# A.TIC INDUSTRIES LTD v. H. H. DA VE, ASSTT. COLLECTOR OF CENTRAL EXCfSE AND ORS

- **Citation:** [1975] 3 S.C.R. 563
- **Court:** Supreme Court of India
- **Decided:** 1975-02-14
- **Bench:** P. N. Bhagwati, A. c. GUPTA, N. L. Untwalia
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/a-tic-industries-ltd-v-h-h-da-ve-asstt-collector-of-central-excfse-and-ors-6444
- **Pages:** 11

## Headnote

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Central Excise and Salt Act 1944-s. 3 ( 1) and 4(a)-Ad va/orem assessment
-How made.
The appellant, which was. a manufacturer of dye-stuffs, sold its product to
two wholesale buyers at. a uniform selling price described as "the ba'Sic selling
price" less trade dis:ount of 18%. The wholesalers in turn sold the product
to large consumers such as textile mills and distributors.
One wholesaler sold
the dye-stuff to the distributors "t a higher price but allow~d 10% discount
while the other sold at a lower price and allowed 2-l-% discount.
The price
charged by both however was so adjusted that the net selling price charged
to the distributors was almost the same.
The excise duty chargeable under s. 3 (!) of the Central Excise and Salt
A:t, 1944 was ad va/orem.
Section 4 providej .as to how the value of an article
chargeable with duty at a rate depending on its value shall be determined for
the purpose of assessment of excise duty.
Befor.e the excise authorities the appellants claimed that, for the purpose of
assessing the excise duty the value of the dye--stuffs should be taken to be the
price at which the a:ppellants sold the same to the two wholesale buyers less
trade discount allowed to these wholesale buyers. The Superintendent of Central
Excise nejected this contention and took, for the purpose of assessment, the
price at which the wholesalers sold the dye-stuffs to the distributors.
He did
not, however, allow any deduction in respect of the discount given by the
whobalers to the distributors since it was not uniform.
On appeal the Assistant Collector of Central Excise confirmed the assessing authority's order. \Jn
further ;:;ppeal, the Collector of Central Excise held that in determinin_g the
ass~ssable value, the lower trade discount of 2t% allowed by one of the wholesalers to the distribu.tors only should be
d~ucted. The appellant's revision
application was rejected bv the Central Government on the ground that since
th 0 dye-stuffs manufactured by the apjiellant were not avail;:;ble to an ind~pen
dent buyer in open market conditions at prke at which these were sold by
them to the wholesalers these prices could not be adopted as the basis -of
ad va/orem assessment under s. 4 of the Act.
It was observed that these dye·
stuffs were ava:ilab!e to any independent buyer in open market conditions at the
distributors' prices, that is, at the pri,:es charged by the wholesalers
to
the
distributors and, therefore, these prices should form the basis of assessment
after allowing the discount.
---Diss_gtisfied with the decision of the Central Government the appellant filed
a petitioil\mder_iirt. 226 of the Constitution. The High Court held that where
the entire producfioo--was sold by a mMJ.ufacturer to one or more
favoured
distributors there was no whcile"sale market in the senSe of open market at the
site oi the factory where an independent buyer could purchase the gooqs in
wholesale and the ·assessable value must therefore be taken to be the price at
which favoured distributors sell the goods in wholesale ;:;nd if not in whole·sale.
then, in retail.
The High Conrt accordingly upheld the view of the Central
Government.
Allowing the appeal,
HELD: (I )(a) The assessable value af the dye-stuffs manufaciured by the
appellants must be taken to be the price at which they v•ere sold by the
appellants to the two wholesale dealers less 18% trade discount and not the
price charged by the wholesale de~lers to the <iistributors.
[573F-G]
564
SUPREME COURT REPORTS
[1975.1 3 s.c.R.
(b) Where a manufaclurer sells the goods manufactured by him in wholesale
to a \\·holesak der.ler at arm's kngth and in the usual course of busin~s·;, the
wholesale :a·sh price charged by him to the wholesale d~aler less trad~_ disco~ml
would represent the value uf the goods for the pt•.rpose of assessment oE excise.
That would be the wholesale cash price for which the goods are sold at the
faqory gate within the meaning of s. 4(a). The pric,e received )JY th

## Text

A
563
A.TIC INDUSTRIES LTD.
v.
H. H. DA VE, ASSTT. COLLECTOR OF CENTRAL EXCfSE AND
ORS.
February 14, 1975
ll
[P. N. BHAGWATI, A. c. GUPTA AND N. L. UNTWALIA, JJ.]
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Central Excise and Salt Act 1944-s. 3 ( 1) and 4(a)-Ad va/orem assessment
-How made.
The appellant, which was. a manufacturer of dye-stuffs, sold its product to
two wholesale buyers at. a uniform selling price described as "the ba'Sic selling
price" less trade dis:ount of 18%. The wholesalers in turn sold the product
to large consumers such as textile mills and distributors.
One wholesaler sold
the dye-stuff to the distributors "t a higher price but allow~d 10% discount
while the other sold at a lower price and allowed 2-l-% discount.
The price
charged by both however was so adjusted that the net selling price charged
to the distributors was almost the same.
The excise duty chargeable under s. 3 (!) of the Central Excise and Salt
A:t, 1944 was ad va/orem.
Section 4 providej .as to how the value of an article
chargeable with duty at a rate depending on its value shall be determined for
the purpose of assessment of excise duty.
Befor.e the excise authorities the appellants claimed that, for the purpose of
assessing the excise duty the value of the dye--stuffs should be taken to be the
price at which the a:ppellants sold the same to the two wholesale buyers less
trade discount allowed to these wholesale buyers. The Superintendent of Central
Excise nejected this contention and took, for the purpose of assessment, the
price at which the wholesalers sold the dye-stuffs to the distributors.
He did
not, however, allow any deduction in respect of the discount given by the
whobalers to the distributors since it was not uniform.
On appeal the Assistant Collector of Central Excise confirmed the assessing authority's order. \Jn
further ;:;ppeal, the Collector of Central Excise held that in determinin_g the
ass~ssable value, the lower trade discount of 2t% allowed by one of the wholesalers to the distribu.tors only should be
d~ucted. The appellant's revision
application was rejected bv the Central Government on the ground that since
th 0 dye-stuffs manufactured by the apjiellant were not avail;:;ble to an ind~pen
dent buyer in open market conditions at prke at which these were sold by
them to the wholesalers these prices could not be adopted as the basis -of
ad va/orem assessment under s. 4 of the Act.
It was observed that these dye·
stuffs were ava:ilab!e to any independent buyer in open market conditions at the
distributors' prices, that is, at the pri,:es charged by the wholesalers
to
the
distributors and, therefore, these prices should form the basis of assessment
after allowing the discount.
---Diss_gtisfied with the decision of the Central Government the appellant filed
a petitioil\mder_iirt. 226 of the Constitution. The High Court held that where
the entire producfioo--was sold by a mMJ.ufacturer to one or more
favoured
distributors there was no whcile"sale market in the senSe of open market at the
site oi the factory where an independent buyer could purchase the gooqs in
wholesale and the ·assessable value must therefore be taken to be the price at
which favoured distributors sell the goods in wholesale ;:;nd if not in whole·sale.
then, in retail.
The High Conrt accordingly upheld the view of the Central
Government.
Allowing the appeal,
HELD: (I )(a) The assessable value af the dye-stuffs manufaciured by the
appellants must be taken to be the price at which they v•ere sold by the
appellants to the two wholesale dealers less 18% trade discount and not the
price charged by the wholesale de~lers to the <iistributors.
[573F-G]
564
SUPREME COURT REPORTS
[1975.1 3 s.c.R.
(b) Where a manufaclurer sells the goods manufactured by him in wholesale
to a \\·holesak der.ler at arm's kngth and in the usual course of busin~s·;, the
wholesale :a·sh price charged by him to the wholesale d~aler less trad~_ disco~ml
would represent the value uf the goods for the pt•.rpose of assessment oE excise.
That would be the wholesale cash price for which the goods are sold at the
faqory gate within the meaning of s. 4(a). The pric,e received )JY the whobaL~
dealer who purchases the goods from the .manufac·urer and m his t1.'.111 sells
the ·;-ame in wholes~le to other dealers would be irrelevant to the deter:~1111atio11
of the value of the goods and the goods would not be chargeable to exrne on
tlm ba,ic.
[573E-F]
I c) The value of the goods for the purpose of excise must take into ac.:ount
only the manufacturing co;t. and the manufactur~n_g profit and it mus-: not . b~
loaded with post-manufacturing cost or profit arising from post-manufactunng
operation.
[572FJ
(d) Once the good'l have entered the stream of trade and are on their
onward journey to the consumer, whether along a . s_hort or a lon1' c_ourse
depending on the nature of the goods and the cond1tmns of trade, 'excise is
not concerned with what happens subsequently to the goods.
[573B-C]
A. K. Roy v. Valtas Ltd., [1973] 2 S.C._R. 1088, followed.
C1v1L APPELLATE JURISDICTION : Civil Appeal No.
1868
of
1970.
From the Judgment and Order dated the 30th March, 11970 of
the Gujarat High Court in S.C.A. No. 1219 of 1966.
N. A. P'alkhivala, Sol. J, Sorabji, Ashok Desai, D. B. Engineer,
K. K. Master, and Ravinder Narain, for the appellant.
G. L. Sanghi and Girish Chandra, for the Respondents.
The Judgme:nt of the Court was delivered by
BttAGW ATI, .J .-This appeal, on certificate of
fitness
obtainl!d
under Article 133 (1) (a) of the Constitution, is directed against a
judgment of the High Court of Gujarat dismissing Special
Civil
Application No. 1279 of 1966 preferred by the appellantf challenging the assessments to excise duty of certain dye-stuffs manufactured
by them. The facts giving rise to the appeal are few and may
Ire
briefly. stated as follows.
The appellants carry on business of manufacturing dye-stuffs in a
factory situate in a small township called Atul in Bulsar District in
th¥ State of Gujarat. The dye-stuffs manufactured by the appellants
were, throughout the period relevant to this appeal, sold by them in
whole.sale units to two wholesale buyers, numely, IC! (Indiai LtJ.
(heremafter referred to as ICI) and Atul Products Ltd. (hereinafter
re~erred to as Atul) under respective agreements entered into by them
with ICI and Atul.
Seventy per cent of the dye-stuffs manufactured
by the appel_Iants were sold to ICJ, while the remaining 30%
to
Atul. The pnce charged by the appellants to ICI and Atul was a uniform price described as athe oasic se::in.;, pri:e" ]-:-: tr"·se diw:mnt
of 18%. ICI and Atul, in their turn, resold the dve-;tuffs purchased
by them from the ~ppel!_ants to two categorieo or buyers. One was
the category of textile mills and othe;r large consumers,
while
the
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A TIC INDUSTRIES v. ASST. COLLECTOR (Bhagwati, J.)
5 6 5
other was the category of distributors. The sales by ICI and Atul to
the textile mills and other large consumers were at the basic selling
price without any discount, but so far as the distributors were concerned, the sales to them by ICI and Atul were at a higher price,
though with trade discount.
ICI charged a higher price but allowed
10% trade discount, while Atul charged a slightly lower price and
allowed two and a half per cent trade discount. The prices were, however, so adjusted that the net selling prices charged by ICI and Atul
to the distributors were almost the same. The distributors, in their
turn, resold the dye-stuffs .purchased by them from ICI and Atul to
the small consu1mers at a slightly high".r price referred to as "small
consumers price".
No discount was given by the distributors to the
small consumers.
The position which, therefore, obtained during the relevant peri~d
was that the appellants sold the dye· stuffs manufactured by th~m m
wholesale units, 70% to ICI and 30% to Atul, at the basic selling
price, bss trade discount of 18%: ICI and Atul in their turn resold
a part of the dye stuffs in retail unjts to the textile· mills and large
consumers at the basic selling price and the balance in wholesale units
to the distributors at higher selling prices with 10% trade discount
in case of ICI and 2~% trade discount in case of Atul, the net selling
prices charged by both of them, however, being the same; and·
the
distributors, in their turn, re-sold the dye stuffs to small consumers
in retail units at the small consumers price. It may be pointed ciut
that though Atul initially charged a lower selling price and gave
a
trade discount of 2!%, it fell inO!ine with ICI and adopted the same
selling price as JCI with trade discount of 10% from and after 1st
May, 1963.
There was no excise duty on dye stuffs prior to 1st March, 1961,
but with effect from that date excise duty was imposed for the first
time on dye-stuffs, including those manufactured by the appellants.
The· excise duty chargeable under the relevant entry
in
the first
Schedule read with section 3, sub-section· (1) of the Central Excise
and Salt Act, 1944 was ad valorem, and it was, therefore, necessary
to determine the value of the dye-stuffs manufactured by the appellants for the purpose of assessing the excise duty payable on them.
Section 4 of the Act provided how the value of an article chargeable
with duty at a rate depending .om its value shall be determined for
the purpose of assessment of excise duty. It said :
"Determinhtion of value for the purpose of duty.
Where under this Act, any article is chargeable with duty
at a rate dependent on the value of the article, such value be
deemed to be-
( a) the whole sale cash price for which an article of the
like kind and quality is sold or is capable of being
sold at the time of the removal of the article chargeable with duty from the factory or any other premises of manufacture or production, or if a wholesa!e
566
(b)
SUPREME COURT REPORTS
[1975] 3 s.c.R.
market does oot exist for such article at such place,
at the nearest place where such market exists, or
where such price is not ascertainable, the price at
which an article of the like kind and quality sold
or is capable of being sold by the manufacturer or
producer, or his agent, at the time of the removal of
of the article chargeable with duty from dUCh factory
or other premises for delivery at the place of manufacture or production or if such article is not sold
or is not capable of being sold at such place, at any
other place nearest thereto.
EX'{J'lan.ation.-In determining the price of any artick
under this sec1fon no abatement or deduction shall be allowed except in respect of trade discount and amount of duty
payable at the time of the removal of the article chargeable
with duty from the factory or other premises
aforesa~d."
The question arose as to how ithe value of the dye stuffs manufactured
by th~ appellants should be determined on a proper app!iq.tion of the
rule laid down iri section 4. The appellants contended
before
the
Excise Au.thorities that for the purpose of assessing the excise duty,
the value of the dye stuffs manufactured by the appellants should .be
taken to be the price at which the appellants sold the same in wholesale units to ICI and Atul, less a uniform trade discount of 18% which
the appellants at the relevant time gave to
these · two
wholesale
buyers. This contention was niot accepted by the Superintendent of
Central Excise who was the original assessing authority. He took the
view that the value of the dye stuffs for the purpose of assessment
of excise duty should be taken to be the price at which ICI and Atul
sold the· dye stuffs to the distributors and no deduction
should
be
allowed in respect of the discount given by them to the distributors
since it was n'ot uniform, being 10% in case of ICI and 2!% in case
of Atul. The appellants appealed against the
assessment
to
the
Assistant Collector of Central Excise, but the appeal was unsuccessful and the a£3essment was confirmed. That led to the filling of a
further appeal to the Collector of Central Excise. This appeal resulted
in some gain, little though it was, as the Collector of Central Excise
held that in determining fueassessable value~ •trade discount of 2!%
which was given by Atul to the distributors should be allowed to be
deducted from the price charged by ICI to the distributors. This was,
however, plainly illogical. If the price charged by JCI was taken as
a basis, trade discount of 10% should have been allowed as that was
the discount given by ICI to the distributors. Trade discount of 2!%
given by Attil on the lower price charged by it to the distributors
could not be deducted from the price charged by ICI to the distrrbutors which was fixed at a higher fornre because of the lanrer trade
discount 0f l 0% given bv it to the distributors. The assessable value
determined by the Collector of Central Fxcise was a strange hvbrid.
The anflPllants oref Prr<'<l a revi<inn aooli<'ation to t11P Central Government against the order of the Collector of Central Excise. The Central
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ATIC INDUSTRIES v. ASST. COLLECTOR (Bhagwati, J.)
567
Government in revision rejected the main contention of the appellants
that tne value of tile dye stuffs shoukJ be amved at the pnce at
wmch the same were &01d by tbe appellant to ICI and Atul less 18%
trade discount allowed to them. The reason for rejecting this contention was Lhat since dye stuffs rsanufactured by the appellants. "!'ere not
"available to an independr:'11 i:>uyer in open market . C<?Dditlons
at
prices at which these are sc:!d by them to the .Sole D,iatribu.ors1 M/s
!CI Ltd. and M/s Atul ProdJK;~S Ltd., these pr.tees cannot be aoopte~
as the basis of ad-valorrm assessUlent" under section 4 of tte Act.
The Central Government. however, observed that these dye stuffs
were "available to any independent buyer in open market conditions
at the sole distributors' prices''., that is, at the price charged by ICT
and Atul to the distributors and, therefore, these prices should form
the basis of assessment after allowing discount of 10% on the prices
charged by !CI from the beginning arid 21% on the prices ~har&i:d
by Atul upto 30th April, 1963 and 10% thereafter and on this basIS
directed refund of the excise duty collected by the Excise Autho-
·rities.
·
The appellants were obviously not satisfied with this rather trivial
and insignificant success and since their main plea was negatived by
the Central Government, they filed a petition in the High Court of
Gujarnt under Art. 226 of the Constitution challenging the validity
of the various orders made by the Excise authorities culminating in
the order of the Central Government and seeking a writ directing the
Union of India "to refund excess duty amounting to Rs. 1,26,229.80
illegally recovered from the petitioners and to forbear from recovering
duty from the petitioners in respect of the said products otherwise
than on the basis of the prices charged by the petitioners to the said
wholesale buyers viz. ICI and Atul." The Division Bench which heard
the petition took the view, following certain decisions of the Calcutta,
Mvsore, Andhra Pradesh and Bombay High Courts, that where th~
entire production is sold by a manufacturer to one or more favoured
d:stributors, there is no wholesale market in the sense of open market
at the site of the factory where an independent buyer can purchase
the goods in wholesale and in such a case the price at which the
goods are sold by the manufacturer to the favoured distributors cannot be taken to be the assessable value of the goods but the assessable value must be taken to be the price at which the favoured distributors, in their turn, sell the goods in wholesale and if not in
wholesale, then in retail. The Division Bench accordingly held that
the price charged by t:12 :ippellants to ICI . and Atul less 18 % trnde
discount could not be ado"lted for determining the assessable value
of the dye stuffs since ICI ~1d Atul were favoured distributors and
not independent buyers and the Central Government was
right
in
taking the price charged by ICI less 10% trade discount and the price
charged by Atul less 2!% trade discount as the assessable value because_ "that was the wholesale cash price at which the indeoendeo t
buyers could get these goods in the nearest wholesale market at the
relevant time.'' The aooellants being ae:!!rieved bv the decision of the
High Court preferred the present appeal after obtaining certificate of
fitness from the High Court.
1
5-470SupCI/75
5<i8
SUPREME COURT REPORTS
[1975] 3 s.c.R.
Jt would be seen f;om the judgment of the High Court that .the
only ground on which the High Court negatived the con·cntion of the
appellants tlut the price charged by the appellants to lCl and Atul
less 18 % trade cLscount shomd be taken as the assessable value W<1s
that lCl and A'ul were favoured cl.istnbutors and apart from them,
no independent buy::r could purchase the dye stuffs
in
wholesa~e
marke< at or near the place or manufacture so as to attract the apphcability of the first part of section 4(a). This. ground of course, at
·one time, looked highly plausible, supported as 1t ~a.s by dec~s1ons of
several High Courts. But now, after the recent dec1S1on o! this Court
in A. K. Roy v. VoUas Ltd.(') it stands completely decimated. The
facts of that case are a little interesting and requires to be not.iced Ill
order to understand the true ratio of the decision.
The respondent in that case carried on inter alia. busim:ss
of
manufacturing air-conditioners, water-coolers and their
component
parts. It effected direct sales to consumers at list prices and the sale~
so effected came to about 90% to 95% of i~s production during the
relevant period. It also sold its articles amounting to 5% to 10% of
its production 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 and the respondent would sell the articles to them at
the list prices less 22 % discount. The dealers were also
r1~quired
under the agreements to give service to the units sold in their territory. Excise duty on the basis of ad-valorem value was imposed on
air-conditioners, water-coolers and parts of water-coolers from March
1, 1961. The respondent claimed, in accordance with section 4(a),
that the list prices after deducting the discount of 22 % allovred to
the wholesale dealers should be taken to be
'the
wholesale,
cash
price' for ascertaining the real value of the articles. This claim was
resisted by the Excise Authorities and tiJe respondent was therefore
constrained to file a writ petition in the High Court of Bombay. The
High Court allowed the petition holding that the list prices at which
the articles were sold to the wh0lesale dealers,. less 22 % discount
allowed to them under the agteements, represented
'the
wholesale
cash price' and excise duty was accordingly chargeable under section
4( a). The Excise Authorities thereupon preferred an appeal by certificate to this Court.
The same argument was advanced before this Court on behalf of
the Excise Authorities wliich has foud favour wi•h the High Court ia
the presi:nt case. The Excise Authorities contended that the
agreements with the whole-sale dealers conferred certain extra-commercial
advantages upon them, and so, the sales to them were not sales to
independent purchasers but to favoured ones, and,
therefore,
the
~rice c~&rge:d would not reoresent the "wliolesale cash price" as mentioned m s. 4 (a) of the Act. They anmed that s. 4 (a) vi~ualizE"s a
wliol~~:ile marlcet at the place of manufacture where a:ticles of like
{l) [197312 S.C.R. 1088.
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ATIC INDUSTRIES v. ASST. COLLECTOR (Bhagwati, /.)
56 9
kind and quaiity 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 like kind and quality were sold, at or near
the place of manufacture, and as the wholesale sales were confined
to tn<: favoured buyers, there was no wholesale market at the place
of manufacture. It was further argued that "articles of a. like kind
and quaii~y" is a phrase which suggests goods other than those under
assessment and that one must disregard the price fetched by the sale
of the goods themselves.
This argument was squarely negatived by the Court. Mathew, J.,
speaking on beh.alf of the Court, explained the true scope and meaning of section 4(a) and its applicability in a situation of this kind in.
the following words :
"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 latter 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 concept of ·wholesale market in the
context. A wholesale market does not always mean that there
should be an actual place where articles are sold and bought
on a wholesale basis. These words can also
mean
the
potentiality of the articles being sold on a wholesale basis.
So, even if there was no market in the physical sense of
the term at or near the place <'f manufacture where
the
articles of a like kind and quality are or could
be sold,
that would not in any way affect the existence of market in
the proper sense of the term provided the articles themselves
could be sold wholesale to traders, even though the articles
are sold to them on the basis of agreements which confer
certain commercial advantages upon them. In other words,
the 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 were conferred upon them in considera··
tion of their undertaking to do service 10 the articles sold, or
because of the fact that oo other person could purchase
the articles wholesale from the respondent. We also think
that the aoolication of clause (a) of ~. 4 of the Act does not
depend upon any hypothesis to the effect that at the time and
place of sale, any further articles of like kind and quality
should have been sold. If there is an actual price for the
goods themselves at the time. and olace of sale and if that
is a 'wholesale cash price'. the clause is not inannlicable for
wa11t of sale of other goods of a like kind and quality.
570
.
SUPREME COURT REPORTS
l1975l 3 s.c.R.
The learned Judge then referred to the decision of the Privy Council
in Ford Motor Company of llldia Limited v. Secretary of State
for
India in Council(') and pointed out that :
"This case is an authority for the proposition that mero
existence of the agreements between the respondent and d1e
wholesale dealers under which
zertain
obligations
were
undertaken by them like service to the articles, would not
render Uie price any the less the 'wholesale cash price'. To
put it in other words, even if the articles in question were
11old only to wholesale dealers on the basis of agreements
and not to independent persons, that would not make the
price for the sales anything other .than the 'wholesale c~sh .
price'. The argument that what was relevant to determme
the 'wholesale cash price' under cl. (a) of s. 30 of the S1~a
Customs Act, 1878, was the price of goods of a like kind
anid quality was negatived· by the Privy Council by saying
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
all/d that the price obtained for them may correctly represent the price obtainable for goods of a like kind and quality
at the time and place of importation."
Then, with reference to the decisions of the various High Courts,
which had taken a different view, the learned Judge observed : "We
do not think that these decisions, in so far as they hold that th1e price
of sales to wholesale dealers would not represent the wholesale cash
price for the purpose of s. 4(a) of the Act merely because the mam:afacturers had entered into agreements with them stipulating for commercial advantages, are correct", and proceeded to add :
"If a manufacturer were to enter into agreements with
dealers for wholesale sales of the articles manufactured on
certain terms and conditions, it would not follow from th:\t
alone that the price for those sales would not be the 'wholt:lsale 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 basjs of transactions at
arms length. If there is a special or favoured buyer to
whom a specially low price is charged because of extm-
. commercial considerations, e.g. because he is relative of the
manufacturer, the price charged for those sales would not
be .the 'wholesale cash pric§ fo~ !~vying
~xcise
u~der
section 4(a) of the Act. A sole dtstnbutor nnght or might
not be a favoured buyer according as terms of the airree~
ment with him are fair and reasonable and were arrived a:t
on pure~ commercial basis. Once wholesale dealings at
arms length are established, the getermination of the who1e-
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ATIC INDUSTRIES v. ASST, COLLECTOR (Bhagwati, J.)
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sale 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 wholesale sales of the rest of the articles
any the less the 'wholesale cash price' for the purpose of s.
4( a), even if these sales were made pursuant to agreements
stipulating for certain commercial advantages, provided the
agreements were entered into at arms length and in the ordinary course of business."
"- it is not necessary for attracting the operations of
s. 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."
On this view, it was held that the respondent was liable
to be
charged with excise duty on the basis of the price payable by
the
wholesale d;:alers, after deducting 22%
discount,
under
section
4(a).
·
This decision provides a complete refutation of the view taken
by the High Court illr the present case. In fact, the present case is
much stronger than the Volt11is case (supra). In the Voltas'
case
(supra) , 90 to 9 5 per cent of the production was sold by the manufacturer in retail and only a small percentage, namely,, 5 to 10 per
cent was sold in wholesale and yet the price charged by the manufacturer to the wholesale dealers less trade discount of
22% · was
taken as 'the wholesale cash price' for assessmeDlt of value under s.
4 (a). Here, on the contrary, no retail sales at all were effected by
the appellants and the entire production was sold in wholesale to ICI
and Atul under agreements entered into with them. Moreover, it was
not in dispute between the parties that the agreements entered into
by the appellants with ICI and Atul were made at arms length and in
the usual. course of business. It was not the case of
the
Excise
Authorities at any time that specially low prices were charged by the
appellantS to ICI and Atul because of extra commercial considerations or that the agreements were anything but fair and reasonable
or arrived at on purely commercial basis. The wholesale
dealings
between the appellants and ICI and Atul ·were purely
commercial
dealings at. anns length and the price charged by the appellants for
sales in wholesale made to ICI and Atul less trade discount of 18%
was, therefore, clearly 'wholesale cash price' within the mcanin11; of
s. 4(a) and it did not make any difference that the wholesale dealings.
of the appellants were confined exclusively to ICI and
Atul
and
apart from these two, no independ'ent buyers could purchase the tlye
stuffs in wholesale from the appellants.
·
The Excise Authorities. robbed of what they thought was a stron2
argument prior to the decision in Voltas' case (supra), then tried to
SUPREME COURT REPORTS
[1975] 3 S.C.R.
fall back on a subsidiary argument in an attempt to save the assessments. They contended that all that s. 4(a)
provides is
that the
value of the article soui:ht to be charged to excise duty shall
be
deemed to be the wholesale cash price for which the article is sold
or is capable of being sold and it does not say which wholesale cash
price shall be taken to be the value of the article-that char1cd by
the manufacturer to the wholesale dealer or that charged
by
the
wholesale dealer who having purchased the article from the manufacturer sells it in wholesale to another dealer. The latter price, they
pointed out,. would equally be the wholesale cash price within the
meaning of s. 4 (a) as it would be the price at which the article is
sold or in any event capable of being sold in the wholesale market
and there is no reason why it should not be taken to be the value of
the article for the purpose of assessment under s. 4(a). The contention, therefore, was that the price charged by IC[ and Atul to the
dealers less trade discount allowed to them should be taken to
be
the assessable value of the dye stuffs and not the price charged by
the appellants to ICI and Atul less trade discount of 18 % . This contention is without force and must be rejected. It violates two basic
principles underlying imposition of excise duty.
· In the first place, as pointed out by J1:1athew, J., in Voltt~' case
(supra), ''excise is a tax on the product10~ and
manufacture
of
go~ds-Section 4 of the. Act therefore provides that t~e real vah1e
should be found after deducting the seUing cost and selhng profit and
that the real value can include only the manufacturing cost and the
manufacturing profit. The section makes it clear that excise iH levied
only on the amount representing the manufacturing cost plus
the
manufacturing profit and excludes post-manufacturing cost and the
profit arising from po~ manufacturing operation,
namely,
selling
profit." The va:ue of the goods for the purpose of excise mu.st take
into account only the manufacturing cost and
the
manufac1uring
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 par•icular type
of goods may be in several tiers and the goods may reach the consumer after a series of wholesale transactions. In fact the more common and less expensive the good~. 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 to a single
wholesale dealer and the latter mw in his turn sell the goods purchased by him from the l)lanufacturer to different wholesale dealers
at State level, and they may in their turn sell the goods to wholesale
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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 tnen, u1,1miite1y rrom tne who1esa1e aea1ers at the c~ty
level the goods may reach the consumers. The only relevant price
for ,;ssessment of value of the goods for the purpose of excise in
such a case would be the wholesale cash price which the manufacturer
receives from sale to the first wholesale dealer, that is,
when
the
goods first enter the stream of trade. 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
concorned with what harpens subsequently to the goods. It is
the
first immediate contact between the manufacturer and the trade that
is made <lecisive for determining the wholesale cash price which is to
be ue measure of the value of the goods for the purpose of excise .
. The second or subsequent price, even though on wholesale basis, is
not matenal. If excise were levied 01' the basis of second or subseq ue 1Jt wholesale price, it would load the price with a post manufacturing element, namely, selling cost and sellin~ profit of the wholesale dealer. That would be plainly contrary to the true
nature of
excise as explained in the Valtas' 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.
There can, therefore, be no doubt that where a manufacturer
~sell& 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 dis.c
count would represent the value of the goods for the
purpose
of
assessment of excise. That would be the wholesale cash
price
for
which the goods are sold at the factory gate within the meaning of
s. 4 (a). The price received by the wholesale dealer who
purchases
the goods from the manufac'urer anp in his turn sells the same in
wholesale to other dealers would be irrelevant to the determination
of the value and the goods wou!C: not be chargeable to excise on that
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 JCT and
Atul less l~o/c trade discount, and not the price charged by ICI and
Atul to their dealers.
·.
.
·
. We, therefore, allow the appeal, reverse the judgment
of · the
High Court and quash and set aside the assessments to excise duty
made by the Excise Authorities on the dye stuffs manufactured by
the ap~ellants. We direct the r~spondents to refund to the appellants
for~hw1th. the amount collected m excess of the correct du•y of excise
lev1able 111 accorda~,ce with the princio1e laid down .in this judgment.
The respondents will pay to the appellants costs in this Court as well
as in the High Court.
P.B.R.
Appt!al al/owtd.