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PETITIONER: KIRLOSKAR BROTHERS LTD., DEWAS (M.P.)

       Vs.

RESPONDENT: UNION OF INDIA AND ORS.

DATE OF JUDGMENT10/03/1992

BENCH: YOGESHWAR DAYAL (J) BENCH: YOGESHWAR DAYAL (J) RANGNATHAN, S. RAMASWAMI, V. (J) II

CITATION:  1992 AIR 1324            1992 SCR  (2)  81  1992 SCC  (2) 658        JT 1992 (2)   286  1992 SCALE  (1)599

ACT:      Central   Excises  and  Salt  Act,  1944:  Section   4- Explanation (prior to Amendment) and Section 36(2).      Excise   Duty-Central  Government’s  Notification   No. 84/72-CE dated 17.3.72 as amended by Notification No. 113/72 dated  22.3.72-Power  driven  and  monoblock  pumps-Electric Motors  purchased  and used in manufacture  of  pumps-Excise duty paid on Electric Motors-Whether deductible in  arriving at assessable value.      Trade discount-Discount given to distributors providing after  sales service-Also discount given to wholesalers  not providing after sales service-Whether entitled for deduction from excise value.

HEADNOTE:      The  appellant-Company was  manufacturing  power-driven pumps  and  monoblock  pumps.  It  was  purchasing  electric motors   from  another  company  and  using  them   in   the manufacture  of these pumps. The Superintendent  of  Central Excise  issued  show  cause notice  to  the  appellants  for recovery  of short levy of duty relating to the period  from 17th  March, 1972 to 31st March 1973 stating that (1)  there was less determination of the assessable value of pumps  due to  non-inclusion  of Central Excise duty paid  on  electric motors  used in the manufacture of pumps and that (2)  there was deduction of irregular trade discount on wholesale  cash price while determining the assessable value of the articles in question.      The  Assistant Collector directed the appellant to  pay the duties short levied holding that the excise duty paid by the  appellant on electric motors fitted to the pumps  could not be deducted while computing the assessable value of  the pump sets for purposes of assessment and that the  wholesale cash  price  minus the trade discount,  which  is  uniformly given   to  all  wholesale  dealers,  would  represent   the assessable value for assessment purposes.                                                        82      Against  the  orders  of the  Assistant  Collector  the appellant preferred an appeal before the Appellate Collector who allowed the appeal and quashed the demand notice holding

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(i) that the assessable value of the pumps had to be arrived at  after  deduction from the wholesale cash  price  of  the excise  duty  payable  not  only  on  the  pumps  which  are manufactured  but also the excise duty paid on the  electric motors which were used as a component of the pumps and  (ii) that  in determining the assessable value of the PD pumps  a discount  of  30  per cent declared  by  the  appellant  and allowed to wholesale dealers was liable to be deducted  from the  wholesale cash price of the pumps under the  provisions of the section 4 of the Central Excises and Salt Act, 1944.       In  exercise  of  the powers  conferred  on  it  under section  36(2)  of the Act the Central Government  suo  moto issued  a  show cause notice dated 21st June,  1976  to  the appellant proposing to set aside the order of the  Appellate Collector and restore the orders of the Assistant  Collector stating  that  the  Appellate Collector  has  erred  in  his decision.   The appellant filed its reply to the notice  and also  made  its submissions during the  course  of  personal hearing.  After considering the appellant’s reply as well as points urged by it during the course of personal hearing the Central Government set aside the Appellate Collector’s order and restored the Assistant Collector’s orders.       The  appellant  filed a writ petition  in  the  Madhya Pradesh  High  Court challenging  the  Central  Government’s order  contending  that  the  Central  Government  erred  in setting  aside the order of the Appellate Collector  and  in restoring  the orders of the Assistant Collector.  The  High Court  held  that the Explanation to Section 4  of  the  Act provides  for deduction of trade discount and the amount  of duty payable at the time of removal of the article from  the factory.   The ’duty’ referred to in the explanation is  the duty  payable on the product which is manufactured and  does not  refer  to  the duty paid on the  raw  material  or  the component  of  the  product manufactured.   The  High  Court agreed  with  the  order of the Central  Government  on  the deduction  on  trade discount and rejected  the  appellant’s contention that the excise duty paid on the component  parts could  not be treated as manufacturing cost and that it  was not  competent  for the Government to levy  excise  duty  on excise duty paid.      In  appeal to this Court it was contended on behalf  on the appellant                                                        83 (1) that while computing the assessable value the duty  paid on  electric motors for purposes of manufacturing  monoblock pumps  was also liable to be excluded; (2) that the  Central Government  ignored  the  Notification  No.  84/72-CE  dated 17.3.1972  as  amended  by  Notification  No.  113/72  dated 22.3.72;  and (3) that besides the depots of  the  appellant there are other five independent wholesalers and the Central Government  should  not  have  ignored  the  trade  discount allowed to them.      Dismissing the appeal, this Court,      HELD:  1.It is clear from the Explanation to Section  4 of  the  Central  Excises  and Salt  Act,  1944  that  while computing  the  assessable  value the deduction  has  to  be allowed  apart  from trade discount to the  amount  of  duty payable  at  the time of removal of the  article  chargeable with duty from the factory.  Here the article concerned  was the ’pump’ which had an electric motor which was duty  paid. But what was deductible while assessing the assessable value was merely the excise duty payable on the ’pump’ and not the excise  duty  already paid on the electric motor  which  was merely a component. [98C-D]      M/s Narne Tulaman Manufactures Pvt. Ltd., Hyderabad  v.

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Collector of Central Excise, Hyderabad, [1989] 1.S.C.C. 172, referred to.      2.  It is clear from the Government  Notification  that while  charging duty after computing the  assessable  value, the appellant will be entitled to reduction of duty paid  on the electric motors from the over all excise duty payable on the  ’pump’.   The  value of the excise  duty  paid  on  the electric  motor  is  not deductible while  arriving  at  the assessable  value  under  Section 4(a)  of  the  Act.   This becomes further clear from the wording of the second proviso to  the  Notification which contemplates where the  duty  of excise  on power driven pumps becomes less than  the  excise duty  paid on the electric motor then no part of the  excise duty   is  liable  to  be  refunded  to  the   manufacturer. Therefore  the purpose of the first proviso and  the  second proviso  of the Notification is only to the  calculation  of excise duty payable and has no relevance to the  calculation of assessable value of the articles manufactured when it  is cleared from the factory. [100C-E]      3.  It  is  clear  from  the  submission  made  by  the appellant  itself  before the Central  Government  that  the discount to area distributors was also in consideration  for providing after sales service which is not required to be                                                        84 taken into account while dealing with trade discount  within the  meaning  of  explanation to Section 4(a)  of  the  Act. Therefore  the Central Government rightly did not take  into account such area distributors who may have to provide after sales service.  The trade discount given to such wholesalers who were under no obligation to provide after sales  service is  the  relevant trade discount given to  the  wholesalers. [96E-G]      A.K.  Roy  & Anr. v. Voltas Ltd., [1973]  2  SCR  1089, referred to.

JUDGMENT:      CIVIL APPELLATE JURISDICTION :Civil Appeal No. 1773  of 1981.      From  the  Judgment and Order dated 27.11.1980  of  the Madhya Pradesh High Court in M.P.No. 134 of 1977.      S.Murlidhar and M.S.Ganesh for the Appellant.      K.T.S Tulsi, Add1.  Solicitor General, P.  Parmeshwaran and Dalip Tandon for the Respondents.      The Judgment of the Court was delivered by      YOGESHWAR  DAYAL, J. This Civil Appeal arises from  the order  dated  27th  November, 1980 passed  by  the  Division BNench  of  Madhya Pradesh High Court in  proceedings  under Article 226 of Constitution of India.  The proceedings under Article  226  of the Constitution were directed  against  an order  dated 19th January, 1977 passed by the Government  of India  in exercise of the powers conferred upon  them  under Section  36  of  the  Central Excises  and  Salt  Act,  1944 (hereinafter called ’the Act’).      The proceedings before the Central Government arose out of the review of an order in appeal passed by the  Appellate Collector  of  Central Excise, New Delhi  dated  14th  July, 1975.   The  appellate Collector by the aforesaid order  had accepted  various appeals filed by M/s.  Kirloskar  Brothers Limited, appellant before us against various order passed by the Assistant Collector Central Excise, Indore.      The  material facts giving rise to this litigation  are as follows :-      The  appellant  carries on  business  of  manufacturing

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power-driven  pumps  and  monoblock  pumps  at  Dewas.   For manufacturing mono block                                                        85 type  P.D. pump sets and power driven pumps,  the  appellant purchases   electric  motors  from  another   company   M/s. Kirloskar  Electric  Co. Ltd.   The  Superintendent  Central Excise  issued  eight  show cause notices to  the  appellant calling  upon  them  to show cause why  the  short  levy  as mentioned in  the notices should not be recovered  from  the appellant.   The  period  to which the  alleged  short  levy related was from 17th March, 1972 to 31st March, 1973.      The  grounds  on which the amount referred  to  in  the notices  issued was proposed to be recovered were  (i)  less determination  of the assessable value of pumps due to  non- inclusion  of  Central Excise duty paid on  electric  motors used  in  the  manufacture of pumps and  (ii)  deduction  of irregular  trade  discount  on wholesale  cash  price  while determining   the  assessable  value  of  the  articles   in question.      The Assistant Collector of Central Excise held that the excise duty paid by the appellant on electric motors  fitted to  the  pumps  could not be deducted  while  computing  the assessable   value  of  the  pumps  sets  for  purposes   of assessment under the Act.      With  regard  to  the question of  trade  discount  the Assistant  Collector  held that in terms of  explanation  to Section 4 of the Act deduction in respect of trade  discount on  wholesale cash price of the articles to be removed  from the  factory has to be allowed; the trade  discount  allowed has to be at uniform rate as held by the Supreme Court; once the  wholesale  price  is fixed and  the  quantum  of  trade discount  is  decided  it must be  given  uniformly  to  all wholesalers   irrespective  of  their  relations  with   the manufacturers.  The Assistant Collector observed :-          "The party had admitted that they have three  types          of wholesale dealers and each of them allowed trade          discount at different rate.  The first category  of          wholesale  dealers  numbering  about  15  got   the          maximum  trade discount.  A perusal of the list  of          these 15 wholesale dealers reveal that most of them          are merely selling Depots of the party who get  the          maximum trade discount in comparison to other types          of  wholesale  dealers of the party.   The  Hon’ble          Supreme Court has held that the wholesale price has          to be ascertained only on the basis of transactions          at  ’arms  length’.  Their Lordships  have  further          opined that if there is                                                        86          relative  of the manufacturer and if he is  charged          specially  low price, the price charged  would  not          constitute the wholesale cash price for levying the          excise duty.  The maximum trade discount allowed to          a  particular class of wholesale dealers  which  is          mostly  consisted  of  their  own  selling  depots,          therefore, does not represent the trade discount in          its  true sense in terms of Section 4 according  to          which  the  trade discount has to be allowed  at  a          uniform  rate and not arbitrarily.  Therefore,  the          fixation of wholesale cash price after allowing the          maximum  trade  discount to a  particular  type  of          wholesale   dealers   cannot  be   treated   as   a          transaction  made  at arms length  in  an  ordinary          course  of business and, therefore, not in  keeping          with  provisions  of  Section  4  of  the  Act  and          consequently cannot represent the correct wholesale

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        cash  price  in  terms of Section  4  the  Act  for          assessment purposes.".      The  Assistant Collector held that the  wholesale  cash price minus the trade discount, which is uniformly given  to all wholesale dealers, would represent the assessable  value for   assessment   purposes.   Accordingly   the   Assistant Collector directed that duties short levied, as pointed  out in the show cause notices, should be paid by the appellant.      Aggrieved by the orders of the Assistant Collector  the appellant preferred an appeal before the Appellate Collector who  held that the assessable value of the pumps had  to  be arrived at after deduction from the wholesale cash price  of the  excise  duty payable not only on the  pumps  which  are manufactured  but also the excise duty paid on the  electric motors  which  were used as a component of the  pumps.   The Appellate  Collector  further held that in  determining  the assessable  value  of  PD pumps a discount of  30  per  cent declared  by the appellant and allowed to wholesale  dealers was  liable to be deducted from the wholesale cash price  of the pumps under the provisions of Section 4 of the Act.   In this view of the matter the Appellate Collector allowed  the appeals and quashed the demand notices.  While allowing  the appeals the Appellate Collector, dealing with the  deduction of trade discount observed as follows:-                   "With  regard  to the  second  issue  i.e.          admissibility of trade discount of 30% declared  by          the  appellants and approved by the  jurisdictional          Central Excise officer, it was contended by                                                        87          the  appellants  that according to the  pattern  of          their  sale they had appointed 16 area dealers  for          sales  of  their products over a  particular  area.          These  area dealers had also  appointed  subdealers          within  their respective jurisdiction.   Thus where          the sales were made by the area dealer himself  the          full  discount of 30% was allowed to him  while  if          the goods were despatched on the advice of the area          dealer  to any of his sub-dealers was passed on  to          the sub-dealers while the discount remaining out of          the  30% was passed on by a credit voucher  to  the          area  dealer.  In either case the full discount  of          30%  was  being  passed  on to  the  trade  on  all          wholesale  transactions.  The above  contention  of          the appellants was verified from the sales invoices          produced   by   them  in   respect   of   wholesale          transactions  and  it was noticed  that  the  above          contention  of the appellants is correct.   It  was          also  noticed  that some sales were  also  made  in          small lots by the appellants to the dealers falling          outside  the  jurisdiction  of  the  area  dealers.          These  sales  represented 1% to 9.7% of  the  total          sales and could be regarded as sales to  retailers.          In their case the discount passed on was less  than          30%  discount  allowed  in the  case  of  wholesale          dealers.  It was explained that in view of the fact          that such dealers did not have the facility and the          technical   know-how  for  providing   after   sale          service,  the discount allowed to them  was  lesser          than   that  allowed  to  the  dealers   (wholesale          dealers)  who were required to afford the  services          after  sales.   However, in view of the  fact  that          such sales are meager and are in much smaller lots,          they did not materially change the situation."                                          (emphasis supplied)      When  this  order  came to the notice  of  the  Central

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Government the Central Government suo moto issued show cause notice to the appellant proposing to set aside the order  of the  Appellate  Collector, which appeared to it  to  be  not correct  in  law,  and  restore  the  order  passed  by  the Assistant Collector of Central Excise, Indore.  The  reasons for  the proposed revision were contained in the show  cause notice  dated 21st June, 1976, the relevant part  of  which, for facility of understanding, is reproduced hereunder:-                                                        88          "6. In terms of the explanation to Section 4 of the          Central  Excise and Salt Act, 1944  in  determining          the  price  of  any article under  that  section  a          deduction  is  admissible from the  wholesale  cash          price  towards  the amount of duty payable  at  the          time of the removal of the article chargeable  with          duty  from  the  factory  or  other  premises.   It          appears   to  the  Central  Government   that   the          deduction contemplated therein is in respect of the          duty leviable on the article which is being cleared          from the factory and not the duty paid or  leviable          on  the raw materials or component which went  into          the  manufacture  of that  excisable  article.   In          other words what is allowed deduction is only  that          duty leviable on the finished excisable article and          not  the total duty incidence.  To  held  otherwise          appears to be repugnant to the correct construction          of  the expression "amount of duty payable  at  the          time of removal of the article chargeable with duty          from the factory".          7. It, therefore, appears to the Central Government          that  in holding that the deduction was  admissible          not only in respect of the duty leviable on the  PD          Pumps  but also in respect of the duty paid on  the          electric  motor the Appellate Collector has in  his          decision.          8.  The  second question to be  determined  by  the          Appellate  Collector  was the  admissibility  of  a          trade discount of 30% which the party was  granting          in respect of sales to their area dealer or through          area  dealers  to  sub-dealers  which  to   another          category  of dealers called independent  dealers  a          less amount of trade was granted.  The case records          reveal that the party had three types of  wholesale          dealers namely the following:-               (a) Area dealers which number about 15 get the               maximum trade discount.               (b)  The  sub-dealers of  these  area  dealer.               These  sub-dealers usually get the goods  from               the area dealers at the particulars.               discount  and can also get the goods  directly               from  the party on a discount advised  by  the               area dealers and the                                                        89               balance discount out of the total 30% discount               is  passed on thereafter to the areas  dealers               and;               (c) The lst category of dealers who operate in               area  covered  by the area dealers and  get  a               less amount of discount.          9.It  also  appears that approximately 90%  of  the          goods  are sold through the area dealers  or  their          sub-dealers   and  only  the  rest  through   other          independent dealers.          10.The  Appellate Collector held that the sales  to          dealers other than the area area dealers were  only

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        upto 10% of the total sales and as such these could          be  regarded as a sales to retailers.   Accordingly          the   Appellate   Collector  held  that   since   a          substantial quantity of goods was sold through  the          area dealers or their sub-dealers the price charged          to  them was the correct wholesale cash  price  and          that  the  30%  trade discount given  to  them  was          admissible and sales to other dealers which were in          small  quantity  could  be  ignored  and  could  be          treated as sales to retailers.          11.It  appears to the Central Government  that  the          Appellate Collector failed to take note of the fact          that  the  sales to these  independent  dealers  in          their respective areas, however, small in  quantity          were nonetheless sales to wholesale dealers.  These          could not be categorised as retail sales which  are          essentially different from wholesales sales.          These  independent dealers were as  much  wholesale          dealers   as  the  areas  dealers.    Further   the          Appellate Collector also failed to take note of the          fact  that  the so-called area dealers in  a  large          number of cases were no other than the party’s  own          selling depots and the price charged to them  could          not prima facie be accepted as genuine unless there          was  compelling  evidence  to  establish  that  the          transaction  was at arm’s length.   It  accordingly          appears   to  the  Central  Government   that   the          wholesale  cash  price charged to  the  independent          dealers  and  discount  given to them  is  along  a          genuine  wholesale cash price and that the  genuine          whole sale cash price is ascertainable the  quantum          of  sale however meagre is irrelevant.  By  holding          that the discount                                                        90          given   to  the  area  to  the  area  dealers   was          admissible  and that sales to  independent  dealers          being  meager could be treated as retail sales  and          thus ignored, it appears to the Central  Government          that  the  Appellate  Collector has  erred  in  his          decision.".      The appellant filed a reply dated 30th August, 1976 and inter alia contended :-      "We deal with these two points separately as below :-          (i) ASSESSABLE VALUE OF MONOBLOCK PUMPS;              At  the  outright  we wish to  state  that  the          grounds  of  appeal advanced, against  the  various          orders in appeal issued by the Assistant Collector,          Central Excise, Indore before Appellate  Collector,          Central  Excise and Customs, New Delhi,  will  form          part  of our reply and we would rely on  them.   We          presume  that the records of the case  are  already          with you and there is no need of reproduce here our          arguments.               However  without prejudice to whatever  stated          in  above referred Appeal Memo we wish to state  as          under :-          (A) Central Excise duty is an indirect tax and this          tax is not taken into consideration for  assessment          purposes.  In accordance with the explanation given          in section 4 it is true that what is clear by us is          a  Monoblock Pump and not electric motor alone  and          not a mere pump.  Since we are paid Central  Excise          duty to our suppliers of electric motor, we have to          recover the same from the parties to whom monoblock          pumps are sold.

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        (B)  Had we sold only an Electric motor,  the  same          recovery to duty would have been made separately by          us  and our cost would have been the price paid  to          supplier exclusive of central excise duty.          (C)   Just  because  the  motor  is  used  in   the          manufacture of Monoblock Pumps, it does not deprive          us of our right to recover the duty on the Electric          Motor paid by us when this is ascertainable.          (D) The same would be the case in respect of  other          components                                                        91          of  Monoblock pumps, viz. Steel,  paint,  shafting,          material etc. However, we are not in a position  to          ascertain  the  duty paid on these  Raw  Materials.          That  is  why we have to recover the  total  amount          including the cost and Central Excise duty paid  on          the  Raw Material, so that the Central Excise  duty          paid on them will automatically be recovered.  Such          an  amount has to go into the total value.  But  in          respect of the items of the raw materials if we can          ascertain  the  central excise duty  paid,  we  can          certainly recover the same in from of duty and  not          by way of the cost of the material.          (E)  The whole principle of costing is to see  what          an  article produced by any manufacturer  has  cost          him.   If  the duty is ascertainable, there  is  no          reason  as  to why it should be go  into  the  cost          necessarily.   There  is no law to warrant  such  a          procedure.          (F)  The  inclusion of Central Excise duty  as  the          cost   of   Monoblock  pumps,  it   would   further          complicate the matters.  In that event we will  not          be  in a position to recover the full duty paid  on          electric   motor   as   we  have   to   allow   the          proportionate trade discount on the duty  elements.          This would tantamount depriving us of our right  to          recover the full amount of Central Excise duty paid          by us.          (G)  Further without prejudice, if the duty  is  so          included  what would be the amount to  be  included          and  at  what stage.  It will have  to  be  decided          whether  the  whole of the duty on  electric  motor          i.e.  15%  is  to be included in the  cost  or  the          balance  available from the said duty amount  after          availing   of   the  set   off   admissible   under          Notification No. 84/72 as amended by No.113/72.               Under  these circumstances, we  would  request          you  not  to  force us to include  the  element  of          Central Excise duty paid on Electric motors, in the          value  of  our  Monoblock  Pumps  for  purpose   of          assessments.          (ii) WHOLESALE CASH PRICE AND QUANTUM OF DISCOUNT               At  the  outsight we wish to  state  that  the          grounds of appeal                                                        92          advanced against the various order in appeal issued          by the Assistant Collector, Central Excise,  Indore          before the Appellate Collector, Central Excise  and          Customs, New Delhi will form part of our reply  and          we would rely on them.  We presume that the records          of  the case are already with you and there  is  no          need to reproduce there our arguments.               However, without prejudice to whatever, stated          in  above  referred appeal memos we would  like  to          state as follows:-

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             ii(A) It is contended in the Show Cause Notice          that  the  wholesale  cash price,  charged  to  the          independent dealers and the discount given to  them          is  alone a genuine wholesale cash price  and  that          once the wholesale cash price is ascertainable  the          quantum of the sale, however meagre, is irrelevant.          Further  it  is also contended that the  so  called          dealer  in  a large number of cases were  no  other          than  parties  own  selling depots  and  the  price          charged  to them could not prima facie be  accepted          as  genuine.  Unless there was compelling  evidence          to  establish  that  the transaction  was  at  arms          length.               In this connection we would like to submit  as          follow:               ii(C) The Kirloskar Brother’s depots are being          treated  on  par with these area  dealers  and  the          dealings  are from principle to principle.   Simply          because  they are depots of Kirloskar  Brothers  it          cannot  be  presumed that the dealings are  not  at          arms length.                ii(D)  It is not the case of department  that          the  goods  are  sold to these area  dealers  at  a          specially  low  rate.  The facts that there  are  5          independent dealers alongwith depots goes to prove                                                        93          that  no  special  treatment  is  accorded  to  the          depots.               ii(E)  We  would insist with  all  force  that          these  transactions  are at arms length  and  these          represents the normal trade practice.  The sales to          independent  dealers may not be treated  as  retail          sales  but there is no reason as to why  the  price          charged to these few so called independent  dealers          should  be  preferred  to  the  price  charged   to          independent area dealers.               ii(F)  The whole idea of assessment  seems  to          have been mis-conceived.  Now it is an  established          law  that  "EXCISE IS A TAX ON THE  PRODUCTION  AND          MANUFACTURE OF GOODS (SEE UNION OF INDIA VS.  DELHI          CLOTH  AND  GENERAL  MILLS  1963)  SECTION  4   ACT          THEREFORE  PROVIDES THAT THE REAL VALUE  SHOULD  BE          FOUND  AFTER  DEDUCTING THE SELLING  COST  AND  THE          SELLING PROFITS AND THE REAL VALUE CAN INCLUDE ONLY          THE   MANUFACTURING  COST  AND  THE   MANUFACTURING          PROFIT".               ii(G) The section also makes it clear that the          excise  is levied only on the  amount  representing          the  manufacturing  cost  plus  the   manufacturing          profit,  and the excludes post manufacturing  costs          and the profit arising from the post  manufacturing          operation.               ii(H) In our case the amount charged by giving          lesser  discount  to  the  so  called   independent          dealers  represents the selling profits and  cannot          be attributed to the manufacturing activity.  Under          these   circumstances  the  value  that  could   be          approved for our assessment would be the list price          less   maximum   and  this   will   represent   the          manufacturing cost plus the manufacturing profit.               ii(I) Under the circumstances it is abundantly          clear that the price cannot be loaded with any kind          of  selling cost or selling profit irrespective  of          whether  the same is of the wholesellers or of  the          manufacturer,  the reason being that neither it  is

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        attributable to manufacturing activity.                                                        94               ii(J) After the decision in VOLTAS case  there          have been a number of cases both the Supreme  Court          and  various  High Court, wherein the  decision  in          VOLTAS case have been followed meticulously.               Under  these circumstance there are no  reason          to   reopen  the  matter  and  given   an   adverse          decision."      An  opportunity of personal hearing was  also  granted. It is noticed in the order of the Central Government that :          "During   the   course  of  personal   hearing   on          19.10.1976 various contentions were reiterated  and          it  was emphasised that the manufacturers  had  two          patterns  of  sales,  namely  -  (i)  through  area          distributors who are given exclusive rights of sale          within their respective areas and who were  further          authorised  to appoint sub-distributors,  and  (ii)          some 10% sales were to other dealers to whom a less          percentage   of   discount  was  given.    It   was          emphasised that the discrimination between the  two          patterns  of sales was on account of the fact  that          area distributors provided after sales service etc.          which  could  be  treated  as  post   manufacturing          operations.  It was pointed out to them during  the          course of personal hearing that majority of the so-          called  area  distributors  were  depots  of   M/s.          Kirloskar Brothers Ltd., only.  They contended that          though  the over-all controlling authority was  the          Kirloskar Group of Companies, yet these depots were          independent  entities  by  themselves.   They  were          asked  to  submit detailed  information  about  the          composition of all the Directors of M/s.  Kirloskar          Electricals,  Bangalore,  the  Directors  of  Dewas          factory  and  their agreements  with  various  area          distributors  with  their  sub-distributors.    The          information  was  to be submitted by  November  16,          1976  but  could not be received  within  the  time          stipulated.".     The  Central  Government after  considering  the  points raised  by  the appellant in its written reply to  the  show cause  notice as well as points urged during the  course  of personal  hearing took the view that under Section 4 of  the Act  the abatement of duty is admissible only in respect  of the  article  in question and not the duty paid on  the  raw material   or  the  component  which  had  gone   into   its manufacture, and accordingly held that                                                        95 the view of the Appellate Collector is incorrect.  Regarding the  question  of discount the Central Government  took  the view  that the independent wholesale dealers are  those  who are  other than the depots of M/s. Kirloskar Brothers.   The view  of  the Appellate Collector treating  sales  to  these dealers   as  retail  sales  is  incorrect.    The   Central Government  held  that  once the  wholesale  cash  price  is ascertainable the quantum of sales to such wholesale dealers is  irrelevant and in the instant case even the  quantum  of sale  to  the  independent wholesale dealers  is  10%.   The wholesale cash price is thus ascertainable.  In this view of the matter the Central Government in exercise of the  powers conferred  in it under sub-section (2) of Section 36 of  the Act  set  aside the impugned order passed by  the  Appellate Collector  and  restored  all  the  orders  passed  by   the Assistant Collector of Central Excise.      Before  the High Court the above referred order of  the

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Central   Government   was   impugned   in   the   aforesaid circumstances.   It  was contended on  behalf  of  appellant before the High Court that the Government of India erred  in holding  that the duty paid on the electric motors  was  not deductible  in computing the wholesale cash price under  the provisions  of Section 4 of the Act.  It was also  contended that  the Government of India erred in restoring the  orders of the Assistant Collector whereby only 25 per cent discount was  held  to  be deductible by way  of  trade  discount  in computing the wholesale cash price of the pumps in question. The High Court held that the explanation to Section 4 of the Act provides for deduction of trade discount and the  amount of  duty payable at the time of removal of the article  from the  factory.  The ’duty’ referred to in the explanation  is the  duty payable on the product which is  manufactured  and does  not refer to the duty paid on the raw material or  the component  of  the product manufactured.   Faced  with  this difficulty  before  the  High  Court  the  counsel  for  the appellant stated that he was not relying on the  explanation to Section 4 of the Act for contending that the duty paid on electric  motors  fitted  to  the pumps  was  liable  to  be deducted  from  the wholesale cash price of the  article  in question.   It  was  urged before the High  Court  that  the excise duty paid on the component parts could not be treated as manufacturing cost and that it was not competent for  the Government  to  levy excise duty on excise duty  paid.   The High   Court  rejected  the  contention.   As  regards   the deduction  of trade discount the High Court agreed with  the order of the Central Government.                                                        96      Before  us  learned  counsel  for  the  appellant   has submitted  that the Central Government erred  in  disturbing the  appellate  order of the Collector and submitted  -  (1) that beside the depots of the appellant there are other five independent wholesales and the Central Government should not have  ignored the trade discount allowed to them;  (2)  that the Central Government, though has passed the impugned order only  on 14th April, 1977, did not refer to the  information which was submitted after 16th November, 1976; (3) that  the Central  Government ignored by Notification No.84/72- CE  DT 17.3.1972  as  amended  by  Notification  No.  113/72  dated 22.3.1972 and (4) that while computing the assessable  value the   duty   paid  on  electric  motors  for   purposes   of manufacturing   monoblock  pumps  was  also  liable  to   be excluded.      It  will  be  noticed that we are  concerned  with  old section 4 of the Act as operative during the relevant time.      In  A.K. Roy & Anr. v. Voltas Limited, [1973] 2  S.C.R. 1089,  the Supreme Court emphasised at page 1097 that  there can  be no doubt that the ’wholesale cash price’ has  to  be ascertained  only  on  the basis of  transactions  at  arm’s length.   Once  wholesale  dealings  at  arm’s  length   are established,  the determination of the wholesale cash  price for  the purpose of Section 4(a) of the Act may  not  depend upon  the  number  of such wholesale  dealers.   Before  the Central Government it was emphasised by the appellant itself that  the discrimination between the two patterns  of  sales was  on account of the fact that area distributors  provided after  sales  service etc. which could be  treated  as  post manufacturing   operation.   It  is  thus  clear  from   the submission  made by the appellant itself before the  Central Government  that the discount to area distributors was  also in  consideration  for also providing  after  sales  service which is not required to be taken into account while dealing with  trade  discount within the meaning of  explanation  of

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Section  4(a) of the Act.  Therefore the Central  Government rightly did not take into account such area distributors who may have to provide after sales service.  The trade discount given  to such wholesalers who were under no  obligation  to provide  after sales service is the relevant trade  discount given to the wholesalers.      In view of our conclusion on the first point itself  no useful  purpose  would  be served in  examining  the  second question  as  the appellant himself had  given  the  reasons before the Central Government as to why they gave                                                        97 higher  trade  discount  to  their  depots  and  other  area distributors.      We may take point Nos. 3 and 4 together.  In M/s. Narne Tulaman  Manufacturers Pvt. Ltd., Hyderabad v. Collector  of Central Excise, Hyderabad, [1989] 1 S.C.C. 172, the  Supreme Court  had  the  occasion  to  deal  with  somewhat  similar situation  as in the present case.  Sabyasachi Mukharji,  J. (as  His Lordship then was) speaking for the Court  observed :-          "The  activity  carried  out by  the  appellant  of          assembling the three components of the  weighbridge          brings into being complete weighbridge which has  a          distinctive name, character or use.  As a result of          the  work of assembling a new product known in  the          market   and   known   under   the   excise    item          "weighbridge" comes into being.  The appellant will          become  a manufacturer of that product and as  such          liable to duty".               His Lordship further observed thus :          "A  part may be goods as known in the  excise  laws          and may be dutiable.  If the indicator system is  a          separate part and a duty had been paid on it and if          the  rules  so provide then the  appellant  may  be          entitled to abatement under the rules.  But if  the          end product is a separate product which comes  into          being as a result of the endeavour and activity  of          the  appellant then the appellant must be  held  to          have manufactured the said item. When parts and the          end  product  are separately dutiable  -  both  are          taxable." Section  4(a) of the Act read with its explanation reads  as under :-          "4. Determination of value for the purposes of duty          - Where, under this Act, any article is  chargeable          with  duty at a rate dependent on the value of  the          article, such value shall be deemed to be-          (a)  the wholesale cash price for which an  article          of the like kind and quality is sold or is  capable          of  being  sold at the time of the removal  of  the          article  chargeable with duty from the  factory  or          any other premises of manufacture of production, or          if  a  wholesale  market does not  exist  for  such          article at such place, at the                                                      98          nearest place where such market exists, or          (b).....  .......  ....... .......          Explanation  -  In  determining the  price  of  any          article   under  this  section,  no  abatement   or          deduction  shall  be allowed except in  respect  of          trade  discount and the amount of duty  payable  at          the  time of the removal of the article  chargeable          with  duty  from  the  factory  or  other  premises          aforesaid.".      It  is  clear from the explanation  itself  that  while

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computing  the  assessable  value the deduction  has  to  be allowed  apart  from trade discount to the  amount  of  duty payable  at  the time of removal of the  article  chargeable with duty from the factory.  Here the article concerned  was the ’pump’ which had an electric motor which was duty  paid. But what was deductible while assessing the assessable value was merely the excise duty payable on the ’pump’ and not the excise  duty  already paid on the electric motor  which  was merely a component.      The relevant part of the Notification No.84/72-CE dated 17.3.1972  as  amended  by  Notification  No.  113/72  dated 22.3.1972 reads as follows:-          "In  exercise of the powers conferred by rule  8(1)          of the Central Excise Rules, the Central Government          hereby  exempts  power driven pumps  falling  under          tariff  item no. 30a of the first schedule  to  the          Central  Excise and Salt Act, 1944 (1 of 1944)  and          specified in column (2) of the table annexed hereto          from so much of duty of the excise leviable thereon          as   in  excess  of  the  duty  specified  in   the          corresponding  entry  in  column (3)  of  the  said          table. ------------------------------------------------------------ S.No                 Description                      Duty (1)                     (2)                            (3) ------------------------------------------------------------ 1.        POWER DRIVEN PUMPS PRIMARILY DESIGNED      10%           FOR HANDLING WATER NAMELY              ADVALOREM           i)   CENTRIFUGAL PUMPS (HORIZONTAL                OR VERTICAL PUMPS)           ii)  DEEP WELL TURBINE PUMPS           iii) SUB MERSIBLE PUMPS AND                                                       99           iv)  AXIAL FLO AND MIXED FLOW                NIL                VERTICAL PUMPS. 2.        OTHERS                                       NIL ------------------------------------------------------------          PROVIDED THAT          (i) Where the aforesaid pumps on which the duty  of          excise  is  leviable  are  fitted  with  duty  paid          internal  combustion engine falling under  sub-item          (ii)  of item no. 29 or Electric motors falling  under          sub-item(ii) of item no.30 of the first schedule to          the  aforesaid  Act such power driven  pumps  shall          also be exempted from so much of the duty of excise          leviable  hereon  as  is  equivalent  to  the  duty          of excise leviable thereon as is equivalent to  the          duty of excise or the additional excise duty  under          section  2A  of the Indian Tariff Act 1934  (32  of          1934) the case may be already paid on such internal          combustion engine or Electric Motors.          (ii) .....  ....  ... ... ...               Provided further that where the duty of excise          leviable  on  power driven pumps is less  than  the          amount  of  duty of excise or the  additional  duty          under section 2A of the Indian Tariff Act aforesaid          specified  in  clause  (i) or as the  case  may  be          calculated  under clause (ii) of the first  proviso          with respect to internal combustion engine,  elect.          motor, rotors or stator then no part of the duty so          specified  or calculated shall be refunded  to  the          manufacturer.      It will be noticed that first part of the  Notification exempts  the ’Power Driven Pumps’ falling under Tariff  Item No.  30A  of the first schedule to the Act and  reduces  the

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duty to 10% advalorem.      To  understand more conveniently the meaning and  scope of  provisos,  the provisos shorn of unnecessary  words  may read as under :-      "PROVIDED THAT :-          (i) Where the aforesaid pumps on which the duty  of          excise   is   leviable   are   fitted   with   duty          paid...Electric  motors....Such power driven  pumps          shall also be exempted from so much of the duty  of          excise leviable thereon ...as is equivalent to the                                                        100          duty  of  excise ......paid on  such  .....electric          motors.          (ii) ....  ...... ..... .......               Provided further that where the duty of excise          leviable  on powers driven pumps is less  than  the          amount  of  duty of excise or the  additional  duty          under  section  2  A  of  the  Indian  Tariff   Act          aforesaid  specified in clause (i) or as  the  case          may  be calculated under clause (ii) of  the  first          proviso with respect to internal combustion  engine          electric  motor, rotors or stator then no  part  of          the  duty  so  specified  or  calculated  shall  be          refunded to the manufacturer."      It is thus clear from the proviso that  while  charging duty  after  computing the assessable value,  the  appellant will  be entitled to reduction of duty paid on the  electric motors from the over all excise duty payable on the  ’pump’. The  value of the excise paid on the electric motor  is  not deductible  while  arriving at the  assessable  value  under Section  4(a) of the Act.  This becomes further  clear  from the  wording of the second proviso which contemplates  where the  duty of excise on power driven pumps become  less  than the  excise duty paid on the electric motor then no part  of the   excise   duty  is  liable  to  be  refunded   to   the manufacturer.   Therefore the purpose of the  first  proviso and the second proviso is only to the calculation of  excise duty  payable  and has no relevance to  the  calculation  of assessable  value  of the articles manufactured when  it  is cleared from the factory.      There  is thus no merit in this appeal and the same  is accordingly dismissed with costs. T.N.A.                                   Appeal dismissed.                                                        101