{"id":20439,"date":"1983-10-07T00:00:00","date_gmt":"1983-10-06T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/union-of-india-ors-etc-etc-vs-bombay-tyre-international-ltd-on-7-october-1983"},"modified":"2016-07-23T02:16:25","modified_gmt":"2016-07-22T20:46:25","slug":"union-of-india-ors-etc-etc-vs-bombay-tyre-international-ltd-on-7-october-1983","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/union-of-india-ors-etc-etc-vs-bombay-tyre-international-ltd-on-7-october-1983","title":{"rendered":"Union Of India & Ors. Etc. Etc vs Bombay Tyre International Ltd. … on 7 October, 1983"},"content":{"rendered":"
Supreme Court of India<\/div>\n
Union Of India & Ors. Etc. Etc vs Bombay Tyre International Ltd. … on 7 October, 1983<\/div>\n
Equivalent citations: 1984 SCR (1) 347, \t 1983 SCALE (2)449<\/div>\n
Author: R Pathak<\/div>\n
Bench: Pathak, R.S.<\/div>\n
           PETITIONER:\nUNION OF INDIA & ORS. ETC. ETC.\n\n\tVs.\n\nRESPONDENT:\nBOMBAY TYRE INTERNATIONAL LTD. ETC. ETC.\n\nDATE OF JUDGMENT07\/10\/1983\n\nBENCH:\nPATHAK, R.S.\nBENCH:\nPATHAK, R.S.\nBHAGWATI, P.N.\nSEN, AMARENDRA NATH (J)\n\nCITATION:\n 1984 SCR  (1) 347\t  1983 SCALE  (2)449\n\n\nACT:\n     Central Excises and Salt Act, 1944 (1 of 1944)-Old s. 4\nprior to and new s. 4 after amendment by the Central Excises\nand Salt  (Amendment) Act,  1973 (22 of 1973)-Interpretation\nof-Section validly enacted-Scheme and object of old s. 4 and\nnew s.\t4 are  same. Mode of determining value of an article\nfor   excise   levy-Value-Whether   can\t  be   confined\t  to\nmanufacturing cost  and\t manufacturing\tprofit\tonly-Whether\npost manufacturing  expenses  like  freight,  insurance\t and\npacking etc. can be included in the value of article.\n     Central Excises  and  Salt\t Act,  1944-S.\t4  (4)\t(c)-\nDefinition of  \"related\t person\"-Scope\tof.  Definition\t not\nunduly wide-Does  not suffer  from constitutional infirmity.\nWords \"a  relative and a distributor of the Assessee\" do not\nrefer to  any distributor but only to a distributor who is a\nrelative of the assessee within the meaning of the Companies\nAct, 1956.\n     Central Excises  and  Salt\t Act,  1944-S.\t4  (4)\t(d)-\n'Value'-Definition of-Scope  of. Packing-Primary,  secondary\nand special  secondary-Cost of\tspecial secondary packing to\nbe excluded from value.\n     Constitution of  India Art.246,  Schedule\t7,  List  1.\nEntry 84-Concept of duty of excise-What is.\n\n\n\nHEADNOTE:\n     Sub-sec. (1)  of sec. 3 of the Central Excises and Salt\nAct, 1944 provided that duties of excise shall be levied and\ncollected on all excisable goods, other than salt which were\nproduced or  manufactured in India at the rates set-forth in\nthe First  Schedule. Sub-sec.  (2) of  sec. 3  empowered the\nCentral Government  to fix,  for the  purpose of levying the\nduties, tariff\tvalues of  the articles\t enumerated  in\t the\nFirst Schedule as chargeable with duty ad valorem. Section 4\nof the\tAct provided  that the\tvalue of  an article for the\npurposes of  duty shall\t be (a) the wholesale cash price for\nwhich an  article of  the like\tkind and quality was sold or\nwas capable of being sold at the time removal of the article\nchargeable with\t duty from the factory or any other premises\nof manufacture\tor production  for delivery  at the place of\nmanufacture or\tproduction or  (b) where  such price was not\nascertainable, the  price at  which an\tarticle of  the like\nkind and  quality was  sold or\twas capable of being sold at\nthe time  of the removal of the article chargeable with duty\nfrom such  factory or  other premises  for delivery  at\t the\nplace of manufacture or production. With the increase in the\nad valorem levies in the Central Excise Tariff the operation\nof sec.\t 4 presented certain practical difficulties; some of\nwhich were  prominently brought\t out in the judgment of this\ncourt in  A.K. Roy  and Anr.  v. Voltas Ltd,<\/a> [1973] 2 S.C.R.\n1089. In that case, the Court inter alia said that\n348\nthe real  value of an article for the purposes of the excise\nlevy  would   include  only   the  manufacturing  cost\tplus\nmanufacturing  profits.\t  In  order   to  overcome   various\ndifficulties, the original sec. 4 of the Act was substituted\nby a  new sec.\t4 by Act 22 of 1973. The new sec. 4 provided\nthat the value of an article for the purposes of duty shall,\nsubject to  the other  provisions of this section, be deemed\nto be  the normal price thereof that is to say, the price at\nwhich such  goods were\tordinarily sold by the assessee to a\nbuyer in  the course  of wholesale trade for delivery at the\ntime and place of removal, where the buyer was not a related\nperson and the price was the sole consideration for the sale\nand  where   the  normal   price  of   such  goods  was\t not\nascertainable for  the reason  that such goods were not sold\nor  for\t  any  other   reason,\tthe   nearest  ascertainable\nequivalent thereof  determined in  such\t manner\t as  may  be\nprescribed. Clauses  (c) and  (d) of  sub-sec. (4) of sec. 4\ndefined \"related person\" and \"value\" respectively.\n     The Central  issue which  arose between the Revenue and\nthe assessees  in these\t appeals was whether the value of an\narticle\t for  the  purposes  of\t the  excise  levy  must  be\ndetermined by  reference exclusively  to  the  manufacturing\ncost and  the manufacturing  profit of\tthe manufacturer  as\ncontended by  the assessees  or should be represented by the\nentire wholesale  price charged\t by the\t manufacturer  which\nconsisted of  not merely  his  manufacturing  cost  and\t his\nmanufacturing\t profit\t but  included\t\"post  manufacturing\nexpenses\" and  \"post manufacturing  profit\" arising  between\nthe completion of the manufacturing process and the point of\nsale by\t the manufacturer.  The other points of dispute were\nprincipally in\trespect of the connotation of the expression\n'related person' in the new s.4 as well as the nature of the\ndeductions which  could be  claimed by\tthe assessee as post\nmanufacturing expenses\tand post  manufacturing profit\tfrom\nthe price for the purpose of determining the \"value\".\n     HELD: The\tquestion whether the value of an article for\nthe purpose  of the  excise levy  must be  confined  to\t the\nmanufacturing cost  and the  manufacturing profit in respect\nof the article has to be answered in the negative. While the\nlevy of\t excise duty  is on the manufacture or production of\ngoods, the  stage of  collection need  not in  point of time\nsynchronize  with   the\t completion   of  the  manufacturing\nprocess. While\tthe levy in this country has the status of a\nconstitutional concept,\t the point  of collection is located\nwhere the statute declares it will be. [384 H, 364 F-G]\n     The Central  Provinces and\t Berar Sales of Motor Spirit\nand Lubricants\tTaxation Act, 1938, [1938-39] F.C.R. 18; The\nProvince of  Madras v.\tMessers\t Boddu\tPaidanna  and  Sons,\n[1942]\tF.C.R.\t90,  101;  Governor-General  in\t Council  v.\nProvince of Madras, [1945] F.C.R. 179; R.C. Jall v. Union of\nIndia,<\/a> [1962]  Suppl. 3 S.C.R. 436; In Re. The Bill To Amend\ns. 20  of the Sea Customs Act, 1878, and s. 3 of the Central\nExcises And  Salt Act,\t1944, [1964]  3 S.C.R. 787; Union of\nIndia v. Delhi Cloth & General Mills,<\/a> [1963] Suppl. 1 S.C.R.\n586;  M\/S  Guruswamy  &\t Co.  Etc.  v.\tState  of  Mysore  &\nOrs.,<\/a>[1967] 1  S.C.R. 548;  and South Bihar Sugar Mills Ltd.\netc. v. Union of India & Ors.,[1968] 3 S.C.R. referred to.\n     The levy  of a  tax is defined by its nature, while the\nmeasure of  the tax  may be assessed by its own standard. It\nis true that the standard adopted as the\n349\nmeasure of  the levy  may indicate the nature of the tax but\nit does\t not  necessarily  determine  it.  When\t enacting  a\nmeasure to  serve as  a standard  for assessing the levy the\nlegislature need  not contour it along lines which spell out\nthe character  of the  levy itself. A broader based standard\nof reference  may be  adopted for the purpose of determining\nthe measure  of the  levy. Any\tstandard which\tmaintains  a\nnexus with  the essential  character  of  the  levy  can  be\nregarded as  a valid  basis for assessing the measure of the\nlevy. The  original s.\t4 and  the new\ts. 4  of the Central\nExcises and Salt Act satisfy this test. [366 C; 367 D-F]\n     Ralla Ram v. The Province of East Punjab, [1948] F.C.R.\n207; Atma  Ram Budhia  v. State\t of Bihar, A.I.R. 1952 Patna\n359; M\/s  Sainik Motors,  Jodhpur and  Ors. v.\tThe State of\nRajasthan,<\/a> [1962]  1 S.C.R.  517; D.C. Gouse and Co. etc. v.\nThe State  of Kerala  & Anr.  etc.,  [1980]  1\tS.C.R.\t804;\nSearvai's Constitutional  Law of India, Second Edition. Vol.\n2 at  page 1258;  Re. A\t Reference under  the Government  of\nIreland Act,  1920 and\tSec. 3\tof the Finance Act (Northern\nIreland), 1934,\t L.R. 1936 A.C. 352; R.R. Engineering Co. v.\naila Parished,\tBareilly &  Anr., [1980] 3 S.C.R. 1; and The\nHingir-Rampur Coal Co., Ltd. and Ors. v. The State of Orissa\nand Ors.,<\/a> [1961} 2 S.C.R. 537 referred to.\n     It was  open to  the legislature to specify the measure\nfor assessing the levy. The legislature has done so. In both\nthe old\t s. 4  and the\tnew s.\t4 the  price charged  by the\nmanufacturer on\t a sale by him represents the measure. Price\nand sale  are related  concepts, and  price has\t a  definite\nconnotation. The  \"value\" of the excisable article has to be\ncomputed  with\t reference  to\tthe  price  charged  by\t the\nmanufacturer, the  computation being made in accordance with\nthe terms of s. 4. [368 D-E]\n     On a true construction of its provisions in the context\nof the\tstatutory scheme  the  old  s.\t(4)  (a)  should  be\nconsidered  as\t applicable  to\t the  circumstances  of\t the\nparticular  assessee   himself\tand   not  of  manufacturers\ngenerally.[381 C-D]\n     Pursuant to  the old s. 4 (a) the value of an excisable\narticle for  the purpose  of the excise levy should be taken\nto be  the price  at which  the excisable article is sold by\nthe assessee  to a  buyer at  arm's length  in the course of\nwholesale trade\t at the\t time and  place of  removal. Where,\nhowever, the  excisable article\t is not sold by the assessee\nin wholesale  trade but,  for example,\tis consumed  by\t the\nassessee in his own industry the case is one where under the\nold s.\t4 (a)  the value  must be determined as the price at\nwhich the  excisable article  or an article of the like kind\nand quality  is capable\t of being sold in wholesale trade at\nthe time and place of removal.\t  [376 F-H]\n     Where the\texcisable article  or an article of the like\nkind and quality is not sold in wholesale trade at the place\nof removal, that is, at the factory gate, but is sold in the\nwholesale trade\t at a  place out  side the factory gate, the\nvalue should  be  determined  as  the  price  at  which\t the\nexcisable article  is sold  in the  wholesale trade  at such\nplace, after  deducting therefrom the cost of transportation\nof the\texcisable article  from the  factory  gate  to\tsuch\nplace. [376 H; 77 A-B]\n350\n     Where the\twholesale price\t of the excisable article or\nan  article   of  the\tlike  kind   and  quality   is\t not\nascertainable, then  pursuant to  the old s. 4 (b) the value\nof the\texcisable article  shall be  the price\tat which the\nexcisable article or an article of the like kind and quality\nis sold\t or is\tcapable of being sold by the assessee at the\ntime and place of removal or if the excisable article is not\nsold or is not capable of being sold at such place, then the\nprice at which it is sold or is capable of being sold by the\nassessee at any other place nearest thereto. [377 B-C]\n     In every  case the\t fundamental criterion for computing\nthe value  of an excisable article is the price at which the\nexcisable article or an article of the like kind and quality\nis sold\t or is capable of being sold by the manufacturer and\nit is  not the\tbare manufacturing  cost  and  manufacturing\nprofit which  constitutes the  basis  for  determining\tsuch\nvalue. [377 D]\n     Vacuum Oil\t Company v.  Secretary of State for India in\nCouncil L.R.  59 I.A.  258; Ford Motor Company of India Ltd.\nv. Secretary of State for India in Council, L.R. 65 I.A. 32;\nand Atic  Industries Ltd.  v. H.H.  Dave, Asst\tCollector of\nCentral Excise and Ors.,<\/a>[1975] 3 S.C.R. 563, referred to.\n     The basic\tscheme for determination of the price in the\nnew s.\t4 is  characterised by\tthe same  dichotomy as\tthat\nobservable in  the old\ts. 4.  It was  not the\tintention of\nParliament, when  enacting the\tnew s.\t4 to create a scheme\nmaterially different from that embodied in the superseded s.\n4. The\tobject and purpose remained the same, and so did the\ncentral principle at the heart of the scheme. The new scheme\nwas merely-more comprehensive and the language employed more\nprecise and definite. As in the old s. 4, the terms in which\nthe value  was defined\tremained the  price charged  by\t the\nassessee in  the course\t of wholesale  trade for delivery at\nthe time and place of removal. [377 H; 378 A-B]\n     It is  not possible  to conceive of the price under the\nnew s.\t4 (1)  (a) being  confined to the manufacturing cost\nand the\t manufacturing profit. Moreover, it is reasonable to\nsuppose that  the central principle for the determination of\nthe value  of the  excisable article  should  be  the  same,\nwhether the  case falls\t under cl. (a) or cl. (b) of the old\ns. 4  or under\tthe new\t s. 4 (1). When regard is had to the\nprovision of  cl. (b)  in each\tcase, it  is not possible to\nlimit  the   price  to\t its  components   representing\t the\nmanufacturing cost and manufacturing profit. [379 E-G]\n     The contention  that the  provisions regarding  related\npersons\t are  wholly  unnecessary  because  to\tcounter\t act\nevasion of  tax any  artificially arranged price between the\nmanufacturer and  his wholesale buyer can be rejected in any\ncase under s. 4 is not acceptable. The new s. 4 (1) contains\ninherently within  it the  power to determine the true value\nof the\texcisable article,  after taking  into\taccount\t any\nconcession shown  to a\tspecial or favoured buyer because of\nextra-commercial consideration,\t in order  that the price be\nascertained only  on the  basis that  it is a transaction at\narm's  length.\t That  requirement   is\t emphasised  by\t the\nprovision in  the news.\t 4 (1)\t(a) that the price should be\nthe sole  consideration for the sale. In every such case, it\nwill\n351\nbe for\tthe Revenue  to determine  on the evidence before it\nwhether\t the   transaction  is\tone  where  extra-commercial\nconsiderations have  entered and,  if so, what should be the\nprice to  be taken as the value of the excisable article for\nthe purpose  of excise\tduty. Nonetheless  it  was  open  to\nParliament  to\t incorporate  provisions   in  the   section\ndeclaring that\tcertain specified categories of transactions\nfall within the tainted class, in which case an irrebuttable\npresumption will  arise that transactions belonging to those\ncategories are transactions which cannot be dealt with under\nthe usual meaning of the expression \"normal price\" set forth\nin the new s. 4 (1) (a). They are cases where it will not be\nnecessary for  the Revenue  to examine\tthe entire  gamut of\nevidence in  order to  determine whether  the transaction is\none prompted  by extra-commercial considerations. It will be\nopen to\t the Revenue,  on being\t satisfied  that  the  third\nprovision to  the new  s. 4 (1) (a) read with the definition\nof \"related person\" in s. 4 (4) (c) is attracted, to proceed\nto determine the \"value\" in accordance with the terms of the\nthird proviso. [385 F-H; 386 A-D]\n     The argument that the assessment on the manufacturer by\nreference to  the sale\tprice charged  by his distributor is\n\"wholly incompatible  with the\tnature\tof  excise\"  has  no\nforce. It  is a\t well known  legislative practice  to  enact\nprovisions in certain limited cases where an assessee may be\ntaxed in  respect of  the income or property truly belonging\nto another.  They are cases where the Legislature intervenes\nto prevent  the circumvention  of the  tax obligation by tax\npayers seeking\tto  avoid  or  reduce  their  tax  liability\nthrough modes resulting in the income or property arising to\nanother. The  provisions of  the law  may be so enacted that\nthe  actual   existence\t of   such  motive   may  be  wholly\nimmaterial, even  if what  has been done by the assessee may\nproceed from  wholly bona  fide intention. With the aid of a\nlegal fiction,\tthe Legislature fastens the liability on the\nassessee. When\tthe Legislature\t employs such  a device, and\nthe liability  is  attached  without  qualification,  it  is\nreasonable to  infer that  an irrebuttable  presumption\t has\nbeen created  by law.  Such provisions\thave been held to be\nwithin the  legislative competence of the Legislature and as\nfalling within its power of taxation. [386 D-H]\n     Balaji v.\tIncome-Tax  Officer,  Special  Investigation\nCircle,<\/a> [1962] 2 S.C.R. 938; Navnitlal C. Javeri v. K.K.Sen,\nAppellate Assistant  Commissioner of  Income<\/a> tax. 'D' Range,\n[1965] 1 S.C.R. 909; Bombay and Punjab Distilling Industries\nLtd. v.\t Commissioner of Income-Tax, Punjab,<\/a> [1965] 3 S.C.R.\n1, referred to.\n     The argument  that the  definition\t of  the  expression\n\"related person\"  is so arbitrary that it includes within it\na distributor  of the  assessee is  also without much force.\nThe provision in the definition of \"related person\" relating\nto a  distributor can  be legitimately\tread  down  and\t its\nvalidity upheld.  The definition of related person should be\nso read\t that the words \"a relative and a distributor of the\nassessee\" should  be understood to mean a distributor who is\na relative  of the assessee. The Explanation to s. 4 (4) (c)\nprovides that the expression \"relative\" has the same meaning\nas in  the Companies  Act, 1956.  The definition of \"related\nperson ',  as being  \"a person who is so associated with the\nassessee that they have interest, directly or indirectly, in\nthe business of each other and includes a holding company, a\nsubsidiary company  ..,\"  shows\t a  sufficiently  restricted\nbasis for employing the legal fiction. Here again,\n352\nregard must  be had  to the  Explanation which provides that\nthe expression\t\"holding company  and subsidiary\"  have\t the\nsame meanings  as in  the Companies  Act, 1956.\t It is\twell\nsettled that  in a  suitable case  the court  can  lift\t the\ncorporate veil where the companies share the relationship of\na holding  company and\ta subsidiary company and also to pay\nregard to  the economic\t realities behind  the legal facade,\n[387 B-H; 388 A]\n     Tata Engineering  and Locomotive  Co. Ltd.\t v. State of\nBihar and Others.<\/a> [1964] 6 S.C.R. 885; Juggi Lal Kamlapat v.\nCommissioner  of  Income-Tax,  U.P.<\/a>  [1969]  1\tS.C.R.\t988,\nreferred to.\n     The true  position under  the Central  Excises and Salt\nAct 1944 as amended by Act XXII of 1973 is as follows:\n     (i)  The  price   at  which  the  excisable  goods\t are\n\t  ordinarily sold  by the assessee to a buyer in the\n\t  course of wholesale trade for delivery at the time\n\t  and place  of removal as defined in subsection (4)\n\t  (b) of section 4 is the basis for determination of\n\t  excisable value  provided, of course, the buyer is\n\t  not a\t related person\t within the  meaning of sub-\n\t  section (4)  (c) of section 4 and the price is the\n\t  sole consideration  for the  sale. The proposition\n\t  is subject  to the  terms of the three provisos to\n\t  sub-section (1) (a) of section 4. [388 D-F]\n     (ii) Where\t the price  of excisable goods in the course\n\t  of wholesale\ttrade for  delivery at\tthe time and\n\t  place of  removal cannot  be ascertained  for\t the\n\t  reason that  such goods  are not  sold or  for any\n\t  other reason, the nearest ascertainable equivalent\n\t  thereof determined in the manner prescribed by the\n\t  Central Excise  (Valuation) Rules,  1975 should be\n\t  taken as  representing the  excisable value of the\n\t  goods; [388 G-H]\n     (iii)Where wholesale  price of  any excisable goods for\n\t  delivery at  the place of removal is not known and\n\t  the value  thereof is determined with reference to\n\t  the wholesale\t price for delivery at a place other\n\t  than\tthe   place  of\t  removal,   the   cost\t  of\n\t  transportation from  the place  of removal  to the\n\t  place of  delivery should  be excluded  from\tsuch\n\t  price; [389 A-B]\n     (iv) Of course, these principles cannot apply where the\n\t  tariff value\thas been  fixed in  respect  of\t any\n\t  excisable goods  under sub-section  (2) of section\n\t  3; [389 C]\n     (v)  On a\tproper interpretation  of the  definition of\n\t  'related person' in sub-section (4) (c) of section\n\t  4 the\t words \"a  relative and a distributor of the\n\t  assessee\" do not refer to any distributor but they\n\t  are  limited\tonly  to  a  distributor  who  is  a\n\t  relative of the\n353\n\t  assessee within  the meaning of the Companies Act,\n\t  1956. So  read, the definition of 'related person'\n\t  is not  unduly wide  and does\t not suffer from any\n\t  constitutional  infirmity.   It  is\twithin\t the\n\t  legislative competence  of Parliament.  It is only\n\t  when an  assessee so\tarranges that  the goods are\n\t  generally  not  sold\tby  him\t in  the  course  of\n\t  wholesale  trade  except  to\tor  through  such  a\n\t  related person  that the  price at which the goods\n\t  are ordinarily  sold by  the related person in the\n\t  course of  wholesale trade  at the time of removal\n\t  to dealers  (not being  related persons)  or where\n\t  such goods  are  not\tsold  to  such\tdealers,  to\n\t  dealers (being  related  persons)  who  sell\tsuch\n\t  goods in  retail is  liable to  be  taken  as\t the\n\t  excisable value  of the  goods under proviso (iii)\n\t  to sub-section (1) (a) of section 4. [389 D-F]\n     For the  purpose of  determining the  \"value\",  broadly\nspeaking both old s. 4 (a) and the new s. 4 (1) (a) speak of\nthe price  for sale  in the  course of wholesale trade of an\narticle for  delivery at  the time  and\t place\tof  removal,\nnamely, the factory gate. Where the price contemplated under\nthe old\t s. 4  (a)  or\tunder  new  s.\t4  (1)\t(a)  is\t not\nascertainable, the  price is  determined under\tthe old s. 4\n(b) or the new s. 4 (1) (b). Now, the price of an article is\nrelated to  its value  (using this term in a general sense),\nand  into   that  value\t  have\tpoured\tseveral\t components,\nincluding those\t which have  enriched its value and given to\nthe article  its marketability\tin the trade. Therefore, the\nexpenses incurred  on account  of the  several factors which\nhave contributed  to its  value upto the date of sale, which\napparently would  be the  date of delivery, are liable to be\nincluded. Consequently,\t where the  sale is  effected at the\nfactory gate,  expenses incurred  by the  assessee upto\t the\ndate of\t delivery on  account of  storage  charges,  outward\nhandling charges, interest on inventories (stocks carried by\nthe  manufacturer   after  clearance),\t charges  for  other\nservices after\tdelivery to  the buyer,\t namely\t after-sales\nservice and  marketing\tand  selling  organisation  expenses\nincluding  advertisement   expenses  marketing\tand  selling\norganisation expenses  and after-sales\tservice promote\t the\nmarketability of the article and enter into its value in the\ntrade. Where  the sale\tin the\tcourse of wholesale trade is\neffected by the assessee through its sales organisation at a\nplace or  places outside  the  factory\tgate,  the  expenses\nincurred by the assessee upto the date of delivery under the\naforesaid heads\t cannot, on  the same  grounds, be deducted.\n[391 C-H]\n     The assessee will be entitled to a deduction on account\nof the cost of transportation of the exciseable article from\nthe factory  gate to  the place\t or places where it is sold.\nThe  cost   of\ttransportation\twill  include  the  cost  of\ninsurance on  the freight  for transportation  of the  goods\nfrom the  factory gate\tto the\tplace or places of delivery.\n[391 H; 392 A]\n     Where freight  is averaged\t and the averaged freight is\nincluded in  the wholesale  cash price so that the wholesale\ncash price  at any  place or places outside the factory gate\nis the same as the wholesale cash price at the factory gate,\nthe averaged  freight included\tin such wholesale cash price\nhas to\tbe deducted in order to arrive at the real wholesale\ncash price  at the  factory gate  and no  excise duty can be\ncharged on it. [392 A-B]\n354\n     The new s. 4 (4) (d) (i) has made express provision for\nincluding the  cost  of\t packing  in  the  determination  of\n\"value\" for  the purpose  of excise  duty. The\tpacking,  of\nwhich the  cost is  included, is  the packing  in which\t the\ngoods are  wrapped, contained  or wound\t when the  goods are\ndelivered at  the time\tof  removal.  The  cost\t of  primary\npacking, that is to say, the packing in which the article is\ncontained and  in  which  it  is  made\tmarketable  for\t the\nordinary consumer,  must be  regarded as falling within s. 4\n(4) (d)\t (i). There  is secondary  packing which consists of\nlarger cartons in which a standard number of primary cartons\n(in the\t sense mentioned  earlier)  are\t packed.  The  large\ncartons\t may   be  packed   into  even\tlarger\tcartons\t for\nfacilitating the  easier  transport  of\t the  goods  by\t the\nwholesale dealer.  Is all  the packing,\t no matter  to\twhat\ndegree, in  which the wholesale dealer takes delivery of the\ngoods to be considered for including the cost thereof in the\n\"value\" ?  Or does  the law  require  a\t line  to  be  drawn\nsomewhere  ?   One  must  remember  that  while\t packing  is\nnecessary to  make the\texcisable article,  marketable,\t the\nstatutory provision  calls for\tstrict construction  because\nthe levy  is sought  to be  extended beyond the manufactured\narticle itself.\t If seems to us that the degree of secondary\npacking which is necessary for putting the excisable article\nin the\tcondition in  which it\tis  generally  sold  in\t the\nwholesale market  at the  factory  gate\t is  the  degree  of\npacking whose  cost can\t be included  in the  \"value\" of the\narticle for  the purpose of the excise levy. To that extent,\nthe cost  of secondary\tpacking cannot\tbe deducted from the\nwholesale cash price of the excisable article at the factory\ngate. [392 C; 392 G-H; 393 A-E]\n     If any  special secondary\tpacking is  provided by\t the\nassessee at  the instance of a whole-sale buyer which is not\ngenerally provided  as a  normal feature  of  the  wholesale\ntrade, the  cost of  such packing shall be deducted from the\nwholesale cash price. [393 F]\n\n\n\nJUDGMENT:\n<\/pre>\n
     CIVIL APPELLATE  JURISDICTION: Civil Appeal No. 2269 of
\n1980 etc.
\n     From the  Judgment and  order dated 30.7.80 of the High
\nCourt of Bombay in Appeal No. 252\/1980 etc.
\n     K.\t Parasaran  Sol.  Genl.,  N.C.\tTalukdar,  Dr.\tY.S.
\nChitale, K.K  Venugopal, Suraj Udai Singh, Dalveer Bhandari,
\nC.V. Subba  Rao, R.N. Poddar, M.S. Ganesh, Ravi Naghmave, T.
\nShrinivasamoorthi, K.S.\t John,\tVithalbhai  B.\tPatel,\tR.P.
\nKapur, Bhaskar Gupta, R.K Chaudhary, A. T. Patra and Parveen
\nKumar for the Appellants Petitioners.\n<\/p>\n
     N.A. Palkhivala,  J.C. Bhatt,  Soli J.  Sorabjee, Ashok
\nDesai, D.B.  Engineer, B.H.  Antia,  Ravinder  Narain,\tO.C.
\nMathur. Talat  Ansari, Mrs.  A.K Verma,\t Ashok\tSagar,\tMiss
\nRainu Walia,  Sukumaran, D.N. Mishra and A.N. Haskar for the
\nRespondents.\n<\/p>\n
355<\/span><\/p>\n
     The Judgment of the Court was delivered by
\n     PATHAK. J:\t On May\t 9, 1983  we made  an order  setting
\nforth the  legal position  in respect  of various aspects of
\nthe levy  of excise  duty under the Central Excises and Salt
\nAct, 1944,  both before its amendment by the Central Excises
\nand Salt  (Amendment) Act. 1973 (Act XXII of 1973) and after
\nsuch amendment. We record now the reasons for that order.\n<\/p>\n
     At the  outset, we may state that it is not possible in
\nthis judgment  to deal with the numerous individual appeals,
\nwrit petitions,\t special  leave\t petitions  and\t transferred
\ncases before  us on  the particular  facts of  each, and  we
\npropose to  consider  the  points  arising  therein  from  a
\ngeneral perspective.\n<\/p>\n
     The Central  Excises and  Salt  Act,  1944\t relates  to
\ncentral duties\tof excise  and to  salt. Sub-s.\t (1) of\t s.3
\nprovides that duties of excise shall be levied and collected
\non all\texcisable goods, other than salt, which are produced
\nor manufactured\t in India,  at the  rates set  forth in\t the
\nFirst Schedule.\t We are\t not concerned\twith  the  provision
\nrelating to salt. Sub-s. (2) empowers the Central Government
\nto fix, for the purpose of levying the duties, tariff values
\nof  the\t  articles  enumerated\tin  the\t First\tSchedule  as
\nchargeable with duty ad valorem.\n<\/p>\n
     Before its\t amendment by  Act XXII\t of 1973 s.4 read as
\nfollows:\n<\/p>\n
     “4.  Determination of  value for the purposes of duty.-
\n     Where, under  this Act,  any article is chargeable with
\n     duty at  a rate  dependent on the value of the article,
\n     such value shall be deemed to be-\n<\/p><\/blockquote>\n
     (a)  the wholesale\t cash price  for which an article of
\n\t  the like kind and quality is sold or is capable of
\n\t  being sold  at the  time of  the  removal  of\t the
\n\t  article chargeable  with duty\t from the factory or
\n\t  any other  premises of  manufacture or  production
\n\t  for  delivery\t at  the  place\t of  manufacture  or
\n\t  production, or  if a\twholesale  market  does\t not
\n\t  exist for  such article  at  such  place,  at\t the
\n\t  nearest place where such market exists, or\n<\/p><\/blockquote>\n
     (b)  where such  price is\tnot ascertainable, the price
\n\t  at which  an article\tof the like kind and quality
\n\t  is sold  or  is  capable  of\tbeing  sold  by\t the
\n\t  manufacturer or
\n356<\/span>
\n\t  producer, or his agent, at the time of the removal
\n\t  of the  article chargeable  with  duty  from\tsuch
\n\t  factory or  other premises  for  delivery  at\t the
\n\t  place of  manufacture or  production, or  if\tsuch
\n\t  article is  not sold\tor is  not capable  of being
\n\t  sold at  such place,\tat any\tother place  nearest
\n\t  thereto.\n<\/p><\/blockquote>\n
\t  Explanation-In  determining\tthe  price   of\t any
\n     article under  this section,  no abatement or deduction
\n     shall be  allowed except  in respect  of trade discount
\n     and the  amount of\t duty payable  at the  time  of\t the
\n     removal of\t the article  chargeable with  duty from the
\n     factory or other premises aforesaid.”<\/p><\/blockquote>\n
     It seems  that with  the increase\tin  the\t ad  valorem
\nlevies in  the Central\tExcise Tariff  the operation  of s.4
\npresented certain practical difficulties, some of which were
\nprominently brought  out in the judgment of this Court in A.
\nK. Roy\t& Anr,\tv. Voltas  Limited. Among<\/a> other observations
\nthe Court  appears to  have said  that the  real value of an
\narticle for  the purposes  of the  excise levy would include
\nonly the  manufacturing cost  plus the manufacturing profit.
\nIn order  to overcome  the various  difficulties, Parliament
\nenacted Act XXII of 1973 which substituted a new s.4 for the
\noriginal Provision with effect from October 1, 1975. The new
\nsection 4 provides:-\n<\/p>\n
     “4.  Valuation  of\t excisable  goods  for\tpurposes  of
\n     charging of  duty of  excise.-(1) Where under this Act,
\n     the duty of excise is chargeable on any excisable goods
\n     with reference  to value,\tsuch value shall, subject to
\n     the other provisions of this section be deemed to be-\n<\/p><\/blockquote>\n
     (a)  the normal  price thereof,  that is  to  say,\t the
\n\t  price at  which such\tgoods are ordinarily sold by
\n\t  the assessee to a buyer in the course of wholesale
\n\t  trade for  delivery  at  the\ttime  and  place  of
\n\t  removal, where  the buyer  is not a related person
\n\t  and the  price is  the sole  consideration for the
\n\t  sale:\n<\/p><\/blockquote>\n
     Provided that-\n<\/p><\/blockquote>\n
     (i)  where in  accordance with  the normal\t practice of
\n\t  the wholesale\t trade in such goods, such goods are
\n\t  sold
\n357<\/span>
\n\t  by the  assessee at  different prices to different
\n\t  classes of buyers (not being related persons) each
\n\t  such price, shall, subject to the existence of the
\n\t  other circumstances  specified in  clause (a),  be
\n\t  deemed to  be the  normal price  of such  goods in
\n\t  relation to each such class of buyers;\n<\/p><\/blockquote>\n
     (ii) where such  goods are\t sold by the assessee in the
\n\t  course of wholesale trade for delivery at the time
\n\t  and place  of removal\t at a  price fixed under any
\n\t  law for  the time  being in  force, or at a price,
\n\t  being the  maximum fixed under any such law, then,
\n\t  notwithstanding anything contained in cl. (iii) of
\n\t  this proviso\tthe price  or the  maximum price, as
\n\t  the case  may be,  so fixed  shall, in relation to
\n\t  the goods  so sold,  be deemed  to be\t the  normal
\n\t  price thereof;\n<\/p><\/blockquote>\n
     (iii)where the  assessee so arranges that the goods are
\n\t  generally  not  sold\tby  him\t in  the  course  of
\n\t  wholesale trade  except to  or through  a  related
\n\t  person, the  normal price of the goods sold by the
\n\t  assessee to  or through  such related person shall
\n\t  be deemed  to be  the\t price\tat  which  they\t are
\n\t  ordinarily sold  by  the  related  person  in\t the
\n\t  course of  wholesale trade at the time of removal,
\n\t  to dealers  (not being  related persons)  or where
\n\t  such goods  are  not\tsold  to  such\tdealers,  to
\n\t  dealers (being  related  persons)  who  sell\tsuch
\n\t  goods in retail;\n<\/p><\/blockquote>\n
     (b)  where the  normal  price  of\tsuch  goods  is\t not
\n\t  ascertainable for  the reason\t that such goods are
\n\t  not sold  or for  any other  reason,\tthe  nearest
\n\t  ascertainable\t equivalent  thereof  determined  in
\n\t  such manner as may be prescribed.\n<\/p><\/blockquote>\n
\t  (2) Where,  in relation to any excisable goods the
\n     price thereof  for delivery  at the place of removal is
\n     not known\tand the\t value thereof\tis  determined\twith
\n     reference to  the price  for delivery  at a place other
\n     than the  place of\t removal, the cost of transportation
\n     from the  place of\t removal, to  the place\t of delivery
\n     shall be excluded from such price.\n<\/p><\/blockquote>\n
358<\/span><\/p>\n
\t  (3) The provisions of this section shall not apply
\n     in respect\t of any\t excisable goods  for which a tariff
\n     value has\tbeen fixed  under sub-section (2) of Section\n<\/p><\/blockquote>\n
     3.
\n     (4)  or the purposes of this section.-\n<\/p><\/blockquote>\n
     (a)  “assessee” means  the person\twho is liable to pay
\n\t  the duty of excise under this Act and includes his
\n\t  agent;\n<\/p><\/blockquote>\n
     (b)  “place of removal” means-\n<\/p><\/blockquote>\n
\t  (i)  a factory  or any  other place or premises of
\n\t       production or  manufacture of  the  excisable
\n\t       goods; or\n<\/p><\/blockquote>\n
\t  (ii) a warehouse  or any  other place\t or premises
\n\t       wherein\tthe   excisable\t goods\t have\tbeen
\n\t       permitted to  be deposited without payment of
\n\t       duty,
\n     from where such goods are removed;\n<\/p><\/blockquote>\n
     (c)  “related  person”   means  a\t person\t who  is  so
\n\t  associated  with   the  assessee  that  they\thave
\n\t  interest, directly  or indirectly, in the business
\n\t  of each  other and  includes a  holding company, a
\n\t  subsidiary company,  a relative  and a distributor
\n\t  of the  assessee, and\t any sub-distributor of such
\n\t  distributor.\n<\/p><\/blockquote>\n
\t       Explanation.-In\t  this\t  clause    “holding
\n\t  company”, “a\tsubsidiary company”  and  “relative”
\n\t  have the  same meanings  as in  the Companies Act,
\n\t  1956;\n<\/p><\/blockquote>\n
     (d)  “value”, in relation to any excisable goods.-\n<\/p><\/blockquote>\n
\t  (i)  where the  goods are delivered at the time of
\n\t       removal in  a packed  condition, includes the
\n\t       cost of\tsuch packing  except the cost of the
\n\t       packing which  is of  a durable nature and is
\n\t       returnable by the buyer to the assessee.\n<\/p><\/blockquote>\n
359<\/span><\/p>\n
\t  Explanation.-In this\tsub-clause  “packing”  means
\n     the wrapper,  container, bobbin,  pirn, spool,  reel or
\n     warp beam\tor any\tother thing in which or on which the
\n     excisable goods are wrapped. contained or wound;\n<\/p><\/blockquote>\n
\t  (ii) does not\t include the  amount of\t the duty of
\n\t       excise, sales  tax and  other taxes,  if any,
\n\t       payable on  such goods  and, subject  to such
\n\t       rules as\t may be\t made,\tthe  trade  discount
\n\t       (such discount  not being  refundable on\t any
\n\t       account\twhatsoever)  allowed  in  accordance
\n\t       with the\t normal practice  of  the  wholesale
\n\t       trade at\t the time  of removal  in respect of
\n\t       such goods sold or contracted for sale;\n<\/p><\/blockquote>\n
     (e)  “wholesale  trade”   means   sales   to   dealers,
\n\t  industrial consumers, Government local authorities
\n\t  and other  buyers, who  or  which  purchase  their
\n\t  requirements otherwise than in retail.”<\/p><\/blockquote>\n
     In the  cases before  us there  has  been\tconsiderable
\ndebate on the true meaning and scope of s.4 before and after
\nits amendment. The points raised are not without difficulty,
\nbut we have had the advantage of hearing counsel of eminence
\non  both  sides,  and  we  are\tgrateful  to  them  for\t the
\nconsiderable assistance\t they have  given us  throughout the
\nhearing of these cases.\n<\/p>\n
     The central  issue between\t the parties  is whether the
\nvalue of an article for the purposes of the excise levy must
\nbe determined  by reference exclusively to the manufacturing
\ncost and  the manufacturing  profit of\tthe manufacturer  or
\nshould be  represented by the entire wholesale price charged
\nby the manufacturer. The wholesale price actually charged by
\nthe manufacturer  consists of  not merely  his manufacturing
\ncost and his manufacturing profit but includes, in addition,
\na  whole   range  of  expenses\tand  an\t element  of  profit
\n(conveniently referred\tto as  “post manufacturing expenses”
\nand  “post   manufacturing  profit”)   arising\tbetween\t the
\ncompletion of  the manufacturing  process and  the point  of
\nsale by the manufacturer.\n<\/p>\n
     Mr. N.A. Palkhivala, learned counsel for the assessees,
\nhas propounded three principles which, he contends, form the
\nessential characteristics  of a\t duty of excise. Firstly, he
\nsays, excise is a tax on
\n360<\/span>
\nmanufacture  or\t  production  and   not\t on  anything  else.
\nSecondly, uniformity  of incidence is a basic characteristic
\nof excise.  And thirdly, the exclusion of post manufacturing
\nexpenses  and  post  manufacturing  profits  is\t necessarily
\ninvolved in  the first\tprinciple and  helps to\t achieve the
\nsecond. Learned\t counsel urges\tthat where  excise  duty  is
\nlevied on  an ad  valorem basis the value on which such duty
\nis levied  is a\t “conceptual value”, and that the conceptual
\nnature is borne out by the circumstance that the identity of
\nthe manufacturer  and the  identity of\tthe goods as well as
\nthe actual  wholesale price  charged by the manufacturer are
\nnot the\t determining factors.  It is  urged that the old s.4\n<\/p>\n
(a) clearly  indicates that  a conceptual  value  forms\t the
\nbasis of  the levy,  and that  the  actual  wholesale  price
\ncharged by  the particular  assessee cannot  be the basis of
\nthe excise  levy. It  is said  that the criterion adopted in
\nclause (a)  succeeds in\t producing uniform taxation, whether
\nthe assessees  are manufacturers  who sell  their  goods  in
\nwholesale, semi-wholesale  or in retail, whether they have a
\nvast selling  and marketing  net work  or have none, whether
\nthey sell  at depots  and branches  or sell  at the  factory
\ngate, and  whether they\t load the ex-factory price with post
\nmanufacturing expenses\tand profits or do not do so. Because
\nthe value  of the  article rests on a conceptual base, it is
\nurged, the  result of the assessment under s.4 (a) cannot be
\ndifferent from\tthe result  of an  assessment under s 4 (b).
\nThe contention\tis  that  the  principle  of  uniformity  of
\ntaxation  requires   the  exclusion  of\t post  manufacturing
\nexpenses and  profits, a  factor which\twould vary  from one
\nmanufacturer  to  another.  It\tis  pointed  out  that\tsuch
\nexclusion is  necessary to  create a  direct  and  immediate
\nnexus between  the levy\t and the manufacturing activity, and
\nto bring  about a  uniformity in  the incidence of the levy.
\nLearned counsel contends that the position is the same under
\nthe new\t s.4 which, he says, must needs be so because of the
\nfundamental nature  of the  principles\tpropounded  earlier.
\nReferring to  the actual language of the new s.4 (1) (a), it
\nis pointed  out that  the expression  “normal price” therein
\nmeans “normal  for the\tpurposes of excise”, that is to say,
\nthat the  price must exclude post manufacturing expenses and
\npost manufacturing  profit and\tmust not  be loaded with any
\nextraneous element.  It is conceded, however, that under the
\nnew s.4\t (1) (a)  there is no attempt to preserve uniformity
\nas regards  the amount\tof duty between one manufacturer and
\nanother, but  it is  urged that the basis on which the value
\nis  determined\t is  constituted   by  the  same  conceptual
\ncriterion,  that   post\t manufacturing\t expenses  and\tpost
\nmanufacturing profit must be excluded. Considerable emphasis
\nhas been laid on the submission that as excise duty is a tax
\non the manufacture or
\n361<\/span>
\nproduction of  goods it must be a tax intimately linked with
\nthe manufacture\t or production of the excisable article and,
\ntherefore, it  can be  imposed only  on the assessable value
\ndetermined with\t reference to  the excisable  article at the
\nstage of  completed manufacture\t and to\t no point beyond. To
\npreserve this  intimate link  or nexus between the nature of
\nthe tax\t and the assessment of the tax, it is urged that all
\nextraneous elements included in the “value” in the nature of
\npost manufacturing  expenses and  post manufacturing profits
\nhave to\t be off-loaded.\t It is pointed out that factors such
\nas volume, quantity and weight, which enter into the measure
\nof the\ttax, are  intimately linked  with the  manufacturing
\nactivity, and that the power of Parliament under Entry 84 of
\nList I\tof the\tSeventh\t Schedule  to  the  Constitution  to
\nlegislate  in  respect\tof  “value”  is\t restricted  by\t the
\nconceptual need\t to  link  the\tbasis  for  determining\t the
\nmeasure of the tax with the very nature of the tax.\n<\/p>\n
     Shri K.  Parasaran, the  learned Solicitor\t General  of
\nIndia (when  these cases  were heard),\tand now the Attorney
\nGeneral of  India) has\tstrongly contended that the value of
\nan excisable  article for  the purposes\t of the levy must be
\ntaken  at  the\tprice  charged\tby  the\t manufacturer  on  a
\nwholesale transaction,\tthe computation\t being made strictly
\nin terms  of the  express provisions  of the statute and, he
\nsays, there  is no  warrant for\t confining the\tvalue to the
\nassessee’s manufacturing  cost\tplus  manufacturing  profit.
\nAccording  to\thim,  although\texcise\tis  a  levy  on\t the
\nmanufacture of\tgoods, it is open to Parliament to adopt any
\nbasis for  determining the  value of  an excisable  article,
\nthat the  measure for assessing the levy need not correspond
\ncompletely to  the nature  of the  levy, and no fault can be
\nfound with  the measure so long as it bears a nexus with the
\ncharge.\n<\/p>\n
     Besides this  fundamental issue, there are other points
\nof dispute, principally in respect of the connotation of the
\nexpression “related  person” in\t the new  s.4 as well as the
\nnature of  the\tdeductions  which  can\tbe  claimed  by\t the
\nassessee   as\tpost   manufacturing   expenses\t  and\tpost
\nmanufacturing profit  from the\tprice  for  the\t purpose  of
\ndetermining the “value”.\n<\/p>\n
     The submissions made by learned counsel for the parties
\nin support  of their  respective contentions  cover  a\twide
\narea, and  several questions  of a  fundamental nature\thave
\nbeen raised.  We consider  it necessary\t to deal  with\tthem
\nbecause\t they  enter  into  and\t determine  the\t conclusions
\nreached by us.\n<\/p>\n
362<\/span><\/p>\n
     We think  it appropriate  that at the very beginning we
\nshould briefly\tindicate the  concept of  a duty  of excise.
\nBoth Entry  45 of  List I  of the  Seventh Schedule  to\t the
\nGovernment of  India Act,  1935, under\twhich  the  original
\nCentral Excises\t and Salt  Act was  enacted, and Entry 84 of
\nList I\tof the\tSeventh Schedule  to the  Constitution under
\nwhich the  Amendment Act  of  1973  was\t enacted,  refer  to
\n“Duties of excise on…….goods manufactured or produced in
\nIndia”. A  duty of excise, according to the Federal Court in
\nThe Central  Provinces and  Berar Sales\t of Motor Spirit and
\nLubricants Taxation Act, 1938 is a duty ordinarily levied on
\nthe manufacturer  or producer  in respect of the manufacture
\nor production  of the  commodity taxed.\t A  distinction\t was
\ndrawn between  the nature  of the tax and the point at which
\nit was collected, and Gwyer C.J. observed that theoretically
\n“there can  be no  reason why  an excise  duty should not be
\nimposed even on the retail sale of an article, if the taxing
\nAct  so\t  provides.  Subject   always  to   the\t legislative
\ncompetence of  the taxing authority, a duty on home-produced
\ngoods will  obviously be  imposed at  the  stage  which\t the
\nauthority find to be most convenient and the most lucrative,
\nwherever it may be; but that is a matter of the machinery of
\ncollection, and\t does not affect the essential nature of the
\ntax. The  ultimate incidence  of an  excise duty,  a typical
\nindirect tax, must always be on the consumer, who pays as he
\nconsumes or  expends; and it continues to be an excise duty,
\nthat is, a duty on home-produced or home-manufactured goods,
\nno  matter   at\t what\tstage  it  is  collected”  (emphasis
\nsupplied).  The\t  position  was\t explained  further  in\t The
\nProvince of Madras v. Messers. Boddu Paidanna and Sons where
\nthe Federal Court observed:-\n<\/p>\n
\t  “There is in theory nothing to prevent the Central
\n     Legislature  from\timposing  a  duty  of  excise  on  a
\n     commodity as soon as it comes into existence, no matter
\n     what happens  to it  afterwards, whether  it  be  sold,
\n     consumed, destroyed,  or given away. A taxing authority
\n     will not  ordinarily impose  such a duty, because it is
\n     much more\tconvenient administratively  to collect\t the
\n     duty (as in the case of most of the Indian Excise Acts)
\n     when the  commodity leaves\t the factory  for the  first
\n     time, and\talso because  the duty\tis intended to be an
\n     indirect duty  which the manufacturer or producer is to
\n     pass on to the ultimate consumer, which he could not do
\n     if the commodity had,
\n363<\/span>
\n     for example,  been destroyed  in the factory itself. It
\n     is the  fact of  manufacture which\t attracts the  duty,
\n     even though it may be collected later.”\n<\/p><\/blockquote>\n
The observations  show that while the nature of an excise is
\nindicated by  the fact\tthat is\t imposed in  respect of\t the
\nmanufacture or\tproduction of an article, the point at which
\nit is  collected is not determined by the point of time when
\nits manufacture is completed but will rest on considerations
\nof administrative  convenience, and  that  generally  it  is
\ncollected when\tthe article leaves the factory for the first
\ntime. In  other words,\tthe circumstance  that\tthe  article
\nbecomes the  object of\tassessment when\t it is\tsold by\t the
\nmanufacturer does  not detract from its true nature, that it
\nis a  levy on the fact of manufacture. In a subsequent case,
\nGovernor-General in Council v. Province of Madras, the Privy
\nCouncil referred  to both in The Central Provinces and Berar
\nSales of  Motor Spirit\tand Lubricants\tTaxation  Act,\t1938
\n(supra)\t and  The  Province  of\t Madras\t v.  Messers.  Boddu
\nPaidanna and  Sons (supra) and affirmed that when excise was
\nlevied on  a manufacturer  at the point of the first sale by
\nhim “that  may be  because the taxation authority imposing a
\nduty of\t excise finds  it convenient  to impose that duty at
\nthe moment  when the excisable article leaves the factory or
\nworkshop for the first time on the occasion of its sale. But
\nthat  method  of  collecting  the  tax\tis  an\taccident  of
\nadministration; it  is not  of the  essence of\tthe duty  of
\nexcise, which  is attracted by the manufacture itself.” This
\nCourt had  occasion to\tconsider a  similar question in R.C.
\nJall v. Union of India. In<\/a> that case, the Central Government
\nwas authorised by an ordinance to levy and collect as a cess
\non coal and coke despatched from collieries in British India
\nduty of\t excise at  a specified\t rate.\tRule  3\t made  under
\nOrdinance empowered  the Government  to\t impose\t a  duty  of
\nexcise on  coal\t and  coke  when  such\tcoal  and  coke\t was
\ndespatched by  rail from  the collieries of the coke plants,
\nand  the   duty\t was   to  be\tcollected  by\tthe  Railway
\nAdministration by  means of  a surcharge  on freight  either
\nfrom the  consignor or\tconsignee. It  was contended  by the
\nassessee that the excise duty could not legally be levied on
\nthe consignee  who had nothing to do with the manufacture or
\nproduction of coal. The Court remarked:\n<\/p>\n
\t  “The argument\t confuses the  incidence of taxation
\n     with  the\t machinery  provided   for  the\t  collection
\n     thereof,”\n<\/p><\/blockquote>\n
364<\/span><\/p>\n
and reference  was made\t to In re. the Central Provinces and
\nBerar Act No. XIV of 1938 (supra), The Province of Madras v.
\nBoddu Paidanna\tand Sons  (supra)  and\tGoverner-General  in
\nCouncil v.  Province of\t Madras\t (supra).  This\t Court\tthen
\nsummarised the law as follows:-\n<\/p>\n
\t  “Excise duty is primarily a duty on the production
\n     or manufacture of goods produced or manufactured within
\n     the  country.   It\t is   an  indirect  duty  which\t the
\n     manufacturer or  producer passes  on  to  the  ultimate
\n     consumer, that  is, its  ultimate incidence will always
\n     be on  the consumer.  Therefore, subject  always to the
\n     legislative competence  of the  taxing  authority,\t the
\n     said tax can be levied at a convenient stage so long as
\n     the character  of the  impost, that is, it is a duty on
\n     the manufacture  or production, is not lost. The method
\n     of collection  does not affect the essence of the duty,
\n     but only  relates to  the machinery  of collection\t for
\n     administrative convenience.”\n<\/p><\/blockquote>\n
Other cases  followed where  the nature\t of excise  duty was
\nreaffirmed in  the terms  set out earlier, and reference may
\nbe made to In Re. The Bill To Amend S. 20 of the Sea Customs
\nAct, 1878,  and S.  3 of  the Central  Excises And Salt Act,
\n1944, Union  of India  v. Delhi\t Cloth &  General Mills, M\/s
\nGuruswamy &  Co. Etc.<\/a>  v. State\t of Mysore  & Ors. and South
\nBihar Sugar Mills Ltd. etc. v. Union of India & Ors.\n<\/p>\n
     We think we have shown sufficiently that while the levy
\nis on  the manufacture\tor production of goods, the stage of
\ncollection need\t not in\t point of  time synchronize with the
\ncompletion of  the manufacturing  process. While the levy in
\nour country  has the status of a constitutional concept, the
\npoint of collection is located where the statute declares it
\nwill be.  We shall return to this later when it is necessary
\nto  consider  a\t submission  in\t regard\t to  the  effect  of
\ntransactions to or through “related persons”.\n<\/p>\n
     We move  on  now  to  a  different\t dimension,  to\t the
\nconceptual consideration  of the measure of the tax. S. 3 of
\nthe Central  Excises and  Salt Act  provides for the levy of
\nthe duty of excise. It creates
\n365<\/span>
\nthe charge, and defines the nature of the charge. That it is
\na levy\ton excisable  goods,  produced\tor  manufactured  in
\nIndia, is  mentioned in terms in the section itself. Section
\n4 of  the Act provides the measure by reference to which the
\ncharge is  to be  levied. The  duty of\texcise is chargeable
\nwith reference\tto the value of the excisable goods, and the
\nvalue is  defined in  express terms  by that section. It has
\nlong been recognised that the measure employed for assessing
\na tax  must not\t be confused  with the nature of the tax. In
\nRalla Ram  v. Province of East Punjab the Federal Court held
\nthat a\ttax on\tbuildings under\t s. 3  of the  Punjab  Urban
\nImmovable Property Tax Act, 1940 measured by a percentage of
\nthe annual  value  of  such  buildings\tremained  a  tax  on
\nbuildings under\t that Act  even though the measure of annual
\nvalue of  a building  was also\tadopted as  a  standard\t for
\ndetermining income  from property  under the Income Tax Act.
\nIt was\tpointed out  that although  the\t same  standard\t was
\nadopted as a measure for the two levies, the levies remained
\nseparate and  distinct imposts by virtue of their nature. In
\nother words,  the measure  adopted could  not be  identified
\nwith the  nature of the tax. The distinction was observed by
\na Special  Bench of  the Patna High Court in Atma Ram Budhia
\nv. State  of Bihar  where a  tax on passengers and goods was
\nassessed as  a rate on the fares and freights payable by the
\nowners of  the motor  vehicles. Atma  Ram Budiha (supra) was
\nreferred to  with approval  by\tthis  Court  in\t M\/s  Sainik
\nMotors, Jodhpur\t and Others  v. The State of Rajasthan. This
\nCourt<\/a> in that case repelled the contention that the levy was
\na tax  upon income  and not  upon passengers  and goods.  It
\npointed out that “though the measure of the tax is furnished
\nby the\tfares and  freights it does not cease to be a tax on
\npassengers and\tgoods”. The  point was\tconsidered  by\tthis
\nCourt again  in D.C. Gouse and Co. etc. v. State of Kerala &
\nAnr. etc.  where reference  was made  to the measure adopted
\nfor the\t purpose of  the levy  of tax on buildings under the
\nKerala Building\t Tax Act.  The Court  examined the different
\nmodes available\t to the\t Legislature for measuring the levy,
\nand upheld the action of the Legislature in linking the levy
\nwith the  annual value\tof the\tbuilding and  prescribing  a
\nuniform formula\t for determining  its capital  value and for
\ncalculating the\t tax. In  the course  of its  judgment,\t the
\nCourt  cited   with  approval\ta  passage   from  Seervai’s
\nConstitutional Law of India.\n<\/p>\n
366<\/span><\/p>\n
\t  “Another  principle\tfor  reconciling  apparently
\n     conflicting tax  entries follows  from the\t fact that a
\n     tax has  two elements: the person, thing of activity on
\n     which the\ttax is\timposed, and  the amount of the tax.
\n     The amount\t may be\t measured in  may ways;\t but decided
\n     cases establish a clear distinction between the subject
\n     matter of a tax and the standard by which the amount of
\n     tax is  measured. These  two elements  are described as
\n     the subject of a tax and the measure of a tax.”\n<\/p><\/blockquote>\n
It is, therefore, clear that the levy of a tax is defined by
\nits nature,  while the measure of the tax may be assessed by
\nits own\t standard. It  is true\tthat the standard adopted as
\nthe measure  of the  levy may indicate the nature of the tax
\nbut it\tdoes not  necessarily determine it. The relationship
\nwas aptly  expressed by the Privy council in Re. A Reference
\nunder the Government of Ireland Act, 1920 and Sect. 3 of the
\nFinance Act (Northern Ireland), 1934 when it said:-\n<\/p>\n
\t  “……It is\tthe essential  characteristic of the
\n     particular tax  charged that is to be regarded, and the
\n     nature of\tthe machinery-often complicated-by which the
\n     tax is  to be  assessed is not of assistance, except in
\n     so far  as it  may throw light on the general character
\n     of the tax.”\n<\/p><\/blockquote>\n
The case  was referred\tto by  a Constitution  Bench of this
\nCourt in  R.R. Engineering  Co. v. Zila Parishad, Bareilly &
\nAnr.,<\/a> where the relationship was succinctly described thus:-\n<\/p>\n
\t  “It may  be, and  is often  so, that\tthe  tax  on
\n     circumstances and\tproperty is  levied on\tthe basis of
\n     income which the assessee receives from his profession,
\n     trade, calling  or\t property.  That  is,  however,\t not
\n     conclusive on  the nature\tof the\ttax. It is only as a
\n     matter of\tconvenience that  income  is  adopted  as  a
\n     yardstick or  measure for assessing the tax. As pointed
\n     out in  Re. a  Reference under  Govt.  of\tIreland\t Act
\n     (supra), the  measure of  the tax is not a true test of
\n     the nature of the tax. Therefore, while determining the
\n     nature of\ta tax,\tthough the standard on which the tax
\n     is levied\tmay be a relevant consideration, it is not a
\n     conclusive consideration.”\n<\/p><\/blockquote>\n
367<\/span><\/p>\n
The principle  was reaffirmed  by this\tCourt in The Hingir-
\nRampur Coal  Co., Ltd. and Others v. The State of Orissa and
\nOthers<\/a> where the form in which the levy was imposed was held
\nto be  and impermissible  test for  defining in\t itself\t the
\ncharacter of the levy. It was observed:-\n<\/p>\n
\t  “…..the mere  fact that  the levy imposed by the
\n     impugned Act  had adopted the method of determining the
\n     rate of  the levy by reference to the minerals produced
\n     by the  mines would  not by itself make the levy a duty
\n     of excise.\t The method  thus adopted may be relevant in
\n     considering the  character of the impost but its effect
\n     must be  weighed along  with and  in the  light of\t the
\n     other relevant circumstances.”\n<\/p><\/blockquote>\n
It is  apparent, therefore,  that when enacting a measure to
\nserve as  a standard  for assessing the levy the Legislature
\nneed  not  contour  it\talong  lines  which  spell  out\t the
\ncharacter of  the levy\titself. Viewed from this standpoint,
\nit is not possible to accept the contention that because the
\nlevy of\t excise is  a levy on goods manufactured or produced
\nthe value  of an  excisable article  must be  limited to the
\nmanufacturing cost  plus the manufacturing profit. We are of
\nopinion that  a broader\t based standard\t of reference may be
\nadopted for  the purpose  of determining  the measure of the
\nlevy.  Any   standard  which  maintains\t a  nexus  with\t the
\nessential character  of the  levy can be regarded as a valid
\nbasis for assessing the measure of the levy. In our opinion,
\nthe original  s.4 and the new s.4 of the Central Excises and
\nSalt Act satisfy this test.\n<\/p>\n
     S.4 envisages  a method  of collecting tax at the point
\nof the\tfirst sale  effected by\t the manufacturer. Under the
\nold s.4\t (a), the  value of the excisable article was deemed
\nto be  the wholesale  cash price for which an article of the
\nlike kind  and quality\twas sold,  or was  capable of  being
\nsold, at  the time  of the removal of the article chargeable
\nwith  duty  from  the  factory\tor  any\t other\tpremises  of
\nmanufacture or\tproduction for\tdelivery  at  the  place  of
\nmanufacture or\tproduction, or if a wholesale market did not
\nexist for  such article\t at such  place, then  delivery\t was
\nenvisaged at  the nearest  place where\tsuch market existed.
\nSec.4  (b)   declared  that   where  such   price  was\t not
\nascertainable, the  value would be deemed to be the price to
\nbe the price at which an article of the
\n368<\/span>
\nlike kind  and quality was sold or was capable of being sold
\nby the\tmanufacturer or\t producer, or his agent, at the time
\nof the removal of the article chargeable with duty from such
\nfactory or  other premises  for delivery  at  the  place  of
\nmanufacture or\tproduction, and if such article was not sold
\nor was not capable of being sold at such place, at any other
\nplace nearest  thereto. Then  there was an explanation which
\ndeclared that  no abatement  or deduction  would be  allowed
\nexcept in  respect of trade discount and the duty payable at
\nthe time of the removal of the article from the factory. The
\nwholesale price\t was envisaged\tas a  cash price in order to
\nmake it\t a uniform  standard, because  it was  then a  price
\nfreed from the burden of an increase on account of credit or
\nother advantage\t allowed to a buyer, a factor which may vary
\nfrom transaction to transaction and from buyer to buyer. The
\nessential distinction  between cl.  (a) and  cl. (b)  of s.4
\nappears to  lie in  this, that\tcl. (a)\t is invoked when the
\nwholesale cash\tprice is  ascertainable and cl. (b) when the
\nwholesale cash price cannot be ascertained.\n<\/p>\n
     As we  have said,\tit was\topen to\t the Legislature  to
\nspecify the  measure for assessing the levy. The Legislature
\nhas done  so. In both the old s.4 and the new s.4, the price
\ncharged by  the manufacturer on a sale by him represents the
\nmeasure. Price\tand sale are related concepts, and price has
\na definite connotation. The “value” of the excisable article
\nhas to\tbe computed  with reference  to the price charged by
\nthe manufacturer,  the computation  being made in accordance
\nwith the terms of s.4.\n<\/p>\n
     A contention was raised for some of the assessees, that
\nthe measure  was to  be found  by reading s.3 with s.4, thus
\ndrawing the  ingredients of  s.3 into  the exercise.  We are
\nunable to  agree. We  are concerned with s.3(1), and we find
\nnothing there  which  clothes  the  provision  with  a\tdual
\ncharacter, a  charging provision  as  well  as\ta  provision
\ndefining the measure of the charge.\n<\/p>\n
     At this  stage, it\t would be  advantageous to  refer to
\ncertain decisions  which have  some bearing  on\t the  proper
\nconstruction of cl. (a) and cl. (b) of the old s.4.\n<\/p>\n
     In Vacuum\tOil Company  v. Secretary of State for India
\nin Council  the Privy  Council had  to construe the scope of
\ns.30 of\t the Sea  Customs Act, 1878 which contained cls. (a)
\nand (b) substantially comparable with the two clauses of the
\nold s.4 of the Central
\n369<\/span>
\nExcises\t and   Salt  Act.   The\t appellants   in  this\tcase
\nmanufactured different\tgrades of  lubricating\toil  in\t the
\nUnited\tStates.\t Large\tquantities  of\tlubricating  oil  of
\nparticular manufacture\tand mark  were imported\t into  India
\nthrough the  port of  Bombay  and  sold\t by  the  appellants
\ndirectly to  consumers. A dispute arose as to the provisions
\nunder which  duty under\t the Sea  Customs Act was attracted.
\nSection 30 of that Act provided that for the purposes of the
\nduty the  real\tvalue  should  be  deemed  to  be  “(a)\t the
\nwholesale cash\tprice, less  trade discount, for which goods
\nof the\tlike kind  and quality\tare sold  or are  capable of
\nbeing sold,  at the time and place of importation………or\n<\/p>\n
(b) where such price is not ascertainable, the cost at which
\ngoods of  the like  and quality\t could be  delivered at such
\nplace,…..” The government contended that the real value of
\nthe appellants’\t oil was its “wholesale cash price” referred
\nto in s.30(a) a price ascertainable, without difficulty. The
\nappellants replied  that in  view of the unique character of
\ntheir oil  and of  the invariable course of business pursued
\nby them\t in relation  to its  sale, a “wholesale cash price”
\nfor that oil had never existed and was not ascertainable and
\nthat  therefore\t  its  real  value  must  be  determined  in
\naccordance with\t s.30(b)  of  the  Act.\t The  Privy  council
\nobserved that  there was  no other oil in Bombay which could
\nbe said\t to be\t“of the\t like kind  and quality”  as the oil
\nimported  by  the  appellants  and  therefore  the  relevant
\n“wholesale cash\t price” for the appellants, if there be such
\nprice, was  to be found in the actual sales of those oils in
\nBombay by the appellants themselves provided that such sales
\nhad taken  place. It was noted that large stocks of oil were
\nimported at Bombay and all contracts for sale were made with
\nreference to  stocks. The  oils were disposed of directly to
\nconsumers and  never to\t dealers. The  appellants themselves
\ndischarged all the functions of retailers of their oil as so
\nsold. Besides,\tthe selling  price to consumers was about 70
\nper cent  above the entry price, the difference representing
\nthe appellant’s\t retailing profit  and the expenses incurred
\nby them in respect of matters subsequent to importation. The
\nquantities of  oil purchased by individual consumers were in
\nsome cases  very large\tindeed. The  Privy council  took the
\nview that  in no  sense could the price charged to consumers
\nfor the\t oils imported\tby the\tappellants be regarded as “a
\nwholesale case\tprice”, and  that therefore the case did not
\nfall within  s.30(a) but must be regarded as attracting s.30\n<\/p>\n
(b).\n<\/p>\n
     On the  other side of the line is Ford Motor Company of
\nIndia Ltd.  v. Secretary  of State  for India in Council, in
\nwhich the
\n370<\/span>
\nPrivy Council  had to  consider the  scope of  s. 30  of the
\nIndian Sea  Customs Act\t again. The appellants imported Ford
\nmotor vehicles\tinto India  from Canada\t and  sold  them  to
\nauthorised  dealers   or  distributors.\t  They\tpossessed  a
\nmonopoly in  India as  regards the  supply of such vehicles.
\nThe appellants issued from time to time a price list and the
\nterms of  business were\t that the retail price to be charged
\nby the\tdistributors to\t the public  was that  stated in the
\nprice list current at the time of arrival of the vehicles in
\nIndia, and  the price  payable by  the distributors  to\t the
\nappellants was\tthe same  price less  a discount  of 20\t per
\ncent. The  Collector of\t Customs assessed  customs duty on a
\nconsignment of\t256 Ford  motor cars  under s.\t30 (a).\t The
\nappellants contended  that for the motor-cars in question no
\nwholesale cash\tprice was  ascertainable and the duty should
\nhave been  assessed under  s.  30  (b).\t The  Privy  Council
\napproached the case from the stand point that if a wholesale
\nprice satisfying  the description contained in s. 30 (a) was
\nascertainable, the goods could not be dealt with under s. 30\n<\/p>\n
(b), and  in this connection they referred to the expression
\n“ascertainable” as importing more than could be satisfied by
\nthe result  of a  mere estimate. The Privy Council held that
\nthe appellant’s\t price to  the distributors  was a wholesale
\nprice within  the meaning of s. 30 (a) because it was a cash
\nprice, and  only discount  had been  deducted, and  the\t sum
\npayable by  the distributor  had been  deduced\tto  a  price
\nreferable to  a car  in the condition in which it arrived in
\nBombay. It  was contended  for the appellants that “goods of
\nthe like  kind and  quality” in\t cl. (a)  was a phrase which
\nsuggested  other   goods  than\tthat  under  assessment\t and
\ntherefore, the\tprice fetched  by the goods, themselves must
\nbe disregarded\tor should  be considered  only to  see\twhat
\nprice other  similar goods would have realised. It was urged
\nthat since  that test  was not satisfied cl.(a) could not be
\ninvoked.  The\tPrivy  Council\t rejected  the\t contention,
\nobserving that the application of cl.(a) did not depend upon
\nany hypothesis\tto the\teffect that at the time and place of
\nimportation an\tindefinite amount  of further goods added to
\nthe available  supply had  effect upon\tthe wholesale price.
\nAnd what  is important,\t the Privy Council further observed:
\n“But if there is an actual price for the goods themselves at
\nthe time and place of importation, and if it is a “wholesale
\ncash  price,   less  trade   discount”\tthe  clause  is\t not
\ninapplicable for  want of  sales of  other goods. The clause
\ncan be\tapplied distributively\tto each of the motor cars in
\nthis consignment, and even if they are regarded collectively
\nthe clause  is not defeated. A particular car may be sold at
\na price\t which, having\tregard to other transactions in such
\ncars, or to other circumstances,
\n371<\/span>
\nis too high or too low. In that sense, the actual price in a
\nparticular  instance   does  not   necessarily\tor   finally
\nestablish a  wholesale price to satisfy cl. (a), whether the
\nparticular car\tor cars\t sold be  part of  the\tshipment  in
\nquestion or  not. But  the goods  under assessment may under
\ncl. (a)\t be considered\tas members  of their  own class even
\nalthough at  the time  and place of importation there are no
\nother members.\tThe price  obtained for\t them may  correctly
\nrepresent the  price obtainable\t for goods  of the like kind
\nand quality at the time and place of importation.”\n<\/p>\n
     These two\tcases illustrate the fundamental distinction
\nbetween provisions  such as  the two  clauses of s. 4 of the
\nCentral Excises and Salt Act.\n<\/p>\n
     Great reliance  has been placed by the assessees on two
\nimportant  decisions   of  this\t Court\tin  support  of\t the
\ncontention  that   only\t the   manufacturing  cost  and\t the
\nmanufacturing profit can be taken into account for assessing
\nthe “value”  of an excisable article. The first case is A.K.
\nRoy v.\tVoltas Ltd.<\/a>  (supra). The  assessee manufactured air
\nconditioners and  water coolers, and sold those article from
\nits  head  office  at  Bombay  and  at\tbranch\tofficers  in
\ndifferent towns in the country directly to consumers at list
\nprices. The  sales so  effected amounted to about 90% to 95%
\nof its\tproduction. It\talso sold  the articles to wholesale
\ndealers on terms which required them to sell the products at
\nlist prices,  and that\tthe assessee  would  sell  them\t the
\narticles at the listed price less 22% discount. The assessee
\ncontended before  the excise authorities that the list price
\nminus 22%  discount allowed  to the  wholesale dealers would
\nconstitute the\t“wholesale cash\t price” for ascertaining the
\nreal value  of the  articles. The contention was accepted by
\nthe excise  authorities, and  assessments were\tmade on that
\nbasis. Subsequently,  the Superintendent  of Central  Excise
\nbegan to  assess the  duty on  the basis of the retail price
\nand not the wholesale cash price. The case was taken by writ
\npetition to the High Court, which held that the duty fell to
\nbe assessed  under the old s.4(a) of the Central Excises and
\nSalt Act on the basis of the wholesale cash price payable by
\nthe wholesale  dealers, and not under s.4(b) on the basis of
\nthe  price   of\t retail\t  sales\t effected  directly  to\t the
\nconsumers. The case was brought in appeal to this Court. The
\nCourt observed\tthat for  the purposes of s.4(a), it was not
\nnecessary for  a wholesale  market to  exist in the physical
\nsense of  the term  where articles of a like kind or quality
\nare or\tcould be  sold. A wholesale market, it was observed,
\ncould also mean “the potentiality of the articles being
\n372<\/span>
\nsold on\t a wholesale basis”. What was necessary was that the
\narticles could be sold wholesale to traders. It was observed
\nfurther that  the application  of s.4(a)  of the Act did not
\ndepend upon  any hypothesis  to the  effect that at the time
\nand place  of sale any further articles of the like kind and
\nquality should\thave been sold. If there was an actual price
\nfor the\t goods themselves  at the time and place of sale and
\nif that\t was a\t‘wholesale cash\t price’, the  clause was not
\ninapplicable for  want of sale of other goods of a like kind
\nand quality.  Later follow  the words  which have brought on
\nthe present controversy:\n<\/p>\n
\t  “Excise is a tax on the production and manufacture
\n     of goods (see Union of India v. Delhi Cloth and General
\n     Mills<\/a> (supra).  Section 4 of the Act therefore provides
\n     that the real value should be found after deducting the
\n     selling cost and selling profit and that the real value
\n     can  include   only  the  manufacturing  cost  and\t the
\n     manufacturing profit.  The section\t makes it clear that
\n     excise is\tlevied only  on the  amount representing the
\n     manufacturing cost\t plus the  manufacturing profit\t and
\n     excludes post manufacturing cost and the profit arising
\n     from  post\t  manufacturing\t operation,  namely  selling
\n     profit.”\n<\/p><\/blockquote>\n
Those observations  were made  when the\t Court was examining
\nthe meaning  of the  expression “wholesale cash price”. What
\nthe Court  intended to\tsay was\t that the entire cost of the
\narticle to  the manufacturer  (which would  include  various
\nitems of  expense composing  the value\tof the article) plus
\nhis profit  on the manufactured article (which would have to
\ntake into  account the deduction of 22% allowed as discount)
\nwould constitute  the real  value had to be arrived at after
\noff-loading the\t discount of  22%, which in fact represented
\nthe wholesale  dealer’s profit.\t A careful  reading  of\t the
\njudgment will  show that  there was  no issue  inviting\t the
\nCourt’s decision  on the  point now raised in these cases by
\nthe assessees.\n<\/p>\n
     The other\tcase is\t Atic Industries  Ltd. v. H.H. Dove,
\nAsstt. Collector  of Central  Excise and Ors. The<\/a> appellant,
\nAtic Industries\t Ltd., was  a manufacturer of dye stuffs. It
\nsold its  products to two wholesale buyers, 70% of its total
\nproduction to  one and\t30% to\tthe other. The price charged
\nwas a  uniform price  described as the “basic selling price”
\nless a\ttrade discount of 18%. The wholesale dealers in turn
\nresold the dyestuffs to distributors and also directly to
\n373<\/span>
\nlarge  consumers,   including  textile\t mills.\t The   large
\nconsumers  paid\t  the  basic   selling\tprice,\t while\t the
\ndistributors paid  a higher  price but\tsubject to  a  trade
\ndiscount. The  distributors sold  the product  to consumers.
\nThe question  arose as\tto how\tthe value  of the  dyestuffs
\nmanufactured by\t the appellants\t should be  determined under
\ns.4. The  appellants contended\tthat the value should be the
\nprice at  which the  appellants sold in wholesale to the two
\nwholesale buyers,  less a uniform trade discount of 18%. The
\nexcise authorities  took the  view that\t the value should be
\nthe price  at which  the wholesale  buyers had\tsold the dye
\nstuffs to  the distributors  without taking into account the
\ndiscount given\tto the\tdistributors. Before this Court, the
\nexcise authorities  pressed the same contention, urging that
\ns.4 (a)\t did not  provide that\tin every  case the wholesale
\nprice charged  by the  manufacturer  should  be\t taken\tinto
\nconsideration and  not the  wholesale price  charged by\t the
\nwholesale buyers  who sold  the product also in wholesale to
\nthe next buyers. One of us (Bhagwati J.) spoke for the Court
\nin that\t case, and  delivered a closely enunciated and lucid
\nexposition of the true legal position. It was explained:\n<\/p>\n
     “The value\t of the goods for the purpose of excise must
\n     take into\taccount only  the manufacturing cost and the
\n     manufacturing profit  and it  must not  be loaded\twith
\n     post manufacturing\t cost or  profit arising  from post-
\n     manufacturing  operation.\tThe  price  charged  by\t the
\n     manufacturer for  sale of the goods in wholesale would,
\n     therefore, represent  the real  value of  the goods for
\n     the purpose  of assessment of excise duty. If the price
\n     charged by\t the whole  sale dealer\t who  purchases\t the
\n     goods from the manufacturer and sells them in wholesale
\n     to another dealer were taken as the value of the goods,
\n     it would  include not  only the  manufacturing cost and
\n     the manufacturing\tprofit of  the manufacturer but also
\n     the wholesale  dealer’s selling cost and selling profit
\n     and that  would be\t wholly incompatible with the nature
\n     of excise.\t It may\t be noted that wholesale market in a
\n     particular type  of goods\tmay be\tin several tiers and
\n     the goods\tmay reach  the consumer\t after a  series  of
\n     wholesale transactions.  In fact  the more\t common\t and
\n     less  expensive  the  goods,  there  would\t be  greater
\n     possibility  of   more  than   one\t tier  of  wholesale
\n     transactions. For\tinstance,  in  a  textile  trade,  a
\n     manufacturer may sell his entire production to a single
\n     wholesale dealer  and the\tlatter may  in his turn sell
\n     the goods\tpurchased by  him from\tthe manufacturer  to
\n     different wholesale dealers at
\n374<\/span>
\n     State level,  and they may in their turn sell the goods
\n     to wholesale dealers at the district level and from the
\n     wholesale dealers\tat the\tdistrict level the goods may
\n     pass by sale to wholesale dealers at the city level and
\n     then, ultimately from the wholesale dealers at the city
\n     level, the\t goods may  reach the  consumers.  The\tonly
\n     relevant price for assessment of value of the goods for
\n     the purpose  of excise  in such  a case  would  be\t the
\n     wholesale cash  price which  the manufacturer from sale
\n     to the  first wholesale dealer, that is, when the goods
\n     first enter  the stream  of trade.\t Once the goods have
\n     entered the  stream of  trade and\tare on\ttheir onward
\n     journey to\t the consumer,\twhether along  a short\tor a
\n     long course  depending on\tthe nature  of the goods and
\n     the conditions  of the  trade, excise  is not concerned
\n     with what\thappens subsequently to the goods. It is the
\n     first immediate  contact between  the manufacturer\t and
\n     the trade\tthat is\t made decisive\tfor determining\t the
\n     wholesale cash  price which is to be the measure of the
\n     value of  the goods  for the  purpose  of\texcise.\t The
\n     second or\tsubsequent price,  even though\ton wholesale
\n     basis, is\tnot material.  If excise  were levied on the
\n     basis of second or subsequent wholesale price, it would
\n     load the  price  with  a  post  manufacturing  element,
\n     namely,  selling\tcost  and   selling  profit  of\t the
\n     wholesale dealer. That would be plainly contrary to the
\n     true nature  of excise as explained in the Voltas’ case
\n     (supra). Secondly,\t this would also violate the concept
\n     of\t the  factory  gate  sale  which  is  the  basis  of
\n     determination of  value of the goods for the purpose of
\n     excise.\n<\/p><\/blockquote>\n
\t  There can,  therefore, be  no doubt  that where  a
\n     manufacturer sells\t the goods  manufactured by  him  in
\n     wholesale to  a wholesale\tdealer at arms length and in
\n     the usual\tcourse of business, the wholesale cash price
\n     charged by\t him to\t the  wholesale\t dealer\t less  trade
\n     discount would represent the value of the goods for the
\n     purpose of\t assessment of\texcise. That  would  be\t the
\n     wholesale cash  price for\twhich the  goods are sold at
\n     the factory  gate within  the meaning  of s.4  (a). The
\n     price received  by the  wholesale dealer  who purchases
\n     the goods\tfrom the  manufacturer and in his turn sells
\n     the  same\tin  wholesale  to  other  dealers  would  be
\n     irrelevant to the determination
\n375<\/span>
\n     of the  value and\tthe goods would not be chargeable to
\n     excise on that basis.”<\/p><\/blockquote>\n
     This case\talso  does  not\t support  the  case  of\t the
\nassessees. When it refers to post-manufacturing expenses and
\npost-manufacturing profit  arising  from  post-manufacturing
\noperations, it\tclearly intends to refer not to the expenses
\nand profits  pertaining to the sale transactions effected by
\nthe manufacturer  but to  those pertaining to the subsequent
\nsale transactions effected by the wholesale buyers in favour
\nof other dealers.\n<\/p>\n
     Having explained  the true scope of Voltas Ltd. (supra)
\nand Atic  Ltd. (supra),\t we may\t now proceed directly to the
\nconsideration of  certain aspects  of the  provisions of the
\nold s.4.  There has  been serious  argument on\tthe question
\nwhether s.4  (a) provides  for the  value of  the assessee’s
\nexcisable article  being determined  on\t the  basis  of\t the
\nwholesale cash\tprice charged  or chargeable for articles of
\nthe like kind and quality sold by manufacturers generally or
\non the\tbasis of the wholesale cash price of articles of the
\nlike and  quality sold\tby the\tassessee. At first blush, it
\nwould seem  that the former construction should be accepted,
\nand indeed  some support  can be  derived for that view from
\nthe observations  of the  Privy Council\t in Vacuum  Oil\t Co.
\n(supra), where\tthe “wholesale cash price” mentioned in s.30\n<\/p>\n
(a) of\tthe Sea\t Customs Act,  1878, was  construed to\tmean
\n“that price  current for  staple  articles.  the  amount  of
\nwhich, if  not a  subject of daily publication in the press,
\nis easily  ascertainable in  appropriate trade circles”. But
\nthis general observation can be of no help to the assessees,
\nbecause since  then, he\t courts have  proceeded to  make the
\nposition amply\tclear. The problem presented itself again to
\nthe Privy  Council in  Ford Motor Co. of India Ltd. (supra),
\nand while  taking note\tof what\t it had\t said in the earlier
\ncase, the  Privy Council  laid down that where the excisable
\ngoods constituted  a class  of their  own  and\tit  was\t not
\npossible to  say that  other manufacturers produced goods of
\nthat kind  and quality,\t the goods under assessment could be
\nconsidered as  members of their own class for the purpose of
\ns.30 (a)  even although at the time and place of importation
\nthere were no other members. The price obtained for them, it
\nwas said, would correctly represent the price obtainable for
\ngoods of  the like kind and quality at the time and place of
\nimportation.  Then   in\t Voltas\t Ltd.  (supra),\t this  Court
\nobserved that  the application\tof s.4\t(a) of\tthe  Central
\nExcises and  Salt Act  did not depend upon any hypothesis to
\nthe effect  that at  the time and place of sale, any further
\narticles of  like kind and quality should have been sold. If
\nthere was
\n376<\/span>
\nan actual  price for  the goods\t themselves at\tthe time and
\nplace of  sale and if that was a “wholesale cash price”, the
\nclause was  not inapplicable for want of sale of other goods
\nof a  like kind\t and quality.  It seems\t to us that the more
\npractical way  of looking  at the  problem is that there are
\nvery few  cases indeed\twhere two  manufacturers produce  an
\narticle of  the like  kind and quality. An instance has been
\nsupplied by  learned counsel  for the  assessees, and we are
\nreferred  to  the  case\t of  a\tfactory\t which\tmanufactures
\nidentical electric bulbs for supply to a number of companies
\nwho sell  them in  the market  under their  own\t distinctive
\ntrade names.  While  such  examples  are  possible,  we\t are
\ninclined to  accept the\t statement of  the learned Solicitor
\nGeneral that  goods manufactured  by different manufacturers
\ngenerally differ  in both  kind and  quality.  Further,\t the
\nmanufacturing  and   other  costs   would  vary\t  from\t one
\nmanufacturer to\t another, depending  on\t the  efficiency  of
\nmanufacturing techniques  and management  methods  employed.
\nOther important considerations are certainty and convenience
\nin the\tadministration of  the levy  from the  view-point of
\nboth the  assessee and\tthe Revenue.  There is\tthe  further
\nconsideration that  the wholesale  cash price charged by the
\nassessee must  be ascertained  on the basis that the sale to
\nthe wholesale  dealer is at arm’s length. We are, therefore,
\nof the view that we should prefer the construction suggested
\nby  the\t  Revenue  that\t  s.4  (a)   applies  to  the  goods
\nmanufactured by\t the assessee himself. We may also point out
\nthat this  conclusion is  in accord  with the general intent
\nexpressed in  the new  s.4 (1)\t(a), and  as we\t shall\tshow
\npresently it  is the  case of  both the\t assessees  and\t the
\nRevenue that  in enacting the new s.4 in supersession of the
\nold section,  no material  departure was  intended from\t the
\nbasic scheme  for determining  the value  of  the  excisable
\narticle.\n<\/p>\n
     Accordingly, we  hold that\t pursuant to the old s.4 (a)
\nthe value  of an  excisable article  for the  purpose of the
\nexcise levy  should be\ttaken to  be the  price at which the
\nexcisable article  is sold  by the  assessee to\t a buyer  at
\narm’s length  in the  course of\t wholesale trade at the time
\nand place  of removal. Where, however, the excisable article
\nis not\tsold by\t the assessee  in wholesale  trade but,\t for
\nexample, is consumed by the assessee in his own industry the
\ncase is\t one where  under the  old s.4 (a) the value must be
\ndetermined as the price at which the excisable article or an
\narticle of  the like  kind and\tquality is  capable of being
\nsold in wholesale trade at the time and place of removal.\n<\/p>\n
     Where the\texcisable article  or an article of the like
\nkind and quality is not sold in wholesale trade at the place
\nof removal, that is,
\n377<\/span>
\nat the factory gate, but is sold in the wholesale trade at a
\nplace  outside\t the  factory  gate,  the  value  should  be
\ndetermined as  the price  at which  the excisable article is
\nsold in\t the wholesale\ttrade at such place, after deducting
\ntherefrom  the\tcost  of  transportation  of  the  excisable
\narticle from  the factory  gate to  such place. The claim to
\nother deductions will be dealt with later.\n<\/p>\n
     Finally, where  the wholesale  price of  the  excisable
\narticle or  an article\tof the\tlike kind and quality is not
\nascertainable, then pursuant to the old s.4 (b) the value of
\nthe excisable  article shall  be  the  price  at  which\t the
\nexcisable article or an article of the like kind and quality
\nis sold\t or is\tcapable of being sold by the assessee at the
\ntime and place of removal or if the excisable article is not
\nsold or is not capable of being sold at such place, then the
\nprice at which it is sold or is capable of being sold by the
\nassessee at any other place nearest thereto.\n<\/p>\n
     In every  case the\t fundamental criterion for computing
\nthe value  of an excisable article is the price at which the
\nexcisable article or an article of the like kind and quality
\nis sold\t or is\tcapable of  being sold\tby determining\tsuch
\nvalue.\n<\/p>\n
     As\t we  have  noted,  Parliament  amended\tthe  General
\nExcises and  Salt Act  by Act  XXII of\t1973. In particular,
\nParliament introduced a new s.4 which totally superseded the
\nold section,  and embodied  a much  more  comprehensive\t and
\nclearly enunciated  scheme for the determination of the real
\nvalue of  an excisable\tarticle. Clause\t (a) of\t the new s.4
\nspeaks of  the “value”\tbeing the  “normal price, that is to
\nsay, the  price at which such goods are ordinarily sold to a
\nbuyer in  the course  of wholesale trade for delivery at the
\ntime and  place of  removal where the buyer is not a related
\nperson and  the price  is the  sole  consideration  for\t the
\nsale.”\n<\/p>\n
     Where  the\t  normal  price\t  of  such   good   is\t not
\nascertainable for the reason that such goods are not sold or
\nfor any\t other reason, the new s.4 (1) (b) provides that the
\nnearest ascertainable  equivalent thereof determined in such
\nmanner as  may be  prescribed shall  be\t the  value  of\t the
\nexcisable goods for the purpose of charging the excise duty.\n<\/p>\n
     It\t will\tbe  noticed   that  the\t  basic\t scheme\t for
\ndetermination of  the price  in the new s.4 is characterised
\nby the\tsame dichotomy as that observable in the old s.4. It
\nwas not\t the intention\tof Parliament, when enacting the new
\ns.4 to create a scheme materially different
\n378<\/span>
\nfrom that  embodied in\tthe superseded\ts.4. The  object and
\npurpose remained  the same, and so did the central principle
\nat the\theart of  the scheme. The new scheme was merely more
\ncomprehensive and  the language\t employed more\tprecise\t and
\ndefinite. As  in the  old s.4,\tthe terms in which the value
\nwas defined  remained the  price charged by the assesseee in
\nthe course  of wholesale  trade for delivery at the time and
\nplace of  removal. Under  the new  s.4 the  phrase “place of
\nremoval” was  defined by  s.4 (b) not merely as “the factory
\nor any\tother place or premises of production or manufacture
\nof the\texcisable goods”  from where  such goods are removed
\nbut was\t extended to  “a warehouse  or any place or premises
\nwherein the  excisable\tgoods  have  been  permitted  to  be
\ndeposited without payment of duty” and from where such goods
\nare removed.  The judicial construction of the provisions of
\nthe old\t s.4 had  already declared  that the price envisaged
\nunder clauses  (a) and\t(b) of\tthat section  was the  price
\ncharged by the manufacturer in a transaction at arms length.
\nAfter referring to several cases, some of which have already
\nbeen mentioned\there earlier,  this  Court  pointed  out  in
\nVoltas Limited\t(supra) that  “the wholesale  cash has to be
\nascertained only  on  the  basis  of  transactions  at\tarms
\nlength. If  there is  a special\t or favoured buyer to whom a
\nspecially low  price is\t charged because of extra-commercial
\nconsiderations, e.g.,  because\the  is\ta  relative  of\t the
\nmanufacturer, the price charged for those sales would not be
\nthe “wholesale\tcash price” for levying excise under s.4 (a)
\nof the\tAct. A\tsole distributor  might or  might not  be  a
\nfavoured buyer\taccording as terms of the agreement with him
\nare fair  and reasonable  and  were  arrived  at  on  purely
\ncommercial basis.”\n<\/p>\n
     That was  also the\t view taken  in Atic Industries Ltd.
\n(supra). The new s.4 makes express provision in that behalf.
\nUnder the  new s.4  also, it  is necessary to take the price
\ncharged by  the manufacturer  as one which is un-effected by
\nany  concessional   or\tmanipulative   considerations,\t and
\ntherefore the  “normal price”  mentioned in  the new s.4 (1)\n<\/p>\n
(a) speaks  of a  price “where\tthe buyer is not the related
\nperson and  the price  is the  sole  consideration  for\t the
\nsale.” The expression “related person” has been specifically
\ndefined in  the new s.4 (4) (c), and transactions in which a
\n“related person”  is  involved\tare  covered  by  the  third
\nproviso of s.4 (1) (a).\n<\/p>\n
     Both learned  counsel for the assessees and the learned
\nSolicitor  General  for\t the  Revenue  are  agreed  that  in
\nenacting the new s.4 Parliament did not intend to bring into
\nexistence a scheme of valuation different from that embodied
\nin the old s.4
\n379<\/span>
\nReference was  made in\tthat connection\t to the Statement of
\nObjects and  Reasons. The  difference, however, lies in this
\nthat while  learned counsel  for the  assessee attempted  to
\nshow by reference to the old s.4 that the legislative intent
\nwas to\tconfine the  value of  an excisable  article to\t the
\nmanufacturing  cost   and  manufacturing   profit  and\tthat
\ntherefore the  same limitations\t should be read into the new
\ns.4, the  learned Solicitor  General approached\t the problem
\nfrom the  other end  and contended  that since\ton  a  plain
\nreading of  the new  s.4 the  price actually  charged by the
\nassessee was  the true\tcriterion and was not limited to the
\nmanufacturing cost  and\t manufacturing\tprofit\tit  is\tthat
\nconstruction which  should be  put also\t on the\t old s.4. We
\nhave  earlier\tindicated  our\t inability  to\t accept\t the
\nproposition that  the  old  s.4\t defined  the  value  of  an
\nexcisable article  in terms  of the  manufacturing cost\t and
\nmanufacturing  profit\texclusively.   We   find   from\t  an
\nexamination of\tthe provisions of the new s.4 that a similar
\nconclusion must\t follow. The  normal price  mentioned in the
\nnew s.4\t (1) (a)  is  the  price  at  which  the  goods\t are
\nordinarily sold\t by the\t assessee in the course of wholesale
\ntrade. It  is the  wholesale price  charged by\thim. It is a
\nprice which  may vary, according to the first proviso to the
\nnew s.4\t (a) with  different classes  of buyers. It may also
\nbe, according  to the  second proviso to the new s.4 (1) (a)
\nthe price  fixed as the wholesale price under any law or the
\nmaximum price  where the  law fixes a maximum. The price may
\nalso be a different price if the case falls within the third
\nproviso to the new s 4 (1) (a). In that event it will be the
\nprice charged by a related person in the course of wholesale
\ntrade. Clearly,\t it is not possible to conceive of the price
\nunder  the   new  s.4\t(1)  (a)   being  confined   to\t the
\nmanufacturing cost  and the  manufacturing profit. Moreover,
\nit is  reasonable to  suppose that the central principle for
\nthe determination  of the  value of  the  excisable  article
\nshould be  the same, whether the case falls under cl. (a) or
\ncl (b)\tof the old s.4 or under the new s.4 (1). When regard
\nis had\tto the\tprovision of cl. (b) in each case, it is not
\npossible to  limit the\tprice to its components representing
\nthe manufacturing cost and manufacturing profit.\n<\/p>\n
     We have  examined the  principles of an excise levy and
\nhave considered\t the  statutory\t construction  of  the\tAct,
\nbefore and  after  its\tamendment,  in\tview  of  the  three
\npropositions formulated,  on behalf  of\t the  assessees,  as
\nprinciple constituting\tthe essential  characteristics of  a
\nduty of\t excise. It  is apparent that the first proposition,
\nthat excise  is a  tax on  the manufacture  or production of
\ngoods, and  not on  anything else,  is indisputable  and  is
\nsupported by  a catena\tof cases  beginning with The Central
\nProvinces and Berar Sales of Motor
\n380<\/span>
\nSpirit and Lubricants Taxation Act. 1938 (supra). As regards
\nthe second  proposition, that  uniformity of  incidence is a
\nbasic characteristic  of excise,  we are  inclined to  think
\nthat the accuracy of the proposition depends on the level at
\nwhich the statute rests it. We shall discuss that presently.
\nAs to  the third  proposition, that  the exclusion  of\tpost
\nmanufacturing expenses\tand  post  manufacturing  profit  is
\nnecessarily  involved\tin  the\t first\tprinciple  does\t not
\ninevitably  follow.  The  exclusion  of\t post  manufacturing
\nexpenses and  post manufacturing  of  profits  is  a  matter
\npertaining to  the  ascertainment  of  the  “value”  of\t the
\nexcisable article, and not to the nature of the excise duty,
\nand as\twe have\t explained,  the  standard  adopted  by\t the
\nLegislature  for  determining  the  “value’  may  possess  a
\nbroader base  than that\t on  which  the\t charging  provision
\nproceeds. The  acceptance of the further statement contained
\nin the\tformulation  of\t the  third  proposition,  that\t the
\nexclusion  of\tpost   manufacturing   expenses\t  and\tpost
\nmanufacturing  profits\t helps\tto   achieve  uniformity  of
\nincidence in the levy of excise duty, depends on what is the
\npoint at which such uniformity of incidence is contemplated.
\nIt is  not necessarily\tinvolved at the stage of sale of the
\narticle by the manufacturer because we find for example that
\nunder the  amended s.3\t(3) of\tthe Central Excises and Salt
\nAct, different\ttariff values  may be fixed not only (a) for
\ndifferent classes  of descriptions  of\tthe  same  excisable
\ngoods, but also (b) for excisable goods of the same class or
\ndescription  (i)   produced  or\t manufactured  by  different
\nclasses of  producers or  manufacturers,  or  (ii)  sold  to
\ndifferent classes  of buyers.  That the “value” of excisable
\ngoods determined  under\t the  new  s.4\t(a)  may  also\tvary
\naccording to certain circumstances is evident from the three
\nclauses of the proviso to that clause. Clause (i) recognises
\nthat in\t the normal  practice of  wholesale trade  the\tsame
\nclass of  goods may  be sold  by the  assessee at  different
\nprices to  different classes  of buyers; in that event, each
\nsuch price  shall, subject  to the  other conditions  of cl.\n<\/p>\n
(a), be\t deemed to  be the  normal price  of such  goods  in
\nrelation to  each class of buyers. Clause (ii) provides that
\nwhere the goods are sold in wholesale at a price fixed under
\nany law\t or at\ta price\t being the  maximum, fixed under any
\nsuch law,  then the  price or the maximum price, as the case
\nmay be,\t so fixed,  shall in relation to the goods be deemed
\nto be  the normal  price thereof. Under cl. (iii), where the
\ngoods are  sold in  the course\tof wholesale  trade  by\t the
\nassessee to  or through\t a related  person, the normal price
\nshall be  the price  at which  the goods  are  sold  by\t the
\nrelated person\tin the course of wholesale trade at the time
\nof removal  to dealers\t(not being related persons) or where
\nsuch goods are not sold to such dealers,
\n381<\/span>
\nto dealers  (being related  persons) who  sell such goods in
\nretail. The  verity of\tthe three  principles propounded  by
\nlearned counsel for the assessees has been, as indeed it had
\nto be,\texamined in  the context of the Act before and after
\nits amendment.\tFor the\t case of  the assessees\t is that the
\namendment has made no material change in the basic scheme of
\nthe levy and the provisions for determining the value of the
\nexcisable article.\n<\/p>\n
     Learned counsel  for the  assessees has  contended that
\nthe old\t s. 4  (a) expresses  the conceptual  nature of\t the
\n“value” of an excisable article because neither the identity
\nof the\tmanufacturer nor the identity of the goods sought to
\nbe charged  nor the  actual wholesale  price charged  by the
\nmanufacturer is\t the determining factor. We have come to the
\nconclusion after  carefully weighing  the matter  that on  a
\ntrue construction  of its  provisions in  the context of the
\nstatutory scheme  the old  s (a)  should  be  considered  as
\napplicable to  the circumstances  of the particular assessee
\nhimself and  not of  manufacturers generally. As regards the
\nsecond element,\t namely, the identity of the goods sought to
\nbe charged,  that also, to our mind, is a determining factor
\nbecause the  statute speaks  of “an article of the like kind
\nand  quality”.\t The  third   element,\tnamely,\t the  actual
\nwholesale price\t charged by  the manufacturer  is likewise a
\ndetermining factor  in\tview  of  our  conclusion  that\t the
\nidentity of  the manufacturer is material in the application
\nof the old s. 4 (a).\n<\/p>\n
     Learned  counsel  for  the\t assessees  urged  that\t the
\nexpression “normal  price” in the new s. 4 (1) (a) means the
\nprice normal  for the  purposes of the excise duty and that,
\nit  is\t said,\tmeans\tthe  manufacturing   cost  plus\t the
\nmanufacturing profit.  It is urged that the normal price for
\nthe purposes  of the  levy must\t be a  price not loaded with
\nextraneous elements, extraneous to the nature of the impost.
\nIt is  pointed out  that in  order to bring the operation of
\nthe statute  within the\t purpose intended by the Legislature
\nthe courts  are justified  is doing  “some violence  to\t the
\nwords” and  support is\ttaken from  Luke v.  I.R.C., and the
\nprinciple adopted  by this  Court in Commissioner of Income-
\nTax, Central,  Calcutta v.  National Taj  Traders and<\/a> in KP.
\nVarghese v.  Income-Tax Officer,  Ernakulam and\t Another.  A<\/a>
\nsomewhat similar  approach had\talready been adopted by this
\nCourt in Commissioner of Income Tax,
\n382<\/span>
\n(Central),  Calcutta  v.  B.N.\tBhattachargee  and  Another.
\nLearned counsel also referred to Commissioner of Wealth-Tax,
\nBihar and  Orissa v.  Kripashankar Dayashankar Worah and R.B
\nJodha Mal  Kuthiala<\/a> v.\tCommissioner of\t Income-Tax. Punjab.
\nJammu &\t Kashmir and Himachal Pradesh. When the new s. 4 (1)\n<\/p>\n
(a) is\tread as\t a whole,  the\tmeaning\t of  the  expression
\n“normal price”\tbecomes plainly\t evident. It will be noticed
\nthe expression\t“normal price’\tis followed  by\t the  phrase
\n“that is  to say”. The phrase “that is to say” says Stroud’s
\nJudicial Dictionary (Fourth Edition, Vol. 5 p. 2753)” is the
\ncommencement of\t an  ancillary\tclause\twhich  explains\t the
\nmeaning of  the\t principal  clause.  It\t bas  the  following
\nproperties: (1)\t it must  not be  contrary to  the principal
\nclause; (2)  it must  neither increase\tnor diminish it; (3)
\nbut where  the principal  clause is  general in terms it may
\nrestrict it,”  and reference  has been\tmade to Stuckeley v.
\nButler and  Harrington v Pole. Therefore, the phrase “normal
\nprice” is defined by the words in s. 4 (1) (a) which follow.
\nIt is  ‘the price at which such goods are ordinarily sold by
\nthe assessee to a buyer in the course of wholesale trade for
\ndelivery at the time and place of removal where the buyer is
\nnot a related person and the price is the sole consideration
\nfor the sale,”\n<\/p>\n
     Learned counsel  for the  assessees contended  that the
\nnew s.\t4 (1)  (a) also\t levies excise\ton the\tbasis  of  a
\nconceptual  value  which  must\texclude\t post  manufacturing
\nprofit and  in support\tof that submission  he has adduced a
\nnumber of  reasons. It\tis said that the essential principle
\nof excise  dictates  the  exclusion  of\t post  manufacturing
\nexpenses and  profit. That,  it\t is  pointed  out,  is\talso
\nsuggested by  the principle  of uniformity of incidence, for
\nit is  only by\tsuch exclusion that uniform criterion can be
\napplied to  all manufacturers,\tthose who  have selling\t and
\nmarketing  organisations   and\twho   load  the\t  ex-factory
\nwholesale price\t to  recoup  themselves\t the  costs  of\t the
\nselling organisation  and of equalised freight and those who
\ndo  not\t  load\ttheir\twholesale  price   with\t such\tpost
\nmanufacturing  expenses.   Reliance   is   placed   on\t the
\nlegislative history,  it being\tcontended that the new s. 4.
\nshould be  interpreted on  the same  basis as  the old s. 4.
\nReference is made to the Statement of Objects and Reasons of
\nAct XXIII of 1973  to show that no change
\n383<\/span>
\nof substance in the basis of the charge or levy was intended
\nby the\tamendment of  s. 4. It is said that the phrase “that
\nis to  say” in\tthe new\t s. 4  (1) (a)\tindicates  that\t the
\nconceptual  criterion\tfor   determining   the\t  value\t  is
\nsubstantially the  same as  it was in the old s. 4. Then, it
\nis pointed  out, s.  4 (1) (b) enacts that “where the normal
\nprice  is   not\t ascertainable,\t the  nearest  ascertainable
\nequivalent thereof”  has to be determined. As a consequence,
\nit is  urged that  where sales\tare made  on ex-depots\tpost
\nmanufacturing expenses and post manufacturing profit must be
\ndeducted.  The\t same  principle   should   apply   in\t the
\nconstruction of\t the new  s. 4 (1) (a). By adopting the same
\nprinciple for  cases falling under s. 4 (1) (a) and s. 4 (1)\n<\/p>\n
(b) it\tis possible  it is  said,  to  reach  uniformity  of
\nincidence in  both classes of cases. It is pointed out, that
\nthe value  of the goods must be the same for the purposes of
\nthe levy, whether the goods are sold ex-factory or ex-depot.
\nIt is  urged that although the new s. 4 (4) (d) (ii) permits
\ntwo types  of deductions  of taxes and discount, it does not
\nprohibit deductions  other shall the two permitted. Finally,
\nif the\twholesale p.  ice can  be  adjusted  upward  by\t the
\ndepartment making  additions thereto,  it can  be  adjusted,
\ndownward, at  the instance  of\tthe  assessee,\tto  make  it
\nconform to  the conceptual  criterion of  the value on which
\nexcise can be levied.\n<\/p>\n
     The essential  content of the reasons stated by learned
\ncounsel proceeds  on the  assumption that a conceptual value
\ngoverns the assessment of the levy. We have already examined
\nthe validity of the three principles underlying the concept,
\nand we\thave indicated\tthe extent  to which  they cannot be
\naccepted. We have observed that . the old s 4 as well as the
\nnew s.\t4 determine  the value on the basis price charged or
\nchargeable by  the particular  assessee, and  the  price  is
\ncharged\t or   is  chargeable   in  respect  of\tthe  article
\nmanufactured by\t him. The  value of the excisable article is
\ndetermined  in\t that  context.\t  When\tthat   is  so,\t the
\nfundamental basis  on which  the argument has been raised on
\nbehalf of  the assessees  cannot survive.  We may  add\tthat
\nwhether any  further deductions\t can be claimed beyond those
\nalready mentioned  in the  statute will depend on the nature
\nof those claims in the case of a particular assessee.\n<\/p>\n
     Our attention has been drawn to the observation of this
\nCourt in  Chotabhai Jethabhai  Patel and Co. v. The Union Of
\nIndia and  Another that\t “a duty  of excise is a tax-levy on
\nhome-produced goods of a specified class or description, the
\nduty being calculated according
\n384<\/span>
\nto the\tquantity or  value of  the goods and which is levied
\nbecause of  the mere  fact of the goods having been produced
\nor manufactured\t and unrelated\tto and\tnot dependent on any
\ncommercial transaction\tin then”.  Clearly, when  the  Court
\nreferred to  the calculation  of the  duty according  to the
\nquantity or  value of  the goods, it referred disjunctively-
\nto the\tnature of the levy, and it is the nature of the levy
\n13 not\tthe value  for assessing  the levy,  which it had in
\nmind when  it pointed  to the  goods having been produced or
\nmanufactured, and  observed that  the nature  of the levy is
\nnot related  to or  dependent on any commercial transaction.
\nThe following  observation of  Gwyer, C.J.  in\tThe  Central
\nProvinces and  Berar Sales  of Motor  Spirit and  Lubricants
\nTaxation Act, 1938 (supra) was also placed before us:\n<\/p>\n
     “In my  opinion the  power to make laws with respect to
\n     duties of\texcise given  by the Constitution Act to the
\n     Federal Legislature  is to\t be construed  as a power to
\n     impose  duties  of\t excise\t upon  the  manufacturer  or
\n     producer of  the excisable articles, or at least at the
\n     stage  of,\t  or  in  connection  with,  manufacture  or
\n     production, and extends no further.”\n<\/p><\/blockquote>\n
The learned Chief Justice was referring in this statement to
\nthe power  to make  a law  respect of  a duty  of excise. He
\nconstrued it  as  a  power  to\timpose\tthe  duty  upon\t the
\nmanufacturer  or  producer,  and  explained  that  the\tlevy
\nrelated to  the manufacture  or production and to no further
\nstage. It  was the  nature of the levy which was adverted to
\nby the\tlearned Chief Justice, namely, that it was a levy on
\ngoods manufactured  or produced.  It will be remembered that
\nthe question  before the  Federal Court in that case whether
\nthe levy in question was a levy of excise or a levy of sales
\ntax. A levy of excise turns on the manufacture or production
\nof the\texcisable article,  while a levy of sales tax by its
\nnature, arises\tat a  stage beyond,  namely, the sale of the
\narticle. The  task before  the Court  was  to  identify\t the
\nnature of the levy. It was not concerned with the assessment
\nof the value of the article for the purpose of the levy.\n<\/p>\n
     This brings  to a\tclose in  these cases  the  question
\nwhether the  value of  an article  for the  purpose  of\t the
\nexcise levy  must be  confined to the manufacturing cost and
\nthe manufacturing  profit in  respect of the article. In our
\njudgment, the question has to be answered in the negative.\n<\/p>\n
385<\/span><\/p>\n
     The next  question for  consideration  is\twhether\t the
\nprovisions in  the new\ts. 4  in  respect  of  transactions’
\neffected by  the assessee  to or  through “a related person”
\nare invalid.  The new  s. 4  (1) (a) provides that the value
\nshall be deemed to be the normal price, and the normal price
\nis defined  as the  price at  which the goods are ordinarily
\nsold by\t the assessee in the course of wholesale trade where
\nthe buyer  is not  a “related  person” and  the price is the
\nsole consideration  for the  sale. The\tthird proviso to the
\nnew s.\t4 (1)  (a)  provides  that  where  the\tassessee  so
\narranges that the goods are generally not sold by him in the
\ncourse of  wholesale trade  except to  or through  a related
\nperson, the  normal price  of the goods sold by the assessee
\nto or  through such related person shall be deemed to be the
\nprice at  which they  are ordinarily  sold  by\tthe  related
\nperson in  the course  of wholesale  trade at  the  time  of
\nremoval, to  dealers (not  being related  persons) or  where
\nsuch goods  are not  sold to such dealers, to dealers (being
\nrelated persons) who sell such goods in retail. The new s. 4
\n(4) (c) defines the expression “related person” as follows:\n<\/p>\n
     “(c) ‘related  person’   means  a\t person\t who  is  so
\n\t  associated  with   the  assessee  that  they\thave
\n\t  interest, directly  or indirectly, in the business
\n\t  of each  other and  includes a  holding company, a
\n\t  subsidiary company,  a relative  and a distributor
\n\t  of the  assessee, and any sub- distributor of such
\n\t  distributor.\n<\/p><\/blockquote>\n
\t  Explanation :-  In this  clause ‘holding company’,
\n     ‘subsidiary  company’  and\t ‘relative’  have  the\tsame
\n     meanings as in the Companies Act, 1956 (1 of 1956).”<\/p><\/blockquote>\n
     Learned counsel  for the  assessees contends  that\t the
\nprovisions regarding  related persons are wholly unnecessary
\nbecause to counter-act evasion or avoidance any artificially
\narranged price\tbetween the  manufacturer and  his wholesale
\nbuyer can  be rejected\tin any\tcase under  s. 4, and we are
\nreferred to the observations of this Court in Voltas Limited
\n(supra) and   Atic  Industries Ltd.  (supra). It is true, we
\nthink, that  the new  s. 4 (1) contains inherently within it
\nthe power  to determine\t the true  value  of  the  excisable
\narticle, after taking into account any concession shown to a
\nspecial\t or   favoured\tbuyer  because\tof  extra-commercial
\nconsiderations, in  order that the price be ascertained only
\non the\tbasis that  it is a transaction at arms length. That
\nrequirement is\temphasised by  the provision in the new s. 4
\n(1) (a)\t that the price should be the sole consideration for
\nthe sale. In every
\n386<\/span>
\nsuch case,  it will  be for  the Revenue to determine on the
\nevidence before\t it whether  the transaction  is  one  where
\nextra-commercial considerations\t have entered  and,  if\t so,
\nwhat should  be the  price to  be taken\t as the value of the
\nexcisable  article   for  the\tpurpose\t of   excise   duty.
\nNonetheless,  it  was  open  to\t Parliament  to\t incorporate
\nprovisions in  the section  declaring that certain specified
\ncategories of transactions fall within the tainted class, in
\nwhich case  an\tirrebuttable  presumption  will\t arise\tthat
\ntransactions belonging\tto those categories are transactions
\nwhich cannot  be dealt\twith under  the usual meaning of the
\nexpression “normal price” set forth in the new s. 4 (1) (a).
\nThey are  cases where  it will\tnot  be\t necessary  for\t the
\nRevenue to  examine the entire gamut of evidence in order to
\ndetermine whether  the transaction is one prompted by extra-
\ncommercial considerations. It will be open to the Revenue on
\nbeing satisfied\t that the  third proviso to the new s. 4 (l)\n<\/p>\n
(a) read with the definition of “related person” in s. 4 (4)\n<\/p>\n
(c) is\tattracted, to  proceed to  determine the  “value  in
\naccordance with the terms of the third proviso.\n<\/p>\n
     It\t is  urged  on\tbehalf\tof  the\t assessee  that\t the
\nprovisions are,\t whimsical and arbitrary, and cannot be said
\nto be  reasonably calculated  to  deal\twith  the  issue  of
\nevasion\t or  avoidance\tof  excise.  It\t is  said  that\t the
\nassessment on  the manufacturer\t by reference  to  the\tsale
\nprice charged  by his  distributor is  “wholly\tincompatible
\nwith the  nature of  excise”, and  we are  referred to\tAtic
\nIndustries Ltd.\t (supra). Now,\tis a  well known legislative
\npractice to  enact provisions  in certain limited case where
\nan assessee  may be  taxed  in\trespect\t of  the  income  or
\nproperty truly\tbelonging to  another. They  are cases where
\nthe Legislature\t intervenes to\tprevent the circumvention of
\nthe tax\t obligation by tax payers seeking to avoid or reduce
\ntheir tax liability through modes resulting in the income or
\nproperty- arising  to another. The provisions of the law may
\nindeed be  so enacted  that the\t actual\t existence  of\tsuch
\nmotive may  be wholly  immaterial, and what has been done by
\nthe  assessee  may  even,  proceed  from  wholly  bona\tfide
\nintention. With\t the aid  of legal  fiction, the Legislature
\nfastens the  liability on the assessee. When the legislature
\nemploys such a device, and the liability is attached without
\nqualification,\tit   is\t reasonable   to   infer   that\t  an
\nirrebuttable presumption  has  been  created  by  law.\tSuch
\nprovisions have\t been held  to\tbe  within  the\t legislative
\ncompetence of  the Legislature\tand as\tfalling\t within\t its
\npower of  taxation, and\t reference may\tbe made to Balaji v.
\nIncome-Tax Officer, Special Investigation Circle,<\/a>
\n387<\/span>
\nNavnitlal  C.\tJaveri\tv.   K.K  Sen,\tAppellate  Assistant
\nCommissioner of\t Income-Tax,<\/a> ‘D’  Range, Bombay\t and  Punjab
\nDistilling Industries  Ltd. v.\tCommissioner of\t Income-Tax,
\nPunjab.\n<\/p>\n
     It is  contended for  the assessees that the definition
\nof the\texpression “related  person” is so arbitrary that it
\nincludes  within   that\t expression  a\tdistributor  of\t the
\nassessee. It  is urged\tthat the provision falls outside the
\nambit of  Entry 84  of List I of the Seventh Schedule to the
\nConstitution inasmuch  as it is wholly inconsistent with the
\nlevy of\t excise, and  if it is attempted to seek support for
\nthe provision  from the\t residuary Entry  97 of\t List l as a
\nnon-descript tax  the attempt  must fail because there is no
\ncharging  section  in  the  Central  Excises  and  Salt\t Act
\nempowering  the\t levy  of  such\t non-descript  tax  nor\t any
\nmachinery provision  in the  Act for  collection such a tax.
\nThe charging  provision and  the machinery provisions of the
\nAct, it\t is pointed  out, deal\texclusively with excise duty
\nand not\t with any  other tax. The validity of the provisions
\nis assailed  also on the ground that it violates Articles 14
\nand 19\tof the Constitution. The challenge made on behalf of
\nthe assessees  is powerful and far-reaching. But it seems to
\nus unnecessary\tto enter  into that  question because we are
\nsatisfied that\tthe provision  in the definition of “related
\nperson” relating  to a\tdistributor can be legitimately read
\ndown and  its validity\tthus upheld.  In  our  opinion,\t the
\ndefinition of  related person  should he  so read  that\t the
\nwords “a  relative and a distributor of the assessee” should
\nbe understood to mean a distributor who is a relative of the
\nassessee. It  will be  noticed that the Explanation provides
\nthat the  expression “relative”\t has the  same meaning as in
\nthe Companies  Act, 1956. As regards the other provisions of
\nthe definition\tof “related  person”, that  is\tto  say,  “a
\nperson who is so associated with the assessee that they have
\ninterest directly  or indirectly,  in the  business of\teach
\nother and  includes a holding company, a subsidiary company.
\n.”,  we\t think\tthat  the  provision  shows  a\tsufficiently
\nrestricted basis  for  employing  the  legal  fiction.\tHere
\nagain, regard  must be had to the Explanation which provides
\nthat the  expression “holding  company and  subsidiary” have
\nthe same  meanings as  in the Companies Act, 1956. Reference
\nin this\t connection may\t be made  to  Tata  Engineering\t and
\nLocomotive Co.\tLtd. v.\t State of Bihar and others<\/a> where the
\nprinciple was approved by this Court that the corporate veil
\ncould be lifted where
\n388<\/span>
\nthe companies  shared the  relationship of a holding company
\nand a  subsidiary company,  and to  Juggi  Lal\tKamlapat  v.
\nCommissioner   Of Income-Tax,  U.P.,<\/a> where  this Court\theld
\nthat the  veil of  corporate entity  could be  lifted to pay
\nregard to  the economic\t realities behind  the legal facade,
\nfor example,  where the\t corporate entity  was used  for tax
\nevasion or to circumvent tax obligation.\n<\/p>\n
     At one  stage, it\twas urged  for the assessees that by
\nmaking\tprovision  in  the  Central  Excises  and  Salt\t Act
\nrespecting transactions\t to or\tthrough a  “related person”,
\nParliament was\tvery close  to making  the levy a sales tax.
\nThe contention\tcannot be  accepted and we need merely refer
\nto the\tposition delineated  earlier and  set forth  in\t the
\nseries of  cases beginning  with The  Central Provinces\t and
\nBerar Sales  of Motor  Spirit and  Lubricants Taxation\tAct,
\n1938 (supra)  See also Jullundur Rubber Goods Manufacturers’
\nAssociation v. Union of India & Anr,
\n     From<\/a> what\thas gone  before, we  consider that the true
\nposition under\tthe Central  Excises and  Salt Act,  1944 as
\namended by Act XXII of 1973 can be set forth as follows .\n<\/p>\n
     (i)  The  price   at  which  the  excisable  goods\t are
\n\t  ordinarily sold  by the assessee to a buyer in the
\n\t  course of wholesale trade for delivery at the time
\n\t  and place of removal as defined in sub-section (4)\n<\/p>\n
\t  (b) of section 4 is the basis for determination of
\n\t  excisable value  provided, of course, the buyer is
\n\t  not  a   related  person  within  the\t meaning  of
\n\t  sub-section (4)  (c) of section 4 and the price is
\n\t  the  sole   consideration  for   the\tsale.\tThis
\n\t  proposition is  subject  to  the  terms  of  three
\n\t  provisos to sub-section (1) (a) of section 4.\n<\/p>\n
     (ii) There\t the price  of excisable goods in the course
\n\t  of wholesale\ttrade for  delivery at\tthe time and
\n\t  place of  removal cannot  be ascertained  for\t the
\n\t  reason that  such goods  are not  sold or  for any
\n\t  other reason, the nearest ascertainable equivalent
\n\t  thereof determined in the manner prescribed by the
\n\t  Central Excises  (Valuation) Rules. 1975 should be
\n\t  taken as  representing the  excisable value of the
\n\t  goods;\n<\/p>\n
389<\/span><\/p>\n
      (iii) Where wholesale price of any excisable goods for
\n\t  delivery at  the place of removal is not known and
\n\t  the value  thereof is determined with reference to
\n\t  the wholesale\t Price for delivery at a place other
\n\t  than\tthe   place  of\t  removal,   the   cost\t  of
\n\t  transportation from  the place  of removal  to the
\n\t  place of  delivery should  be excluded  from\tsuch
\n\t  price;\n<\/p>\n
     (iv) Of course, these principles cannot apply where the
\n\t  tariff value\thas been  fixed in  respect  of\t any
\n\t  excisable goods  under sub-section  (2) of section
\n\t  3;\n<\/p>\n
     (v)   On a\t proper interpretation\tof the definition of
\n\t  ‘related person’ in sub-section (4) (c) of section
\n\t  4, the  words “a relative and a distributor of the
\n\t  assessee” do not refer to any distributor but they
\n\t  are  limited\tonly  to  a  distributor  who  is  a
\n\t  relative of  the assessee  with in  the meaning of
\n\t  the Companies\t Act, 1956.  So read, the definition
\n\t  of ‘relates  person’ is  not unduly  wide and does
\n\t  not suffer  from any\tconstitutional infirmity. It
\n\t  is   within\t the   legislative   competence\t  of
\n\t  Parliament.  It   is\tonly  when  an\tassessee  so
\n\t  arranges that\t the goods are generally not sold by
\n\t  him in  the course of wholesale trade except to or
\n\t  through such\ta related  person that\tthe price at
\n\t  which the goods are ordinarily sold by the related
\n\t  person in  the course\t of wholesale  trade at\t the
\n\t  time of  removal to  dealers\t(not  being  related
\n\t  persons) or  where such goods are not sold to such
\n\t  dealers, to  dealers (being  related\tpersons\t who
\n\t  sell such goods in retail is liable to be taken as
\n\t  the excisable\t value of  the goods  proviso  under\n<\/p>\n
\t  (iii) to sub-section (1) (a) of section 4.\n<\/p>\n
     We\t now  proceed  to  the\tquestion  whether  any\tpost
\nmanufacturing expenses\tare deductible\tfrom the  price when
\ndetermining the “value” of the excisable article. The old s.
\n4 provided  by the  Explanation there to that in determining
\nthe price  of any article under that section no abatement or
\ndeduction would\t be  allowed  except  in  respect  of  trade
\ndiscount and  the amount  of duty payable at the time of the
\nremoval of the article chargeable with duty from the factory
\nor other  premises aforesaid.  The  new\t s.  4\tprovides  by
\nsubs.(2)  that\twhere  the  price  of  excisable  goods\t for
\ndelivery at the place
\n390<\/span>
\nof removal  is not  known and  the value  is determined with
\nreference to  the price\t for delivery  at a place other than
\nthe place  of removal,\tthe cost  of transportation from the
\nplace of removal to the place of delivery has to be excluded
\nfrom such  price. The  new s. 4 also contains sub-s. (4) (d)\n<\/p>\n
(ii) which  declares that the expression “value” in relation
\nto any\texcisable goods,  does not include the amount of the
\nduty of\t excise, sales\ttax and other taxes, if any, payable
\non such goods and, subject to such rules as may be made, the
\ntrade discount\t(such discount\tnot being  refundable on any
\naccount whatsoever  allowed in\taccordance with\t the  normal
\npractice of  the wholesale  trade at  the time of removal in
\nrespect of such goods sold or contracted for sale. Now these
\nare clear  provisions expressly\t a providing  for deduction,
\nfrom the price, of certain items of expenditure. But learned
\ncounsel for  the assessees contend that besides the heads so
\nspecified a  proper construction  of the  section  does\t not
\nprohibit  the\tdeduction  of\tother  categories   of\tpost
\nmanufacturing expenses.\t It is\talso urged that although the
\nnew s.\t4(4) (d)  (i) declares that in computing the “value”
\nof an  excisable article,  the\tcost  of  packing  shall  be
\nincluded, the  provision should\t be construed as confined to
\nprimary packing\t and as\t not extending to secondary packing.
\nThe head  under which  the claim  to deduction\tis made\t are
\ndetailed below :\n<\/p>\n
     (1) Storage charges.\n<\/p><\/blockquote>\n
     (2)  Freight  or\tother  transport   charges,  whether
\n\t  specific or equalised.\n<\/p><\/blockquote>\n
     (3)   Outward handling  charges,  whether\tspecific  or
\n\t  equalised.\n<\/p><\/blockquote>\n
     (4)   Interest on\tinventories (stocks  carried by\t the
\n\t  manufacturer after clearance).\n<\/p><\/blockquote>\n
     (5)   Charges for\tother services after delivery to the
\n\t  buyer.\n<\/p><\/blockquote>\n
     (6)   Insurance after  the goods  have left the factory
\n\t  gate.\n<\/p><\/blockquote>\n
     (7)  Packing charges.\n<\/p><\/blockquote>\n
     (8)    Marketing  and  Selling  organisation  expenses,
\n\t  including advertisement and Publicity expenses.<\/p><\/blockquote>\n
     At\t the   outset,\twe  must  make\tit  clear  that\t the
\ncontentions in\tthis  regard  on  behalf  of  the  assessees
\nproceeds on two broad bases.\n<\/p>\n
391<\/span><\/p>\n
The first  is that  to determine  the value  of an excisable
\narticle, all  expenses must  be excluded  which do not enter
\ninto the  formula of  manufacturing cost  plus manufacturing
\nprofit.\t This  follows\tfrom  the  principal  plank  of\t the
\nassessees’ case\t that the  “value” must\t be confined  to the
\nmanufacturing cost, and the manufacturing profit. For, it is
\nsaid, that  if the deductions claimed are allowed, the price
\nwould be  brought down\tto the\tconceptual value.  All\tpost
\nmanufacturing expenses are claimed from that perspective and
\nwithin that  context. The  other basis\ton which  the  claim
\nproceeds, is  that the\tprice at  the factory  gate and\t the
\nprice at a depot outside the factory gate are identical.\n<\/p>\n
     We shall now examine the claim. It is apparent that for
\nthe purpose  of determining  the “value”,  broadly  speaking
\nboth the  old s.  4(a) and  the now  s 4(1) (a) speak of the
\nprice for  sale in  the course\tof  wholesale  trade  of  an
\narticle for  delivery at  the  time  and  place\t of  removal
\nnamely, the  factory gate where the price contemplated under
\nthe old\t s.  4(a)  or  under  the  new\ts.  4(1)(a)  is\t not
\nascertainable, the price is determined under the old s. 4(b)
\nor the\tnew s.\t4 (1)  (b). Now,  the price of an article is
\nrelated to  its value  (using this term in a general sense),
\nand  into   that  value\t  have\tpoured\tseveral\t components,
\nincluding those\t which have  enriched its value and given to
\nthe article  its marketability\tin the trade. Therefore, the
\nexpenses incurred  on account  of the  several factors which
\nhave contributed  to its  value upto the date of sale, which
\napparently would  be the  date of delivery, are liable to be
\nincluded. Consequently\twhere the  sale is  effected at\t the
\nfactory gate,  expenses incurred  by the  assessee up to the
\ndate of\t delivery on  account of  storage  charges,  outward
\nhandling charges, interest on inventories (stocks carried by
\nthe  manufacturer   after  clearance),\t charges  for  other
\nservices after\tdelivery to  the buyer,\t namely\t after-sales
\nservice and  marketing\tand  selling  organisation  expenses
\nincluding advertisement expenses cannot be deducted. It will
\nbe noted  that advertisement expenses, marketing and selling
\norganisation expenses  and after-sales\tservice promote\t the
\nmarketability of the article and enter into its value in the
\ntrade. Where  the sale\tin the\tcourse of wholesale trade is
\neffected by the assessee through its sales organisation at a
\nplace or  places outside  the  factory\tgate,  the  expenses
\nincurred by the assessee upto the date of delivery under the
\naforesaid heads cannot, on the same grounds, be deducted But
\nthe assessee  will be  entitled to a deduction on account of
\nthe cost of transportation of the excisable article from the
\nfactory gate  to the  place or\tplaces where it is sold. The
\ncost of transportation will include the cost of insurance on
\nthe
\n392<\/span>
\nfreight for  transportation of\tthe goods  from the  factory
\ngate to the place or places of delivery.\n<\/p>\n
     Where freight  is averaged\t and the averaged freight is
\nincluded in  the wholesale  cash price so that the wholesale
\ncash price  at any  place or places outside the factory gate
\nis the same as the wholesale cash price at the factory gate,
\nthe averaged  freight included\tin such wholesale cash price
\nhas to\tbe deducted in order to arrive at the real wholesale
\ncash price  at the  factory gate  and Do  excise duty can be
\ncharged on it.\n<\/p>\n
     The case  in respect of the cost of packing is somewhat
\ncomplex. The  new s.  4(4)(d)(i) has  made express provision
\nfor including  the cost\t of packing  in the determination of
\n“value” for the purpose of excise duty. Inasmuch as the case
\nof the\tparties is  that the new s. 4 substantially reflects
\nthe position  obtaining under  the unamended  Act. We  shall
\nproceed on the basis that the position in regard to the cost
\nof packing  is the same under the Act, both before and after
\nthe amendment of the Act S. 4(4) (d) (i) reads:\n<\/p>\n
     “(4) For the purposes of this section-\n<\/p><\/blockquote>\n
\t  (d)  “value”, in relation to any excisable goods,-\n<\/p><\/blockquote>\n
\t  (i)\twhere the goods are delivered at the time of
\n\t       removal in  a packed  condition, includes the
\n\t       cost of\tsuch packing-except  the cost of the
\n\t       packing which  is of  a durable nature and is
\n\t       returnable by the buyer to the assessee.
\n\t  Explanation.-In this\tsub-clause  “packing”  means
\n     the wrapper,  container, bobbin,  pirn, spool,  reel or
\n     sarp beam\tor any\tother thing in which or on which the
\n     excisable goods are wrapped, contained or wound.”\n<\/p><\/blockquote>\n
It is  relevant to  note that the packing, of which the cost
\nis included  is the  packing of which the goods are wrapped,
\ncontained or  wound when the goods are delivered at the time
\nof removal. In other words, it is the packing in which it is
\nordinarily sold\t in the\t course of  wholesale trade  to\t the
\nwholesale  buyer.   The\t degree\t of  packing  in  which\t the
\nexcisable article  is contained\t will vary from one class of
\narticles to another. From the particulars detailed before us
\nby the\tassessees, it  is apparent  that the cost of primary
\npacking, that  is to  say, the ‘packing in which the article
\nis contained and in which
\n393<\/span>
\nit is made marketable for the ordinary consumer, for example
\na tube\tof toothpaste  or a bottle of tablets in a cardboard
\ncarton,\t or  biscuits  in  a  paper  wrapper  or  in  a\t tin
\ncontainer, must\t be  regarded  as  falling  within  s.\t4(4)\n<\/p>\n
(d)(i). That  is indeed\t conceded by learned counsel for the
\nassessee. It  is the  cost of  secondary packing  which\t has
\nraised serious\tdispute. Secondary  packing which  different
\ngrades. There  is the  secondary packing  which consists  of
\nlarger cartons in which a standard number of primary cartons
\nin the\tsense  mentioned  earlier)  are\t packed.  The  large
\ncartons\t may  be  packed  in  to  even\tlarger\tcartons\t for
\nfacilitating the  easier  transport  of\t the  goods  by\t the
\nwholesale dealer.  Is all  the packing,\t no matter  to\twhat
\ndegree, in  which the wholesale dealer takes delivery of the
\ngoods to be considered for including the cost thereof in the
\n“value” ?  Or does  the law  require  a\t line  to  be  drawn
\nsomewhere? We  must remember that while packing is necessary
\nto make\t the excisable\tarticle\t marketable,  the  statutory
\nprovision calls\t for strict construction because the levy is
\nsought\tto  be\textended  beyond  the  manufactured  article
\nitself. It  seems to us that the degree of secondary packing
\nwhich is  necessary for putting the excisable article in the
\ncondition in  which it\tis generally  sold in  the wholesale
\nmarket it  the factory\tgate is\t the degree of packing whose
\ncost can  be included  in the “value” of the article for the
\npurpose of  the excise\tlevy. To  that extent,\tthe cost  of
\nsecondary packing cannot be deducted from the wholesale cash
\nprice of the excisable article at the factory gate.\n<\/p>\n
     If any  special secondary\tpacking is  provided by\t the
\nassessee at  the instance  of a wholesale buyer which is not
\ngenerally provided  as a  normal feature  of  the  wholesale
\ntrade, the  cost of  such packing shall be deducted from the
\nwholesale cash price.\n<\/p>\n
     We have  also been referred to s. 2(f) of the Act which
\ndefines the  expression “manufacture”,\tand it is urged that
\nthe degree  of packing\tto be  considered for the purpose of
\nincluding its  cost in\tthe “value”  of an excisable article
\nshould be spelled out from that definition. We are unable to
\naccept\tthe  suggestion.  The  expression  “manufacture”  is
\nrelated to  the taxable\t event and refers to a process which
\nenters into  the character  of the  article, while “packing”
\nhas been  defined by  s. 4  (4) (d)  (i) in  relation to the
\n“value” of the article.\n<\/p>\n
     That, we  think, is  the position in regard to the cost
\nof packing  under the  Act, both  before a its amendment and
\nafter.\n<\/p>\n
394<\/span><\/p>\n
     We have  considered the  claim to\tdeductions under the
\nspecific heads enumerated by the assessees, and our judgment
\nis confined  to those  items. No  other head of expenses has
\nbeen placed before us for our opinion.\n<\/p>\n
     Learned  counsel\tfor  the   parties  have  drawn\t our
\nattention to  a number\tof decisions  rendered by  different
\nHigh Courts  on some of the points raised before us. We have
\nexamined those\tcases, but  we think it unnecessary to refer
\nto them\t as they  do not  add to  the considerations we have
\nkept before us in arriving at our conclusions.\n<\/p>\n
     These are\tthe reasons for our order of May 9,1983, and
\nthey explain  the scope\t within which  that  order  must  be
\nconstrued as well as the basis on which it was made.\n<\/p>\n
     The individual  appeals, writ  petitions, special leave
\npetitions and  transferred cases  will\tbe  listed  now\t for
\nappropriate orders  in the light of this judgment on October
\n31, 1983.\n<\/p>\n
H.S.K.\n<\/p>\n
395<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India Union Of India & Ors. Etc. Etc vs Bombay Tyre International Ltd. … on 7 October, 1983 Equivalent citations: 1984 SCR (1) 347, 1983 SCALE (2)449 Author: R Pathak Bench: Pathak, R.S. PETITIONER: UNION OF INDIA & ORS. ETC. ETC. Vs. RESPONDENT: BOMBAY TYRE INTERNATIONAL LTD. ETC. ETC. DATE OF JUDGMENT07\/10\/1983 […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-20439","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nUnion Of India & Ors. Etc. 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