him
would not be the 'wholesale cash price' within the meanincr of
s. 4 (a) of the Act.
~
In 1the Union of India v. Vengunta Swyaprakasa Rao and
Another('), the Court said that the sale to wholesale distributors
with whom the company in question had entered into aQrcements
for sale of the articles stipubiting for certain commercial advantages would not constitute the price of those sales "wholesale cash
price" as mentioned ins. 4(a). The Court further said that
(tl A.I.R. 1961 Calcutta 477.
(2) A.T.R. 1967 Andhra Pradesh "81.
1096
SUPREME COURT REPORTS
t;.~
[1973] 2 S.C.R,
A '.rsince the manufacturer· was not free to sell the article to others by
virtue of the agreement and, as in fact, no independent sales were
proved to have been made to anyone other than the authorised
distributors, the sales were not sales in the wholesale market. The
Court referred to the decision of the Privy Council ht Ford Motor
Company of India Ltd. v. Secretary of State for India in Council
(supra) but did not seem to have appreciated the real rntio of the
case.
In Amco Batteries (P) Ltd. Bangalore v, Assistant Collector,
Central Excise, Bangalore and Another(1), the Court said that
wholesale price means the price which a wholesale dealer, and
B
not the retail dealer, charges for his goods when he sells them in · c
wholesale. units and what constitu'tes wholesale unit will have to
be determined with reference to the practice of the trade at the
place where the .goods are sold.
A wtolesale market, according
to the Court, is a place where goods in question or goods of a like
kind and quality, are sold, or; are capable of being sold to indep~ndent buyers meaning thereby" anyone who intends to effect
such purchase upon payment of proper price without restriction. · · D
In Collector of Central Excise and Others v.
Shankarlat
Agarwalla(2) the Court followed its earlier decision
already
referred (o and said that the 'w;1clesale cash price' means the price
which a wholesale dealer and not a retail dealer charges for his
goods when he sells them in wholesale units in a wholesale market.
The Court also said that the ~ords wholesale market mean
. a place where tire articles in questioo ·are habitually sold to any
body who wishes to make a purchase at wholes.ale price and the
mere fact that a factory manufactures articles at a particular place .
and sells them there to stockists or dealers will not by itself convert the place of sale into a wholesale market.
·
In Frizair Corporation v, The Collector of Central Excise(•),
the Court held that a sale to a favrured buyer cannot be regarded
E
F
'
as a sale in a wholesale market and that in the light of the Jan-
+
guage of clause (a) to s. 4 of the Act a sale by the manufacturer
at the factory, by itself, would not be sufficient to constitute the
price of the sale the 'wholesale earn price'.
G
We do not think that these de::isions in so far as they hold
that the price of sales to wholesale dealers would not represent
the 'wholesale cash price' for the ~urpose of s. 4 (a) of the Act
merely because the manufacturer has entered into agreements
with them stipulating for commeitial adv.antages,
are correct.
If a manufacturer were to enter hto agreements with dealers for
H
wholesale sales of the articles mamfactured on certain terms and
l-
(IJ A.l.R. 1963 Mysore 216.
(2) A.l.R. 1968 Calcutta 154.
(3) (1969) IT Andhra Veekly Reporter 57.
\
f
'"'
A
B
c
D
E
F
G
H
A. K. ROY v. VOLTAS LTD. (Mathew, J.)
!097
conditions, it would not follow from that alone that the price for
those sales would not be the 'wholesale cash price' for the purpose
of s. 4(a) of the.Act if the agreements were made at arms length
and in the usual course of business.
·
.
There can be no doubt that the 'wholesale cash price' has to ;:
be ascertained only on 'the· basis of transactions at arrris length. ·'
If there is a special or favoured buyer to whom a specially low
price is char1ied because of extra-commercial considerations, e.g.
because he is relative of the manufacturer, the price charged for
those sales would not be the 'wholesale cash price' for levying
excise under s. 4(a) of ~he Act. A sole distributor might
OL'
might not .. oe a favoured buyer according as terms of the agreement with him are fair and reasonable' and were arrived at on
purely commercial basis.
Once 'wholesale
dealings
at
arms
length are established, the determination of the wholesale cash
price for the purpose of s. 4 (a) of the Act may not depend upon
the number of such wholesale dealing.
The fact that the respondent sold 90 to 95 per cent of the articles manufactured to
consumers 'direct would not make the price of the whole5a]e sales
of the rest of. the avticbs any the Jess the 'wholesale cash price' for
th'l'·purpose of s. 4(a), even if these sales were made pursuant to
agreements s'tipulating for certain commercial advantages, provided the agreements were entered into at arms length and in the
ordinary course of business.
The next question is : what exactly is the meaning of the te;:m
the 'wholesale cash price' 7 In Vacuum Oil Company v. Secretary 9f State for India in Council('), it was held '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 tq buy 'from
them all his requirements for a year, he was errtitled ·to a discount from 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 wh~ther 'the appellant was
bound to pay customs duty on the basis of clause (a) or clause
(b) of s. 3.0 of the Sea Customs Act. 1878, the Privy Council
held that smce the sales were to customers direct, the real value
of tlje goods cannot be ascertained under clause (a) of s. 30 and
that clause (b) of s. 30 was ~pplicable. Their I.ordships said
(I) 59 Indian Appeals, 258.
I Q9 SSUPREME COURT REPORTS
[1973] 2 s.e.R,
that in determinin.~ th.e price which is to represent the real valueof the goods to be taxed, "the price must be conservative in every
respect and free in particular from any loading for'any post importation charg_es incurred in relation to the goods".
"The price is
to be a pric~ 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 Lordships, therefore, held that the words
the 'wholesale prio~· were used in the section in con't~a-distinction
to a 'retail price', and that not only on the ground that such is a
well recognised meaning of the words but because their associa·
tion with the words 'trade discount' indicates that sales to the
trade are those in contempfation, and also because ·only by ·
attaching ths:t meaning to the word is the 'wholesale price' reliev·
ed of the loading representing post-importation expenses which, as
a matter of business, inust always be charged to the consumer,
and which are eliminated.
Excise is a tax on the production and manufacture of goods
[see Union of India v. Delhi Cloth and General Mills(')]. Section
4 of the Act therefore provides that the real value should be found
after deducting the selling cost and selling profit and tha!I the real
value can· include only the manufacturing cost and the manufacturing profit.
The s•~ction makes it clear that excise is levied
only on the amount representing the manufacturini; 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 giVt~s credit to the
wholesale buyer for a period of 1tim.e and that the price has to be
fixed for delivery at the factory gate ·thereby eliminating freight,
octroi and Qther charges involved in the transport of the articles.
As already stated it is not r.·~cessary for attracting the operation
of s. 4(a) that there should be a lar.ge number•of wholesale sales.
The quantum of goods sold by a manufactutet on wholesale basis
is entirely irrelevant.
The mere fact that such sales may be few
or scanty does not alter the 'true position.
A
B
c
D
E
F
G
The appellant contended that 22 per cent discount allowed
under the agreements with the wholesal·~ dealers was not trade
discount.
On 1the ground that there was no evidence to show
that the discount allowed was 'trade discount' within the II\eaning
of the Explanation to s. 4.
There was no contention by the
H
appellan'ts before the High Court that the discount allowed to the
(I) [1963] Supp. I S.C.R. 586.
t
,.
I
I
'
\
A
B
c
D
A. K. ROY v. VOLTAS LTD. (Mathew, 1.)
1099
wholesale dealers was not 'trade discount'.
The whole argument
before the High Court proceeded on the basis that direct sales by
the respondent to consumers constituted the major portion of the
sales and tha_t the sales to the wholesale dealers only represented
a minor portion and, therefore, the price charged for the sales to
wholesale dealers would not represent the 'wholesale cash price'
of the articles sold.
No data was placed before the High Court
by the appellant to show that the 22 per cent discount did not
reoresent 'trade discount' for the purpose of the Explanation.
A
'tr-ade discoμnt' is a pe.rcentage deduction from the regular list or
catalogue price of goods. As there was no case for the appeUants
that there was any .secret
arrangement between the wholesale
dealers and the respondent in respect of the sales to them or that
the price of the articles was under-st8!ted in the agreements or that
any extra-commercial advantages to the dealers were taken into
account in fixing the price, we do not think that we should go
into the question whether the discount allowed to the wholesale
dealers was 'trade discount' or not for the purpose of the Explanation.
We think the High Court was right in its conclusion.
We dismiss the appeal but in the circumstances make no order
as to costs.
G.C.
Appeal dismissed.
521 Sup. C.I./73-2500, 25-4-74 G.I.P.F.