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PETITIONER: UNION OF INDIA & ORS. ETC. ETC.

       Vs.

RESPONDENT: BOMBAY TYRE INTERNATIONAL LTD. ETC. ETC.

DATE OF JUDGMENT07/10/1983

BENCH: PATHAK, R.S. BENCH: PATHAK, R.S. BHAGWATI, P.N. SEN, AMARENDRA NATH (J)

CITATION:  1984 SCR  (1) 347        1983 SCALE  (2)449

ACT:      Central Excises and Salt Act, 1944 (1 of 1944)-Old s. 4 prior to and new s. 4 after amendment by the Central Excises and Salt  (Amendment) Act,  1973 (22 of 1973)-Interpretation of-Section validly enacted-Scheme and object of old s. 4 and new s.  4 are  same. Mode of determining value of an article for   excise   levy-Value-Whether   can   be   confined   to manufacturing cost  and  manufacturing  profit  only-Whether post manufacturing  expenses  like  freight,  insurance  and packing etc. can be included in the value of article.      Central Excises  and  Salt  Act,  1944-S.  4  (4)  (c)- Definition of  "related  person"-Scope  of.  Definition  not unduly wide-Does  not suffer  from constitutional infirmity. Words "a  relative and a distributor of the Assessee" do not refer to  any distributor but only to a distributor who is a relative of the assessee within the meaning of the Companies Act, 1956.      Central Excises  and  Salt  Act,  1944-S.  4  (4)  (d)- ’Value’-Definition of-Scope  of. Packing-Primary,  secondary and special  secondary-Cost of  special secondary packing to be excluded from value.      Constitution of  India Art.246,  Schedule  7,  List  1. Entry 84-Concept of duty of excise-What is.

HEADNOTE:      Sub-sec. (1)  of sec. 3 of the Central Excises and Salt Act, 1944 provided that duties of excise shall be levied and collected on all excisable goods, other than salt which were produced or  manufactured in India at the rates set-forth in the First  Schedule. Sub-sec.  (2) of  sec. 3  empowered the Central Government  to fix,  for the  purpose of levying the duties, tariff  values of  the articles  enumerated  in  the First Schedule as chargeable with duty ad valorem. Section 4 of the  Act provided  that the  value of  an article for the purposes of  duty shall  be (a) the wholesale cash price for which an  article of  the like  kind and quality was sold or was capable of being sold at the time removal of the article chargeable with  duty from the factory or any other premises of manufacture  or production  for delivery  at the place of manufacture or  production or  (b) where  such price was not ascertainable, the  price at  which an  article of  the like kind and  quality was  sold or  was capable of being sold at

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the time  of the removal of the article chargeable with duty from such  factory or  other premises  for delivery  at  the place of manufacture or production. With the increase in the ad valorem levies in the Central Excise Tariff the operation of sec.  4 presented certain practical difficulties; some of which were  prominently brought  out in the judgment of this court in  A.K. Roy  and Anr.  v. Voltas Ltd, [1973] 2 S.C.R. 1089. In that case, the Court inter alia said that 348 the real  value of an article for the purposes of the excise levy  would   include  only   the  manufacturing  cost  plus manufacturing  profits.   In  order   to  overcome   various difficulties, the original sec. 4 of the Act was substituted by a  new sec.  4 by Act 22 of 1973. The new sec. 4 provided that the value of an article for the purposes of duty shall, subject to  the other  provisions of this section, be deemed to be  the normal price thereof that is to say, the price at which such  goods were  ordinarily sold by the assessee to a buyer in  the course  of wholesale trade for delivery at the time and place of removal, where the buyer was not a related person and the price was the sole consideration for the sale and  where   the  normal   price  of   such  goods  was  not ascertainable for  the reason  that such goods were not sold or  for   any  other   reason,  the   nearest  ascertainable equivalent thereof  determined in  such  manner  as  may  be prescribed. Clauses  (c) and  (d) of  sub-sec. (4) of sec. 4 defined "related person" and "value" respectively.      The Central  issue which  arose between the Revenue and the assessees  in these  appeals was whether the value of an article  for  the  purposes  of  the  excise  levy  must  be determined by  reference exclusively  to  the  manufacturing cost and  the manufacturing  profit of  the manufacturer  as contended by  the assessees  or should be represented by the entire wholesale  price charged  by the  manufacturer  which consisted of  not merely  his  manufacturing  cost  and  his manufacturing    profit  but  included  "post  manufacturing expenses" and  "post manufacturing  profit" arising  between the completion of the manufacturing process and the point of sale by  the manufacturer.  The other points of dispute were principally in  respect of the connotation of the expression ’related person’ in the new s.4 as well as the nature of the deductions which  could be  claimed by  the assessee as post manufacturing expenses  and post  manufacturing profit  from the price for the purpose of determining the "value".      HELD: The  question whether the value of an article for the purpose  of the  excise levy  must be  confined  to  the manufacturing cost  and the  manufacturing profit in respect of the article has to be answered in the negative. While the levy of  excise duty  is on the manufacture or production of goods, the  stage of  collection need  not in  point of time synchronize  with   the  completion   of  the  manufacturing process. While  the levy in this country has the status of a constitutional concept,  the point  of collection is located where the statute declares it will be. [384 H, 364 F-G]      The Central  Provinces and  Berar Sales of Motor Spirit and Lubricants  Taxation Act, 1938, [1938-39] F.C.R. 18; The Province of  Madras v.  Messers  Boddu  Paidanna  and  Sons, [1942]  F.C.R.  90,  101;  Governor-General  in  Council  v. Province of Madras, [1945] F.C.R. 179; R.C. Jall v. Union of India, [1962]  Suppl. 3 S.C.R. 436; In Re. The Bill To Amend s. 20  of the Sea Customs Act, 1878, and s. 3 of the Central Excises And  Salt Act,  1944, [1964]  3 S.C.R. 787; Union of India v. Delhi Cloth & General Mills, [1963] Suppl. 1 S.C.R. 586;  M/S  Guruswamy  &  Co.  Etc.  v.  State  of  Mysore  & Ors.,[1967] 1  S.C.R. 548;  and South Bihar Sugar Mills Ltd.

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etc. v. Union of India & Ors.,[1968] 3 S.C.R. referred to.      The levy  of a  tax is defined by its nature, while the measure of  the tax  may be assessed by its own standard. It is true that the standard adopted as the 349 measure of  the levy  may indicate the nature of the tax but it does  not  necessarily  determine  it.  When  enacting  a measure to  serve as  a standard  for assessing the levy the legislature need  not contour it along lines which spell out the character  of the  levy itself. A broader based standard of reference  may be  adopted for the purpose of determining the measure  of the  levy. Any  standard which  maintains  a nexus with  the essential  character  of  the  levy  can  be regarded as  a valid  basis for assessing the measure of the levy. The  original s.  4 and  the new  s. 4  of the Central Excises and Salt Act satisfy this test. [366 C; 367 D-F]      Ralla Ram v. The Province of East Punjab, [1948] F.C.R. 207; Atma  Ram Budhia  v. State  of Bihar, A.I.R. 1952 Patna 359; M/s  Sainik Motors,  Jodhpur and  Ors. v.  The State of Rajasthan, [1962]  1 S.C.R.  517; D.C. Gouse and Co. etc. v. The State  of Kerala  & Anr.  etc.,  [1980]  1  S.C.R.  804; Searvai’s Constitutional  Law of India, Second Edition. Vol. 2 at  page 1258;  Re. A  Reference under  the Government  of Ireland Act,  1920 and  Sec. 3  of the Finance Act (Northern Ireland), 1934,  L.R. 1936 A.C. 352; R.R. Engineering Co. v. aila Parished,  Bareilly &  Anr., [1980] 3 S.C.R. 1; and The Hingir-Rampur Coal Co., Ltd. and Ors. v. The State of Orissa and Ors., [1961} 2 S.C.R. 537 referred to.      It was  open to  the legislature to specify the measure for assessing the levy. The legislature has done so. In both the old  s. 4  and the  new s.  4 the  price charged  by the manufacturer on  a sale by him represents the measure. Price and sale  are related  concepts, and  price has  a  definite connotation. The  "value" of the excisable article has to be computed  with   reference  to  the  price  charged  by  the manufacturer, the  computation being made in accordance with the terms of s. 4. [368 D-E]      On a true construction of its provisions in the context of the  statutory scheme  the  old  s.  (4)  (a)  should  be considered  as   applicable  to  the  circumstances  of  the particular  assessee   himself  and   not  of  manufacturers generally.[381 C-D]      Pursuant to  the old s. 4 (a) the value of an excisable article for  the purpose  of the excise levy should be taken to be  the price  at which  the excisable article is sold by the assessee  to a  buyer at  arm’s length  in the course of wholesale trade  at the  time and  place of  removal. Where, however, the  excisable article  is not sold by the assessee in wholesale  trade but,  for example,  is consumed  by  the assessee in his own industry the case is one where under the old s.  4 (a)  the value  must be determined as the price at which the  excisable article  or an article of the like kind and quality  is capable  of being sold in wholesale trade at the time and place of removal.    [376 F-H]      Where the  excisable article  or an article of the like kind and quality is not sold in wholesale trade at the place of removal, that is, at the factory gate, but is sold in the wholesale trade  at a  place out  side the factory gate, the value should  be  determined  as  the  price  at  which  the excisable article  is sold  in the  wholesale trade  at such place, after  deducting therefrom the cost of transportation of the  excisable article  from the  factory  gate  to  such place. [376 H; 77 A-B] 350      Where the  wholesale price  of the excisable article or

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an  article   of  the   like  kind   and  quality   is   not ascertainable, then  pursuant to  the old s. 4 (b) the value of the  excisable article  shall be  the price  at which the excisable article or an article of the like kind and quality is sold  or is  capable of being sold by the assessee at the time and place of removal or if the excisable article is not sold or is not capable of being sold at such place, then the price at which it is sold or is capable of being sold by the assessee at any other place nearest thereto. [377 B-C]      In every  case the  fundamental criterion for computing the value  of an excisable article is the price at which the excisable article or an article of the like kind and quality is sold  or is capable of being sold by the manufacturer and it is  not the  bare manufacturing  cost  and  manufacturing profit which  constitutes the  basis  for  determining  such value. [377 D]      Vacuum Oil  Company v.  Secretary of State for India in Council L.R.  59 I.A.  258; Ford Motor Company of India Ltd. v. Secretary of State for India in Council, L.R. 65 I.A. 32; and Atic  Industries Ltd.  v. H.H.  Dave, Asst  Collector of Central Excise and Ors.,[1975] 3 S.C.R. 563, referred to.      The basic  scheme for determination of the price in the new s.  4 is  characterised by  the same  dichotomy as  that observable in  the old  s. 4.  It was  not the  intention of Parliament, when  enacting the  new s.  4 to create a scheme materially different from that embodied in the superseded s. 4. The  object and purpose remained the same, and so did the central principle at the heart of the scheme. The new scheme was merely-more comprehensive and the language employed more precise and definite. As in the old s. 4, the terms in which the value  was defined  remained the  price charged  by  the assessee in  the course  of wholesale  trade for delivery at the time and place of removal. [377 H; 378 A-B]      It is  not possible  to conceive of the price under the new s.  4 (1)  (a) being  confined to the manufacturing cost and the  manufacturing profit. Moreover, it is reasonable to suppose that  the central principle for the determination of the value  of the  excisable article  should  be  the  same, whether the  case falls  under cl. (a) or cl. (b) of the old s. 4  or under  the new  s. 4 (1). When regard is had to the provision of  cl. (b)  in each  case, it  is not possible to limit  the   price  to   its  components   representing  the manufacturing cost and manufacturing profit. [379 E-G]      The contention  that the  provisions regarding  related persons  are  wholly  unnecessary  because  to  counter  act evasion of  tax any  artificially arranged price between the manufacturer and  his wholesale buyer can be rejected in any case under s. 4 is not acceptable. The new s. 4 (1) contains inherently within  it the  power to determine the true value of the  excisable article,  after taking  into  account  any concession shown  to a  special or favoured buyer because of extra-commercial consideration,  in order  that the price be ascertained only  on the  basis that  it is a transaction at arm’s  length.   That  requirement   is  emphasised  by  the provision in  the news.  4 (1)  (a) that the price should be the sole  consideration for the sale. In every such case, it will 351 be for  the Revenue  to determine  on the evidence before it whether  the   transaction  is  one  where  extra-commercial considerations have  entered and,  if so, what should be the price to  be taken as the value of the excisable article for the purpose  of excise  duty. Nonetheless  it  was  open  to Parliament  to   incorporate  provisions   in  the   section declaring that  certain specified categories of transactions

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fall within the tainted class, in which case an irrebuttable presumption will  arise that transactions belonging to those categories are transactions which cannot be dealt with under the usual meaning of the expression "normal price" set forth in the new s. 4 (1) (a). They are cases where it will not be necessary for  the Revenue  to examine  the entire  gamut of evidence in  order to  determine whether  the transaction is one prompted  by extra-commercial considerations. It will be open to  the Revenue,  on being  satisfied  that  the  third provision to  the new  s. 4 (1) (a) read with the definition of "related person" in s. 4 (4) (c) is attracted, to proceed to determine the "value" in accordance with the terms of the third proviso. [385 F-H; 386 A-D]      The argument that the assessment on the manufacturer by reference to  the sale  price charged  by his distributor is "wholly incompatible  with the  nature  of  excise"  has  no force. It  is a  well known  legislative practice  to  enact provisions in certain limited cases where an assessee may be taxed in  respect of  the income or property truly belonging to another.  They are cases where the Legislature intervenes to prevent  the circumvention  of the  tax obligation by tax payers seeking  to  avoid  or  reduce  their  tax  liability through modes resulting in the income or property arising to another. The  provisions of  the law  may be so enacted that the  actual   existence  of   such  motive   may  be  wholly immaterial, even  if what  has been done by the assessee may proceed from  wholly bona  fide intention. With the aid of a legal fiction,  the Legislature fastens the liability on the assessee. When  the Legislature  employs such  a device, and the liability  is  attached  without  qualification,  it  is reasonable to  infer that  an irrebuttable  presumption  has been created  by law.  Such provisions  have been held to be within the  legislative competence of the Legislature and as falling within its power of taxation. [386 D-H]      Balaji v.  Income-Tax  Officer,  Special  Investigation Circle, [1962] 2 S.C.R. 938; Navnitlal C. Javeri v. K.K.Sen, Appellate Assistant  Commissioner of  Income tax. ’D’ Range, [1965] 1 S.C.R. 909; Bombay and Punjab Distilling Industries Ltd. v.  Commissioner of Income-Tax, Punjab, [1965] 3 S.C.R. 1, referred to.      The argument  that the  definition  of  the  expression "related person"  is so arbitrary that it includes within it a distributor  of the  assessee is  also without much force. The provision in the definition of "related person" relating to a  distributor can  be legitimately  read  down  and  its validity upheld.  The definition of related person should be so read  that the words "a relative and a distributor of the assessee" should  be understood to mean a distributor who is a relative  of the assessee. The Explanation to s. 4 (4) (c) provides that the expression "relative" has the same meaning as in  the Companies  Act, 1956.  The definition of "related person ’,  as being  "a person who is so associated with the assessee that they have interest, directly or indirectly, in the business of each other and includes a holding company, a subsidiary company  ..,"  shows  a  sufficiently  restricted basis for employing the legal fiction. Here again, 352 regard must  be had  to the  Explanation which provides that the expression  "holding company  and subsidiary"  have  the same meanings  as in  the Companies  Act, 1956.  It is  well settled that  in a  suitable case  the court  can  lift  the corporate veil where the companies share the relationship of a holding  company and  a subsidiary company and also to pay regard to  the economic  realities behind  the legal facade, [387 B-H; 388 A]

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    Tata Engineering  and Locomotive  Co. Ltd.  v. State of Bihar and Others. [1964] 6 S.C.R. 885; Juggi Lal Kamlapat v. Commissioner  of  Income-Tax,  U.P.  [1969]  1  S.C.R.  988, referred to.      The true  position under  the Central  Excises and Salt Act 1944 as amended by Act XXII of 1973 is as follows:      (i)  The  price   at  which  the  excisable  goods  are           ordinarily sold  by the assessee to a buyer in the           course of wholesale trade for delivery at the time           and place  of removal as defined in subsection (4)           (b) of section 4 is the basis for determination of           excisable value  provided, of course, the buyer is           not a  related person  within the  meaning of sub-           section (4)  (c) of section 4 and the price is the           sole consideration  for the  sale. The proposition           is subject  to the  terms of the three provisos to           sub-section (1) (a) of section 4. [388 D-F]      (ii) Where  the price  of excisable goods in the course           of wholesale  trade for  delivery at  the time and           place of  removal cannot  be ascertained  for  the           reason that  such goods  are not  sold or  for any           other reason, the nearest ascertainable equivalent           thereof determined in the manner prescribed by the           Central Excise  (Valuation) Rules,  1975 should be           taken as  representing the  excisable value of the           goods; [388 G-H]      (iii)Where wholesale  price of  any excisable goods for           delivery at  the place of removal is not known and           the value  thereof is determined with reference to           the wholesale  price for delivery at a place other           than  the   place  of   removal,   the   cost   of           transportation from  the place  of removal  to the           place of  delivery should  be excluded  from  such           price; [389 A-B]      (iv) Of course, these principles cannot apply where the           tariff value  has been  fixed in  respect  of  any           excisable goods  under sub-section  (2) of section           3; [389 C]      (v)  On a  proper interpretation  of the  definition of           ’related person’ in sub-section (4) (c) of section           4 the  words "a  relative and a distributor of the           assessee" do not refer to any distributor but they           are  limited  only  to  a  distributor  who  is  a           relative of the 353           assessee within  the meaning of the Companies Act,           1956. So  read, the definition of ’related person’           is not  unduly wide  and does  not suffer from any           constitutional  infirmity.   It  is   within   the           legislative competence  of Parliament.  It is only           when an  assessee so  arranges that  the goods are           generally  not  sold  by  him  in  the  course  of           wholesale  trade  except  to  or  through  such  a           related person  that the  price at which the goods           are ordinarily  sold by  the related person in the           course of  wholesale trade  at the time of removal           to dealers  (not being  related persons)  or where           such goods  are  not  sold  to  such  dealers,  to           dealers (being  related  persons)  who  sell  such           goods in  retail is  liable to  be  taken  as  the           excisable value  of the  goods under proviso (iii)           to sub-section (1) (a) of section 4. [389 D-F]      For the  purpose of  determining the  "value",  broadly speaking both old s. 4 (a) and the new s. 4 (1) (a) speak of the price  for sale  in the  course of wholesale trade of an

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article for  delivery at  the time  and  place  of  removal, namely, the factory gate. Where the price contemplated under the old  s. 4  (a)  or  under  new  s.  4  (1)  (a)  is  not ascertainable, the  price is  determined under  the old s. 4 (b) or the new s. 4 (1) (b). Now, the price of an article is related to  its value  (using this term in a general sense), and  into   that  value   have  poured  several  components, including those  which have  enriched its value and given to the article  its marketability  in the trade. Therefore, the expenses incurred  on account  of the  several factors which have contributed  to its  value upto the date of sale, which apparently would  be the  date of delivery, are liable to be included. Consequently,  where the  sale is  effected at the factory gate,  expenses incurred  by the  assessee upto  the date of  delivery on  account of  storage  charges,  outward handling charges, interest on inventories (stocks carried by the  manufacturer   after  clearance),   charges  for  other services after  delivery to  the buyer,  namely  after-sales service and  marketing  and  selling  organisation  expenses including  advertisement   expenses  marketing  and  selling organisation expenses  and after-sales  service promote  the marketability of the article and enter into its value in the trade. Where  the sale  in the  course of wholesale trade is effected by the assessee through its sales organisation at a place or  places outside  the  factory  gate,  the  expenses incurred by the assessee upto the date of delivery under the aforesaid heads  cannot, on  the same  grounds, be deducted. [391 C-H]      The assessee will be entitled to a deduction on account of the cost of transportation of the exciseable article from the factory  gate to  the place  or places where it is sold. The  cost   of  transportation  will  include  the  cost  of insurance on  the freight  for transportation  of the  goods from the  factory gate  to the  place or places of delivery. [391 H; 392 A]      Where freight  is averaged  and the averaged freight is included in  the wholesale  cash price so that the wholesale cash price  at any  place or places outside the factory gate is the same as the wholesale cash price at the factory gate, the averaged  freight included  in such wholesale cash price has to  be deducted in order to arrive at the real wholesale cash price  at the  factory gate  and no  excise duty can be charged on it. [392 A-B] 354      The new s. 4 (4) (d) (i) has made express provision for including the  cost  of  packing  in  the  determination  of "value" for  the purpose  of excise  duty. The  packing,  of which the  cost is  included, is  the packing  in which  the goods are  wrapped, contained  or wound  when the  goods are delivered at  the time  of  removal.  The  cost  of  primary packing, that is to say, the packing in which the article is contained and  in  which  it  is  made  marketable  for  the ordinary consumer,  must be  regarded as falling within s. 4 (4) (d)  (i). There  is secondary  packing which consists of larger cartons in which a standard number of primary cartons (in the  sense mentioned  earlier)  are  packed.  The  large cartons  may   be  packed   into  even  larger  cartons  for facilitating the  easier  transport  of  the  goods  by  the wholesale dealer.  Is all  the packing,  no matter  to  what degree, in  which the wholesale dealer takes delivery of the goods to be considered for including the cost thereof in the "value" ?  Or does  the law  require  a  line  to  be  drawn somewhere  ?   One  must  remember  that  while  packing  is necessary to  make the  excisable article,  marketable,  the statutory provision  calls for  strict construction  because

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the levy  is sought  to be  extended beyond the manufactured article itself.  If seems to us that the degree of secondary packing which is necessary for putting the excisable article in the  condition in  which it  is  generally  sold  in  the wholesale market  at the  factory  gate  is  the  degree  of packing whose  cost can  be included  in the  "value" of the article for  the purpose of the excise levy. To that extent, the cost  of secondary  packing cannot  be deducted from the wholesale cash price of the excisable article at the factory gate. [392 C; 392 G-H; 393 A-E]      If any  special secondary  packing is  provided by  the assessee at  the instance of a whole-sale buyer which is not generally provided  as a  normal feature  of  the  wholesale trade, the  cost of  such packing shall be deducted from the wholesale cash price. [393 F]

JUDGMENT:      CIVIL APPELLATE  JURISDICTION: Civil Appeal No. 2269 of 1980 etc.      From the  Judgment and  order dated 30.7.80 of the High Court of Bombay in Appeal No. 252/1980 etc.      K.  Parasaran  Sol.  Genl.,  N.C.  Talukdar,  Dr.  Y.S. Chitale, K.K  Venugopal, Suraj Udai Singh, Dalveer Bhandari, C.V. Subba  Rao, R.N. Poddar, M.S. Ganesh, Ravi Naghmave, T. Shrinivasamoorthi, K.S.  John,  Vithalbhai  B.  Patel,  R.P. Kapur, Bhaskar Gupta, R.K Chaudhary, A. T. Patra and Parveen Kumar for the Appellants Petitioners.      N.A. Palkhivala,  J.C. Bhatt,  Soli J.  Sorabjee, Ashok Desai, D.B.  Engineer, B.H.  Antia,  Ravinder  Narain,  O.C. Mathur. Talat  Ansari, Mrs.  A.K Verma,  Ashok  Sagar,  Miss Rainu Walia,  Sukumaran, D.N. Mishra and A.N. Haskar for the Respondents. 355      The Judgment of the Court was delivered by      PATHAK. J:  On May  9, 1983  we made  an order  setting forth the  legal position  in respect  of various aspects of the levy  of excise  duty under the Central Excises and Salt Act, 1944,  both before its amendment by the Central Excises and Salt  (Amendment) Act. 1973 (Act XXII of 1973) and after such amendment. We record now the reasons for that order.      At the  outset, we may state that it is not possible in this judgment  to deal with the numerous individual appeals, writ petitions,  special  leave  petitions  and  transferred cases before  us on  the particular  facts of  each, and  we propose to  consider  the  points  arising  therein  from  a general perspective.      The Central  Excises and  Salt  Act,  1944  relates  to central duties  of excise  and to  salt. Sub-s.  (1) of  s.3 provides that duties of excise shall be levied and collected on all  excisable goods, other than salt, which are produced or manufactured  in India,  at the  rates set  forth in  the First Schedule.  We are  not concerned  with  the  provision relating to salt. Sub-s. (2) empowers the Central Government to fix, for the purpose of levying the duties, tariff values of  the   articles  enumerated  in  the  First  Schedule  as chargeable with duty ad valorem.      Before its  amendment by  Act XXII  of 1973 s.4 read as follows:      "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

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         the like kind and quality is sold or is capable of           being sold  at the  time of  the  removal  of  the           article chargeable  with duty  from the factory or           any other  premises of  manufacture or  production           for  delivery  at  the  place  of  manufacture  or           production, or  if a  wholesale  market  does  not           exist for  such article  at  such  place,  at  the           nearest place where such market exists, or      (b)  where such  price is  not ascertainable, the price           at which  an article  of the like kind and quality           is sold  or  is  capable  of  being  sold  by  the           manufacturer or 356           producer, or his agent, at the time of the removal           of the  article chargeable  with  duty  from  such           factory or  other premises  for  delivery  at  the           place of  manufacture or  production, or  if  such           article is  not sold  or is  not capable  of being           sold at  such place,  at any  other place  nearest           thereto.           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 seems  that with  the increase  in  the  ad  valorem levies in  the Central  Excise Tariff  the operation  of s.4 presented certain practical difficulties, some of which were prominently brought  out in the judgment of this Court in A. K. Roy  & Anr,  v. Voltas  Limited. Among other observations the Court  appears to  have said  that the  real value of an article for  the purposes  of the  excise levy would include only the  manufacturing cost  plus the manufacturing profit. In order  to overcome  the various  difficulties, Parliament enacted Act XXII of 1973 which substituted a new s.4 for the original Provision with effect from October 1, 1975. The new section 4 provides:-      "4.  Valuation  of  excisable  goods  for  purposes  of      charging of  duty of  excise.-(1) Where under this Act,      the duty of excise is chargeable on any excisable goods      with reference  to value,  such value shall, subject to      the other provisions of this section be deemed to be-      (a)  the normal  price thereof,  that is  to  say,  the           price at  which such  goods are ordinarily sold by           the assessee to a buyer in the course of wholesale           trade for  delivery  at  the  time  and  place  of           removal, where  the buyer  is not a related person           and the  price is  the sole  consideration for the           sale:      Provided that-      (i)  where in  accordance with  the normal  practice of           the wholesale  trade in such goods, such goods are           sold 357           by the  assessee at  different prices to different           classes of buyers (not being related persons) each           such price, shall, subject to the existence of the           other circumstances  specified in  clause (a),  be           deemed to  be the  normal price  of such  goods in           relation to each such class of buyers;      (ii) where such  goods are  sold by the assessee in the           course of wholesale trade for delivery at the time           and place  of removal  at a  price fixed under any           law for  the time  being in  force, or at a price,

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         being the  maximum fixed under any such law, then,           notwithstanding anything contained in cl. (iii) of           this proviso  the price  or the  maximum price, as           the case  may be,  so fixed  shall, in relation to           the goods  so sold,  be deemed  to be  the  normal           price thereof;      (iii)where the  assessee so arranges that the goods are           generally  not  sold  by  him  in  the  course  of           wholesale trade  except to  or through  a  related           person, the  normal price of the goods sold by the           assessee to  or through  such related person shall           be deemed  to be  the  price  at  which  they  are           ordinarily sold  by  the  related  person  in  the           course of  wholesale trade at the time of removal,           to dealers  (not being  related persons)  or where           such goods  are  not  sold  to  such  dealers,  to           dealers (being  related  persons)  who  sell  such           goods in retail;      (b)  where the  normal  price  of  such  goods  is  not           ascertainable for  the reason  that such goods are           not sold  or for  any other  reason,  the  nearest           ascertainable  equivalent  thereof  determined  in           such manner as may be prescribed.           (2) Where,  in relation to any excisable goods the      price thereof  for delivery  at the place of removal is      not known  and the  value thereof  is  determined  with      reference to  the price  for delivery  at a place other      than the  place of  removal, the cost of transportation      from the  place of  removal, to  the place  of delivery      shall be excluded from such price. 358           (3) The provisions of this section shall not apply      in respect  of any  excisable goods  for which a tariff      value has  been fixed  under sub-section (2) of Section      3.      (4)  or the purposes of this section.-      (a)  "assessee" means  the person  who is liable to pay           the duty of excise under this Act and includes his           agent;      (b)  "place of removal" means-           (i)  a factory  or any  other place or premises of                production or  manufacture of  the  excisable                goods; or           (ii) a warehouse  or any  other place  or premises                wherein  the   excisable  goods   have   been                permitted to  be deposited without payment of                duty,      from where such goods are removed;      (c)  "related  person"   means  a   person  who  is  so           associated  with   the  assessee  that  they  have           interest, directly  or indirectly, in the business           of each  other and  includes a  holding company, a           subsidiary company,  a relative  and a distributor           of the  assessee, and  any sub-distributor of such           distributor.                Explanation.-In    this    clause    "holding           company", "a  subsidiary company"  and  "relative"           have the  same meanings  as in  the Companies Act,           1956;      (d)  "value", in relation to any excisable goods.-           (i)  where the  goods are delivered at the time of                removal in  a packed  condition, includes the                cost of  such packing  except the cost of the                packing which  is of  a durable nature and is                returnable by the buyer to the assessee.

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359           Explanation.-In this  sub-clause  "packing"  means      the wrapper,  container, bobbin,  pirn, spool,  reel or      warp beam  or any  other thing in which or on which the      excisable goods are wrapped. contained or wound;           (ii) does not  include the  amount of  the duty of                excise, sales  tax and  other taxes,  if any,                payable on  such goods  and, subject  to such                rules as  may be  made,  the  trade  discount                (such discount  not being  refundable on  any                account  whatsoever)  allowed  in  accordance                with the  normal practice  of  the  wholesale                trade at  the time  of removal  in respect of                such goods sold or contracted for sale;      (e)  "wholesale  trade"   means   sales   to   dealers,           industrial consumers, Government local authorities           and other  buyers, who  or  which  purchase  their           requirements otherwise than in retail."      In the  cases before  us there  has  been  considerable debate on the true meaning and scope of s.4 before and after its amendment. The points raised are not without difficulty, but we have had the advantage of hearing counsel of eminence on  both  sides,  and  we  are  grateful  to  them  for  the considerable assistance  they have  given us  throughout the hearing of these cases.      The central  issue between  the parties  is whether the value of an article for the purposes of the excise levy must be determined  by reference exclusively to the manufacturing cost and  the manufacturing  profit of  the manufacturer  or should be  represented by the entire wholesale price charged by the manufacturer. The wholesale price actually charged by the manufacturer  consists of  not merely  his manufacturing cost and his manufacturing profit but includes, in addition, a  whole   range  of  expenses  and  an  element  of  profit (conveniently referred  to as  "post manufacturing expenses" and  "post   manufacturing  profit")   arising  between  the completion of  the manufacturing  process and  the point  of sale by the manufacturer.      Mr. N.A. Palkhivala, learned counsel for the assessees, has propounded three principles which, he contends, form the essential characteristics  of a  duty of excise. Firstly, he says, excise is a tax on 360 manufacture  or   production  and   not  on  anything  else. Secondly, uniformity  of incidence is a basic characteristic of excise.  And thirdly, the exclusion of post manufacturing expenses  and  post  manufacturing  profits  is  necessarily involved in  the first  principle and  helps to  achieve the second. Learned  counsel urges  that where  excise  duty  is levied on  an ad  valorem basis the value on which such duty is levied  is a  "conceptual value", and that the conceptual nature is borne out by the circumstance that the identity of the manufacturer  and the  identity of  the goods as well as the actual  wholesale price  charged by the manufacturer are not the  determining factors.  It is  urged that the old s.4 (a) clearly  indicates that  a conceptual  value  forms  the basis of  the levy,  and that  the  actual  wholesale  price charged by  the particular  assessee cannot  be the basis of the excise  levy. It  is said  that the criterion adopted in clause (a)  succeeds in  producing uniform taxation, whether the assessees  are manufacturers  who sell  their  goods  in wholesale, semi-wholesale  or in retail, whether they have a vast selling  and marketing  net work  or have none, whether they sell  at depots  and branches  or sell  at the  factory gate, and  whether they  load the ex-factory price with post

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manufacturing expenses  and profits or do not do so. Because the value  of the  article rests on a conceptual base, it is urged, the  result of the assessment under s.4 (a) cannot be different from  the result  of an  assessment under s 4 (b). The contention  is  that  the  principle  of  uniformity  of taxation  requires   the  exclusion  of  post  manufacturing expenses and  profits, a  factor which  would vary  from one manufacturer  to  another.  It  is  pointed  out  that  such exclusion is  necessary to  create a  direct  and  immediate nexus between  the levy  and the manufacturing activity, and to bring  about a  uniformity in  the incidence of the levy. Learned counsel contends that the position is the same under the new  s.4 which, he says, must needs be so because of the fundamental nature  of the  principles  propounded  earlier. Referring to  the actual language of the new s.4 (1) (a), it is pointed  out that  the expression  "normal price" therein means "normal  for the  purposes of excise", that is to say, that the  price must exclude post manufacturing expenses and post manufacturing  profit and  must not  be loaded with any extraneous element.  It is conceded, however, that under the new s.4  (1) (a)  there is no attempt to preserve uniformity as regards  the amount  of duty between one manufacturer and another, but  it is  urged that the basis on which the value is  determined   is  constituted   by  the  same  conceptual criterion,  that   post  manufacturing   expenses  and  post manufacturing profit must be excluded. Considerable emphasis has been laid on the submission that as excise duty is a tax on the manufacture or 361 production of  goods it must be a tax intimately linked with the manufacture  or production of the excisable article and, therefore, it  can be  imposed only  on the assessable value determined with  reference to  the excisable  article at the stage of  completed manufacture  and to  no point beyond. To preserve this  intimate link  or nexus between the nature of the tax  and the assessment of the tax, it is urged that all extraneous elements included in the "value" in the nature of post manufacturing  expenses and  post manufacturing profits have to  be off-loaded.  It is pointed out that factors such as volume, quantity and weight, which enter into the measure of the  tax, are  intimately linked  with the  manufacturing activity, and that the power of Parliament under Entry 84 of List I  of the  Seventh  Schedule  to  the  Constitution  to legislate  in  respect  of  "value"  is  restricted  by  the conceptual need  to  link  the  basis  for  determining  the measure of the tax with the very nature of the tax.      Shri K.  Parasaran, the  learned Solicitor  General  of India (when  these cases  were heard),  and now the Attorney General of  India) has  strongly contended that the value of an excisable  article for  the purposes  of the levy must be taken  at  the  price  charged  by  the  manufacturer  on  a wholesale transaction,  the computation  being made strictly in terms  of the  express provisions  of the statute and, he says, there  is no  warrant for  confining the  value to the assessee’s manufacturing  cost  plus  manufacturing  profit. According  to   him,  although  excise  is  a  levy  on  the manufacture of  goods, it is open to Parliament to adopt any basis for  determining the  value of  an excisable  article, that the  measure for assessing the levy need not correspond completely to  the nature  of the  levy, and no fault can be found with  the measure so long as it bears a nexus with the charge.      Besides this  fundamental issue, there are other points of dispute, principally in respect of the connotation of the expression "related  person" in  the new  s.4 as well as the

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nature of  the  deductions  which  can  be  claimed  by  the assessee   as   post   manufacturing   expenses   and   post manufacturing profit  from the  price  for  the  purpose  of determining the "value".      The submissions made by learned counsel for the parties in support  of their  respective contentions  cover  a  wide area, and  several questions  of a  fundamental nature  have been raised.  We consider  it necessary  to deal  with  them because  they  enter  into  and  determine  the  conclusions reached by us. 362      We think  it appropriate  that at the very beginning we should briefly  indicate the  concept of  a duty  of excise. Both Entry  45 of  List I  of the  Seventh Schedule  to  the Government of  India Act,  1935, under  which  the  original Central Excises  and Salt  Act was  enacted, and Entry 84 of List I  of the  Seventh Schedule  to the  Constitution under which the  Amendment Act  of  1973  was  enacted,  refer  to "Duties of excise on.......goods manufactured or produced in India". A  duty of excise, according to the Federal Court in The Central  Provinces and  Berar Sales  of Motor Spirit and Lubricants Taxation Act, 1938 is a duty ordinarily levied on the manufacturer  or producer  in respect of the manufacture or production  of the  commodity taxed.  A  distinction  was drawn between  the nature  of the tax and the point at which it was collected, and Gwyer C.J. observed that theoretically "there can  be no  reason why  an excise  duty should not be imposed even on the retail sale of an article, if the taxing Act  so   provides.  Subject   always  to   the  legislative competence of  the taxing authority, a duty on home-produced goods will  obviously be  imposed at  the  stage  which  the authority find to be most convenient and the most lucrative, wherever it may be; but that is a matter of the machinery of collection, and  does not affect the essential nature of the tax. The  ultimate incidence  of an  excise duty,  a typical indirect tax, must always be on the consumer, who pays as he consumes or  expends; and it continues to be an excise duty, that is, a duty on home-produced or home-manufactured goods, no  matter   at  what   stage  it  is  collected"  (emphasis supplied).  The   position  was  explained  further  in  The Province of Madras v. Messers. Boddu Paidanna and Sons where the Federal Court observed:-           "There is in theory nothing to prevent the Central      Legislature  from  imposing  a  duty  of  excise  on  a      commodity as soon as it comes into existence, no matter      what happens  to it  afterwards, whether  it  be  sold,      consumed, destroyed,  or given away. A taxing authority      will not  ordinarily impose  such a duty, because it is      much more  convenient administratively  to collect  the      duty (as in the case of most of the Indian Excise Acts)      when the  commodity leaves  the factory  for the  first      time, and  also because  the duty  is intended to be an      indirect duty  which the manufacturer or producer is to      pass on to the ultimate consumer, which he could not do      if the commodity had, 363      for example,  been destroyed  in the factory itself. It      is the  fact of  manufacture which  attracts the  duty,      even though it may be collected later." The observations  show that while the nature of an excise is indicated by  the fact  that is  imposed in  respect of  the manufacture or  production of an article, the point at which it is  collected is not determined by the point of time when its manufacture is completed but will rest on considerations of administrative  convenience, and  that  generally  it  is

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collected when  the article leaves the factory for the first time. In  other words,  the circumstance  that  the  article becomes the  object of  assessment when  it is  sold by  the manufacturer does  not detract from its true nature, that it is a  levy on the fact of manufacture. In a subsequent case, Governor-General in Council v. Province of Madras, the Privy Council referred  to both in The Central Provinces and Berar Sales of  Motor Spirit  and Lubricants  Taxation  Act,  1938 (supra)  and  The  Province  of  Madras  v.  Messers.  Boddu Paidanna and  Sons (supra) and affirmed that when excise was levied on  a manufacturer  at the point of the first sale by him "that  may be  because the taxation authority imposing a duty of  excise finds  it convenient  to impose that duty at the moment  when the excisable article leaves the factory or workshop for the first time on the occasion of its sale. But that  method  of  collecting  the  tax  is  an  accident  of administration; it  is not  of the  essence of  the duty  of excise, which  is attracted by the manufacture itself." This Court had  occasion to  consider a  similar question in R.C. Jall v. Union of India. In that case, the Central Government was authorised by an ordinance to levy and collect as a cess on coal and coke despatched from collieries in British India duty of  excise at  a specified  rate.  Rule  3  made  under Ordinance empowered  the Government  to  impose  a  duty  of excise on  coal  and  coke  when  such  coal  and  coke  was despatched by  rail from  the collieries of the coke plants, and  the   duty  was   to  be   collected  by   the  Railway Administration by  means of  a surcharge  on freight  either from the  consignor or  consignee. It  was contended  by the assessee that the excise duty could not legally be levied on the consignee  who had nothing to do with the manufacture or production of coal. The Court remarked:           "The argument  confuses the  incidence of taxation      with  the   machinery  provided   for  the   collection      thereof," 364 and reference  was made  to In re. the Central Provinces and Berar Act No. XIV of 1938 (supra), The Province of Madras v. Boddu Paidanna  and Sons  (supra)  and  Governer-General  in Council v.  Province of  Madras  (supra).  This  Court  then summarised the law as follows:-           "Excise duty is primarily a duty on the production      or manufacture of goods produced or manufactured within      the  country.   It  is   an  indirect  duty  which  the      manufacturer or  producer passes  on  to  the  ultimate      consumer, that  is, its  ultimate incidence will always      be on  the consumer.  Therefore, subject  always to the      legislative competence  of the  taxing  authority,  the      said tax can be levied at a convenient stage so long as      the character  of the  impost, that is, it is a duty on      the manufacture  or production, is not lost. The method      of collection  does not affect the essence of the duty,      but only  relates to  the machinery  of collection  for      administrative convenience." Other cases  followed where  the nature  of excise  duty was reaffirmed in  the terms  set out earlier, and reference may be made to In Re. The Bill To Amend S. 20 of the Sea Customs Act, 1878,  and S.  3 of  the Central  Excises And Salt Act, 1944, Union  of India  v. Delhi  Cloth &  General Mills, M/s Guruswamy &  Co. Etc.  v. State  of Mysore  & Ors. and South Bihar Sugar Mills Ltd. etc. v. Union of India & Ors.      We think we have shown sufficiently that while the levy is on  the manufacture  or production of goods, the stage of collection need  not in  point of  time synchronize with the completion of  the manufacturing  process. While the levy in

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our country  has the status of a constitutional concept, the point of collection is located where the statute declares it will be.  We shall return to this later when it is necessary to  consider  a  submission  in  regard  to  the  effect  of transactions to or through "related persons".      We move  on  now  to  a  different  dimension,  to  the conceptual consideration  of the measure of the tax. S. 3 of the Central  Excises and  Salt Act  provides for the levy of the duty of excise. It creates 365 the charge, and defines the nature of the charge. That it is a levy  on excisable  goods,  produced  or  manufactured  in India, is  mentioned in terms in the section itself. Section 4 of  the Act provides the measure by reference to which the charge is  to be  levied. The  duty of  excise is chargeable with reference  to the value of the excisable goods, and the value is  defined in  express terms  by that section. It has long been recognised that the measure employed for assessing a tax  must not  be confused  with the nature of the tax. In Ralla Ram  v. Province of East Punjab the Federal Court held that a  tax on  buildings under  s. 3  of the  Punjab  Urban Immovable Property Tax Act, 1940 measured by a percentage of the annual  value  of  such  buildings  remained  a  tax  on buildings under  that Act  even though the measure of annual value of  a building  was also  adopted as  a  standard  for determining income  from property  under the Income Tax Act. It was  pointed out  that although  the  same  standard  was adopted as a measure for the two levies, the levies remained separate and  distinct imposts by virtue of their nature. In other words,  the measure  adopted could  not be  identified with the  nature of the tax. The distinction was observed by a Special  Bench of  the Patna High Court in Atma Ram Budhia v. State  of Bihar  where a  tax on passengers and goods was assessed as  a rate on the fares and freights payable by the owners of  the motor  vehicles. Atma  Ram Budiha (supra) was referred to  with approval  by  this  Court  in  M/s  Sainik Motors, Jodhpur  and Others  v. The State of Rajasthan. This Court in that case repelled the contention that the levy was a tax  upon income  and not  upon passengers  and goods.  It pointed out that "though the measure of the tax is furnished by the  fares and  freights it does not cease to be a tax on passengers and  goods". The  point was  considered  by  this Court again  in D.C. Gouse and Co. etc. v. State of Kerala & Anr. etc.  where reference  was made  to the measure adopted for the  purpose of  the levy  of tax on buildings under the Kerala Building  Tax Act.  The Court  examined the different modes available  to the  Legislature for measuring the levy, and upheld the action of the Legislature in linking the levy with the  annual value  of the  building and  prescribing  a uniform formula  for determining  its capital  value and for calculating the  tax. In  the course  of its  judgment,  the Court  cited   with  approval   a  passage   from  Seervai’s Constitutional Law of India. 366           "Another  principle   for  reconciling  apparently      conflicting tax  entries follows  from the  fact that a      tax has  two elements: the person, thing of activity on      which the  tax is  imposed, and  the amount of the tax.      The amount  may be  measured in  may ways;  but decided      cases establish a clear distinction between the subject      matter of a tax and the standard by which the amount of      tax is  measured. These  two elements  are described as      the subject of a tax and the measure of a tax." It is, therefore, clear that the levy of a tax is defined by its nature,  while the measure of the tax may be assessed by

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its own  standard. It  is true  that the standard adopted as the measure  of the  levy may indicate the nature of the tax but it  does not  necessarily determine it. The relationship was aptly  expressed by the Privy council in Re. A Reference under the Government of Ireland Act, 1920 and Sect. 3 of the Finance Act (Northern Ireland), 1934 when it said:-           "......It is  the essential  characteristic of the      particular tax  charged that is to be regarded, and the      nature of  the machinery-often complicated-by which the      tax is  to be  assessed is not of assistance, except in      so far  as it  may throw light on the general character      of the tax." The case  was referred  to by  a Constitution  Bench of this Court in  R.R. Engineering  Co. v. Zila Parishad, Bareilly & Anr., where the relationship was succinctly described thus:-           "It may  be, and  is often  so, that  the  tax  on      circumstances and  property is  levied on  the basis of      income which the assessee receives from his profession,      trade, calling  or  property.  That  is,  however,  not      conclusive on  the nature  of the  tax. It is only as a      matter of  convenience that  income  is  adopted  as  a      yardstick or  measure for assessing the tax. As pointed      out in  Re. a  Reference under  Govt.  of  Ireland  Act      (supra), the  measure of  the tax is not a true test of      the nature of the tax. Therefore, while determining the      nature of  a tax,  though the standard on which the tax      is levied  may be a relevant consideration, it is not a      conclusive consideration." 367 The principle  was reaffirmed  by this  Court in The Hingir- Rampur Coal  Co., Ltd. and Others v. The State of Orissa and Others where the form in which the levy was imposed was held to be  and impermissible  test for  defining in  itself  the character of the levy. It was observed:-           ".....the mere  fact that  the levy imposed by the      impugned Act  had adopted the method of determining the      rate of  the levy by reference to the minerals produced      by the  mines would  not by itself make the levy a duty      of excise.  The method  thus adopted may be relevant in      considering the  character of the impost but its effect      must be  weighed along  with and  in the  light of  the      other relevant circumstances." It is  apparent, therefore,  that when enacting a measure to serve as  a standard  for assessing the levy the Legislature need  not  contour  it  along  lines  which  spell  out  the character of  the levy  itself. Viewed from this standpoint, it is not possible to accept the contention that because the levy of  excise is  a levy on goods manufactured or produced the value  of an  excisable article  must be  limited to the manufacturing cost  plus the manufacturing profit. We are of opinion that  a broader  based standard  of reference may be adopted for  the purpose  of determining  the measure of the levy.  Any   standard  which  maintains  a  nexus  with  the essential character  of the  levy can be regarded as a valid basis for assessing the measure of the levy. In our opinion, the original  s.4 and the new s.4 of the Central Excises and Salt Act satisfy this test.      S.4 envisages  a method  of collecting tax at the point of the  first sale  effected by  the manufacturer. Under the old s.4  (a), the  value of the excisable article was deemed to be  the wholesale  cash price for which an article of the like kind  and quality  was sold,  or was  capable of  being sold, at  the time  of the removal of the article chargeable with  duty  from  the  factory  or  any  other  premises  of manufacture or  production for  delivery  at  the  place  of

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manufacture or  production, or if a wholesale market did not exist for  such article  at such  place, then  delivery  was envisaged at  the nearest  place where  such market existed. Sec.4  (b)   declared  that   where  such   price  was   not ascertainable, the  value would be deemed to be the price to be the price at which an article of the 368 like kind  and quality was sold or was capable of being sold by the  manufacturer or  producer, or his agent, at the time of the removal of the article chargeable with duty from such factory or  other premises  for delivery  at  the  place  of manufacture or  production, and if such article was not sold or was not capable of being sold at such place, at any other place nearest  thereto. Then  there was an explanation which declared that  no abatement  or deduction  would be  allowed except in  respect of trade discount and the duty payable at the time of the removal of the article from the factory. The wholesale price  was envisaged  as a  cash price in order to make it  a uniform  standard, because  it was  then a  price freed from the burden of an increase on account of credit or other advantage  allowed to a buyer, a factor which may vary from transaction to transaction and from buyer to buyer. The essential distinction  between cl.  (a) and  cl. (b)  of s.4 appears to  lie in  this, that  cl. (a)  is invoked when the wholesale cash  price is  ascertainable and cl. (b) when the wholesale cash price cannot be ascertained.      As we  have said,  it was  open to  the Legislature  to specify the  measure for assessing the levy. The Legislature has done  so. In both the old s.4 and the new s.4, the price charged by  the manufacturer on a sale by him represents the measure. Price  and sale are related concepts, and price has a definite connotation. The "value" of the excisable article has to  be computed  with reference  to the price charged by the manufacturer,  the computation  being made in accordance with the terms of s.4.      A contention was raised for some of the assessees, that the measure  was to  be found  by reading s.3 with s.4, thus drawing the  ingredients of  s.3 into  the exercise.  We are unable to  agree. We  are concerned with s.3(1), and we find nothing there  which  clothes  the  provision  with  a  dual character, a  charging provision  as  well  as  a  provision defining the measure of the charge.      At this  stage, it  would be  advantageous to  refer to certain decisions  which have  some bearing  on  the  proper construction of cl. (a) and cl. (b) of the old s.4.      In Vacuum  Oil Company  v. Secretary of State for India in Council  the Privy  Council had  to construe the scope of s.30 of  the Sea  Customs Act, 1878 which contained cls. (a) and (b) substantially comparable with the two clauses of the old s.4 of the Central 369 Excises  and   Salt  Act.   The  appellants   in  this  case manufactured different  grades of  lubricating  oil  in  the United  States.  Large  quantities  of  lubricating  oil  of particular manufacture  and mark  were imported  into  India through the  port of  Bombay  and  sold  by  the  appellants directly to  consumers. A dispute arose as to the provisions under which  duty under  the Sea  Customs Act was attracted. Section 30 of that Act provided that for the purposes of the duty the  real  value  should  be  deemed  to  be  "(a)  the wholesale cash  price, less  trade discount, for which goods of the  like kind  and quality  are sold  or are  capable of being sold,  at the time and place of importation.........or (b) where such price is not ascertainable, the cost at which goods of  the like  and quality  could be  delivered at such

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place,....." The government contended that the real value of the appellants’  oil was its "wholesale cash price" referred to in s.30(a) a price ascertainable, without difficulty. The appellants replied  that in  view of the unique character of their oil  and of  the invariable course of business pursued by them  in relation  to its  sale, a "wholesale cash price" for that oil had never existed and was not ascertainable and that  therefore   its  real  value  must  be  determined  in accordance with  s.30(b)  of  the  Act.  The  Privy  council observed that  there was  no other oil in Bombay which could be said  to be  "of the  like kind  and quality"  as the oil imported  by  the  appellants  and  therefore  the  relevant "wholesale cash  price" for the appellants, if there be such price, was  to be found in the actual sales of those oils in Bombay by the appellants themselves provided that such sales had taken  place. It was noted that large stocks of oil were imported at Bombay and all contracts for sale were made with reference to  stocks. The  oils were disposed of directly to consumers and  never to  dealers. The  appellants themselves discharged all the functions of retailers of their oil as so sold. Besides,  the selling  price to consumers was about 70 per cent  above the entry price, the difference representing the appellant’s  retailing profit  and the expenses incurred by them in respect of matters subsequent to importation. The quantities of  oil purchased by individual consumers were in some cases  very large  indeed. The  Privy council  took the view that  in no  sense could the price charged to consumers for the  oils imported  by the  appellants be regarded as "a wholesale case  price", and  that therefore the case did not fall within  s.30(a) but must be regarded as attracting s.30 (b).      On the  other side of the line is Ford Motor Company of India Ltd.  v. Secretary  of State  for India in Council, in which the 370 Privy Council  had to  consider the  scope of  s. 30  of the Indian Sea  Customs Act  again. The appellants imported Ford motor vehicles  into India  from Canada  and  sold  them  to authorised  dealers   or  distributors.   They  possessed  a monopoly in  India as  regards the  supply of such vehicles. The appellants issued from time to time a price list and the terms of  business were  that the retail price to be charged by the  distributors to  the public  was that  stated in the price list current at the time of arrival of the vehicles in India, and  the price  payable by  the distributors  to  the appellants was  the same  price less  a discount  of 20  per cent. The  Collector of  Customs assessed  customs duty on a consignment of  256 Ford  motor cars  under s.  30 (a).  The appellants contended  that for the motor-cars in question no wholesale cash  price was  ascertainable and the duty should have been  assessed under  s.  30  (b).  The  Privy  Council approached the case from the stand point that if a wholesale price satisfying  the description contained in s. 30 (a) was ascertainable, the goods could not be dealt with under s. 30 (b), and  in this connection they referred to the expression "ascertainable" as importing more than could be satisfied by the result  of a  mere estimate. The Privy Council held that the appellant’s  price to  the distributors  was a wholesale price within  the meaning of s. 30 (a) because it was a cash price, and  only discount  had been  deducted, and  the  sum payable by  the distributor  had been  deduced  to  a  price referable to  a car  in the condition in which it arrived in Bombay. It  was contended  for the appellants that "goods of the like  kind and  quality" in  cl. (a)  was a phrase which suggested  other   goods  than  that  under  assessment  and

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therefore, the  price fetched  by the goods, themselves must be disregarded  or should  be considered  only to  see  what price other  similar goods would have realised. It was urged that since  that test  was not satisfied cl.(a) could not be invoked.  The   Privy  Council   rejected  the   contention, observing that the application of cl.(a) did not depend upon any hypothesis  to the  effect that at the time and place of importation an  indefinite amount  of further goods added to the available  supply had  effect upon  the wholesale price. And what  is important,  the Privy Council further observed: "But if there is an actual price for the goods themselves at the time and place of importation, and if it is a "wholesale cash  price,   less  trade   discount"  the  clause  is  not inapplicable for  want of  sales of  other goods. The clause can be  applied distributively  to each of the motor cars in this consignment, and even if they are regarded collectively the clause  is not defeated. A particular car may be sold at a price  which, having  regard to other transactions in such cars, or to other circumstances, 371 is too high or too low. In that sense, the actual price in a particular  instance   does  not   necessarily  or   finally establish a  wholesale price to satisfy cl. (a), whether the particular car  or cars  sold be  part of  the  shipment  in question or  not. But  the goods  under assessment may under cl. (a)  be considered  as members  of their  own class even although at  the time  and place of importation there are no other members.  The price  obtained for  them may  correctly represent the  price obtainable  for goods  of the like kind and quality at the time and place of importation."      These two  cases illustrate the fundamental distinction between provisions  such as  the two  clauses of s. 4 of the Central Excises and Salt Act.      Great reliance  has been placed by the assessees on two important  decisions   of  this  Court  in  support  of  the contention  that   only  the   manufacturing  cost  and  the manufacturing profit can be taken into account for assessing the "value"  of an excisable article. The first case is A.K. Roy v.  Voltas Ltd.  (supra). The  assessee manufactured air conditioners and  water coolers, and sold those article from its  head  office  at  Bombay  and  at  branch  officers  in different towns in the country directly to consumers at list prices. The  sales so  effected amounted to about 90% to 95% of its  production. It  also sold  the articles to wholesale dealers on terms which required them to sell the products at list prices,  and that  the assessee  would  sell  them  the articles at the listed price less 22% discount. The assessee contended before  the excise authorities that the list price minus 22%  discount allowed  to the  wholesale dealers would constitute the  "wholesale cash  price" for ascertaining the real value  of the  articles. The contention was accepted by the excise  authorities, and  assessments were  made on that basis. Subsequently,  the Superintendent  of Central  Excise began to  assess the  duty on  the basis of the retail price and not the wholesale cash price. The case was taken by writ petition to the High Court, which held that the duty fell to be assessed  under the old s.4(a) of the Central Excises and Salt Act on the basis of the wholesale cash price payable by the wholesale  dealers, and not under s.4(b) on the basis of the  price   of  retail   sales  effected  directly  to  the consumers. The case was brought in appeal to this Court. The Court observed  that for  the purposes of s.4(a), it was not necessary for  a wholesale  market to  exist in the physical sense of  the term  where articles of a like kind or quality are or  could be  sold. A wholesale market, it was observed,

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could also mean "the potentiality of the articles being 372 sold on  a wholesale basis". What was necessary was that the articles could be sold wholesale to traders. It was observed further that  the application  of s.4(a)  of the Act did not depend upon  any hypothesis  to the  effect that at the time and place  of sale any further articles of the like kind and quality should  have been sold. If there was an actual price for the  goods themselves  at the time and place of sale and if that  was a  ’wholesale cash  price’, the  clause was not inapplicable for  want of sale of other goods of a like kind and quality.  Later follow  the words  which have brought on the present controversy:           "Excise is a tax on the production and manufacture      of goods (see Union of India v. Delhi Cloth and General      Mills (supra).  Section 4 of the Act therefore provides      that the real value should be found after deducting the      selling cost and selling profit and that the real value      can  include   only  the  manufacturing  cost  and  the      manufacturing profit.  The section  makes it clear that      excise is  levied only  on the  amount representing the      manufacturing cost  plus the  manufacturing profit  and      excludes post manufacturing cost and the profit arising      from  post   manufacturing  operation,  namely  selling      profit." Those observations  were made  when the  Court was examining the meaning  of the  expression "wholesale cash price". What the Court  intended to  say was  that the entire cost of the article to  the manufacturer  (which would  include  various items of  expense composing  the value  of the article) plus his profit  on the manufactured article (which would have to take into  account the deduction of 22% allowed as discount) would constitute  the real  value had to be arrived at after off-loading the  discount of  22%, which in fact represented the wholesale  dealer’s profit.  A careful  reading  of  the judgment will  show that  there was  no issue  inviting  the Court’s decision  on the  point now raised in these cases by the assessees.      The other  case is  Atic Industries  Ltd. v. H.H. Dove, Asstt. Collector  of Central  Excise and Ors. The appellant, Atic Industries  Ltd., was  a manufacturer of dye stuffs. It sold its  products to two wholesale buyers, 70% of its total production to  one and  30% to  the other. The price charged was a  uniform price  described as the "basic selling price" less a  trade discount of 18%. The wholesale dealers in turn resold the dyestuffs to distributors and also directly to 373 large  consumers,   including  textile   mills.  The   large consumers  paid   the  basic   selling  price,   while   the distributors paid  a higher  price but  subject to  a  trade discount. The  distributors sold  the product  to consumers. The question  arose as  to how  the value  of the  dyestuffs manufactured by  the appellants  should be  determined under s.4. The  appellants contended  that the value should be the price at  which the  appellants sold in wholesale to the two wholesale buyers,  less a uniform trade discount of 18%. The excise authorities  took the  view that  the value should be the price  at which  the wholesale  buyers had  sold the dye stuffs to  the distributors  without taking into account the discount given  to the  distributors. Before this Court, the excise authorities  pressed the same contention, urging that s.4 (a)  did not  provide that  in every  case the wholesale price charged  by the  manufacturer  should  be  taken  into consideration and  not the  wholesale price  charged by  the wholesale buyers  who sold  the product also in wholesale to

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the next buyers. One of us (Bhagwati J.) spoke for the Court in that  case, and  delivered a closely enunciated and lucid exposition of the true legal position. It was explained:      "The value  of the goods for the purpose of excise must      take into  account only  the manufacturing cost and the      manufacturing profit  and it  must not  be loaded  with      post manufacturing  cost or  profit arising  from post-      manufacturing  operation.  The  price  charged  by  the      manufacturer for  sale of the goods in wholesale would,      therefore, represent  the real  value of  the goods for      the purpose  of assessment of excise duty. If the price      charged by  the whole  sale dealer  who  purchases  the      goods from the manufacturer and sells them in wholesale      to another dealer were taken as the value of the goods,      it would  include not  only the  manufacturing cost and      the manufacturing  profit of  the manufacturer but also      the wholesale  dealer’s selling cost and selling profit      and that  would be  wholly incompatible with the nature      of excise.  It may  be noted that wholesale market in a      particular type  of goods  may be  in several tiers and      the goods  may reach  the consumer  after a  series  of      wholesale transactions.  In fact  the more  common  and      less  expensive  the  goods,  there  would  be  greater      possibility  of   more  than   one  tier  of  wholesale      transactions. For  instance,  in  a  textile  trade,  a      manufacturer may sell his entire production to a single      wholesale dealer  and the  latter may  in his turn sell      the goods  purchased by  him from  the manufacturer  to      different wholesale dealers at 374      State level,  and they may in their turn sell the goods      to wholesale dealers at the district level and from the      wholesale dealers  at the  district level the goods may      pass by sale to wholesale dealers at the city level and      then, ultimately from the wholesale dealers at the city      level, the  goods may  reach the  consumers.  The  only      relevant price for assessment of value of the goods for      the purpose  of excise  in such  a case  would  be  the      wholesale cash  price which  the manufacturer from sale      to the  first wholesale dealer, that is, when the goods      first enter  the stream  of trade.  Once the goods have      entered the  stream of  trade and  are on  their onward      journey to  the consumer,  whether along  a short  or a      long course  depending on  the nature  of the goods and      the conditions  of the  trade, excise  is not concerned      with what  happens subsequently to the goods. It is the      first immediate  contact between  the manufacturer  and      the trade  that is  made decisive  for determining  the      wholesale cash  price which is to be the measure of the      value of  the goods  for the  purpose  of  excise.  The      second or  subsequent price,  even though  on wholesale      basis, is  not material.  If excise  were levied on the      basis of second or subsequent wholesale price, it would      load the  price  with  a  post  manufacturing  element,      namely,  selling   cost  and   selling  profit  of  the      wholesale dealer. That would be plainly contrary to the      true nature  of excise as explained in the Voltas’ case      (supra). Secondly,  this would also violate the concept      of  the  factory  gate  sale  which  is  the  basis  of      determination of  value of the goods for the purpose of      excise.           There can,  therefore, be  no doubt  that where  a      manufacturer sells  the goods  manufactured by  him  in      wholesale to  a wholesale  dealer at arms length and in      the usual  course of business, the wholesale cash price

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    charged by  him to  the  wholesale  dealer  less  trade      discount would represent the value of the goods for the      purpose of  assessment of  excise. That  would  be  the      wholesale cash  price for  which the  goods are sold at      the factory  gate within  the meaning  of s.4  (a). The      price received  by the  wholesale dealer  who purchases      the goods  from the  manufacturer and in his turn sells      the  same  in  wholesale  to  other  dealers  would  be      irrelevant to the determination 375      of the  value and  the goods would not be chargeable to      excise on that basis."      This case  also  does  not  support  the  case  of  the assessees. When it refers to post-manufacturing expenses and post-manufacturing profit  arising  from  post-manufacturing operations, it  clearly intends to refer not to the expenses and profits  pertaining to the sale transactions effected by the manufacturer  but to  those pertaining to the subsequent sale transactions effected by the wholesale buyers in favour of other dealers.      Having explained  the true scope of Voltas Ltd. (supra) and Atic  Ltd. (supra),  we may  now proceed directly to the consideration of  certain aspects  of the  provisions of the old s.4.  There has  been serious  argument on  the question whether s.4  (a) provides  for the  value of  the assessee’s excisable article  being determined  on  the  basis  of  the wholesale cash  price charged  or chargeable for articles of the like kind and quality sold by manufacturers generally or on the  basis of the wholesale cash price of articles of the like and  quality sold  by the  assessee. At first blush, it would seem  that the former construction should be accepted, and indeed  some support  can be  derived for that view from the observations  of the  Privy Council  in Vacuum  Oil  Co. (supra), where  the "wholesale cash price" mentioned in s.30 (a) of  the Sea  Customs Act,  1878, was  construed to  mean "that price  current for  staple  articles.  the  amount  of which, if  not a  subject of daily publication in the press, is easily  ascertainable in  appropriate trade circles". But this general observation can be of no help to the assessees, because since  then, he  courts have  proceeded to  make the position amply  clear. The problem presented itself again to the Privy  Council in  Ford Motor Co. of India Ltd. (supra), and while  taking note  of what  it had  said in the earlier case, the  Privy Council  laid down that where the excisable goods constituted  a class  of their  own  and  it  was  not possible to  say that  other manufacturers produced goods of that kind  and quality,  the goods under assessment could be considered as  members of their own class for the purpose of s.30 (a)  even although at the time and place of importation there were no other members. The price obtained for them, it was said, would correctly represent the price obtainable for goods of  the like kind and quality at the time and place of importation.  Then   in  Voltas  Ltd.  (supra),  this  Court observed that  the application  of s.4  (a) of  the  Central Excises and  Salt Act  did not depend upon any hypothesis to the effect  that at  the time and place of sale, any further articles of  like kind and quality should have been sold. If there was 376 an actual  price for  the goods  themselves at  the time and place of  sale and if that was a "wholesale cash price", the clause was  not inapplicable for want of sale of other goods of a  like kind  and quality.  It seems  to us that the more practical way  of looking  at the  problem is that there are very few  cases indeed  where two  manufacturers produce  an

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article of  the like  kind and quality. An instance has been supplied by  learned counsel  for the  assessees, and we are referred  to  the  case  of  a  factory  which  manufactures identical electric bulbs for supply to a number of companies who sell  them in  the market  under their  own  distinctive trade names.  While  such  examples  are  possible,  we  are inclined to  accept the  statement of  the learned Solicitor General that  goods manufactured  by different manufacturers generally differ  in both  kind and  quality.  Further,  the manufacturing  and   other  costs   would  vary   from   one manufacturer to  another, depending  on  the  efficiency  of manufacturing techniques  and management  methods  employed. Other important considerations are certainty and convenience in the  administration of  the levy  from the  view-point of both the  assessee and  the Revenue.  There is  the  further consideration that  the wholesale  cash price charged by the assessee must  be ascertained  on the basis that the sale to the wholesale  dealer is at arm’s length. We are, therefore, of the view that we should prefer the construction suggested by  the   Revenue  that   s.4  (a)   applies  to  the  goods manufactured by  the assessee himself. We may also point out that this  conclusion is  in accord  with the general intent expressed in  the new  s.4 (1)  (a), and  as we  shall  show presently it  is the  case of  both the  assessees  and  the Revenue that  in enacting the new s.4 in supersession of the old section,  no material  departure was  intended from  the basic scheme  for determining  the value  of  the  excisable article.      Accordingly, we  hold that  pursuant to the old s.4 (a) the value  of an  excisable article  for the  purpose of the excise levy  should be  taken to  be the  price at which the excisable article  is sold  by the  assessee to  a buyer  at arm’s length  in the  course of  wholesale trade at the time and place  of removal. Where, however, the excisable article is not  sold by  the assessee  in wholesale  trade but,  for example, is consumed by the assessee in his own industry the case is  one where  under the  old s.4 (a) the value must be determined as the price at which the excisable article or an article of  the like  kind and  quality is  capable of being sold in wholesale trade at the time and place of removal.      Where the  excisable article  or an article of the like kind and quality is not sold in wholesale trade at the place of removal, that is, 377 at the factory gate, but is sold in the wholesale trade at a place  outside   the  factory  gate,  the  value  should  be determined as  the price  at which  the excisable article is sold in  the wholesale  trade at such place, after deducting therefrom  the  cost  of  transportation  of  the  excisable article from  the factory  gate to  such place. The claim to other deductions will be dealt with later.      Finally, where  the wholesale  price of  the  excisable article or  an article  of the  like kind and quality is not ascertainable, then pursuant to the old s.4 (b) the value of the excisable  article shall  be  the  price  at  which  the excisable article or an article of the like kind and quality is sold  or is  capable of being sold by the assessee at the time and place of removal or if the excisable article is not sold or is not capable of being sold at such place, then the price at which it is sold or is capable of being sold by the assessee at any other place nearest thereto.      In every  case the  fundamental criterion for computing the value  of an excisable article is the price at which the excisable article or an article of the like kind and quality is sold  or is  capable of  being sold  by determining  such

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value.      As  we  have  noted,  Parliament  amended  the  General Excises and  Salt Act  by Act  XXII of  1973. In particular, Parliament introduced a new s.4 which totally superseded the old section,  and embodied  a much  more  comprehensive  and clearly enunciated  scheme for the determination of the real value of  an excisable  article. Clause  (a) of  the new s.4 speaks of  the "value"  being the  "normal price, that is to say, the  price at which such goods are ordinarily sold to a buyer in  the course  of wholesale trade for delivery at the time and  place of  removal where the buyer is not a related person and  the price  is the  sole  consideration  for  the sale."      Where  the   normal  price   of  such   good   is   not ascertainable for the reason that such goods are not sold or for any  other reason, the new s.4 (1) (b) provides that the nearest ascertainable  equivalent thereof determined in such manner as  may be  prescribed shall  be  the  value  of  the excisable goods for the purpose of charging the excise duty.      It  will   be  noticed   that  the   basic  scheme  for determination of  the price  in the new s.4 is characterised by the  same dichotomy as that observable in the old s.4. It was not  the intention  of Parliament, when enacting the new s.4 to create a scheme materially different 378 from that  embodied in  the superseded  s.4. The  object and purpose remained  the same, and so did the central principle at the  heart of  the scheme. The new scheme was merely more comprehensive and  the language  employed more  precise  and definite. As  in the  old s.4,  the terms in which the value was defined  remained the  price charged by the assesseee in the course  of wholesale  trade for delivery at the time and place of  removal. Under  the new  s.4 the  phrase "place of removal" was  defined by  s.4 (b) not merely as "the factory or any  other place or premises of production or manufacture of the  excisable goods"  from where  such goods are removed but was  extended to  "a warehouse  or any place or premises wherein the  excisable  goods  have  been  permitted  to  be deposited without payment of duty" and from where such goods are removed.  The judicial construction of the provisions of the old  s.4 had  already declared  that the price envisaged under clauses  (a) and  (b) of  that section  was the  price charged by the manufacturer in a transaction at arms length. After referring to several cases, some of which have already been mentioned  here earlier,  this  Court  pointed  out  in Voltas Limited  (supra) that  "the wholesale  cash has to be ascertained only  on  the  basis  of  transactions  at  arms length. If  there is  a special  or favoured buyer to whom a specially low  price is  charged because of extra-commercial considerations, e.g.,  because  he  is  a  relative  of  the manufacturer, the price charged for those sales would not be the "wholesale  cash price" for levying excise under s.4 (a) of the  Act. A  sole distributor  might or  might not  be  a favoured buyer  according as terms of the agreement with him are fair  and reasonable  and  were  arrived  at  on  purely commercial basis."      That was  also the  view taken  in Atic Industries Ltd. (supra). The new s.4 makes express provision in that behalf. Under the  new s.4  also, it  is necessary to take the price charged by  the manufacturer  as one which is un-effected by any  concessional   or  manipulative   considerations,   and therefore the  "normal price"  mentioned in  the new s.4 (1) (a) speaks  of a  price "where  the buyer is not the related person and  the price  is the  sole  consideration  for  the sale." The expression "related person" has been specifically

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defined in  the new s.4 (4) (c), and transactions in which a "related person"  is  involved  are  covered  by  the  third proviso of s.4 (1) (a).      Both learned  counsel for the assessees and the learned Solicitor  General  for  the  Revenue  are  agreed  that  in enacting the new s.4 Parliament did not intend to bring into existence a scheme of valuation different from that embodied in the old s.4 379 Reference was  made in  that connection  to the Statement of Objects and  Reasons. The  difference, however, lies in this that while  learned counsel  for the  assessee attempted  to show by reference to the old s.4 that the legislative intent was to  confine the  value of  an excisable  article to  the manufacturing  cost   and  manufacturing   profit  and  that therefore the  same limitations  should be read into the new s.4, the  learned Solicitor  General approached  the problem from the  other end  and contended  that since  on  a  plain reading of  the new  s.4 the  price actually  charged by the assessee was  the true  criterion and was not limited to the manufacturing cost  and  manufacturing  profit  it  is  that construction which  should be  put also  on the  old s.4. We have  earlier   indicated  our   inability  to   accept  the proposition that  the  old  s.4  defined  the  value  of  an excisable article  in terms  of the  manufacturing cost  and manufacturing  profit   exclusively.   We   find   from   an examination of  the provisions of the new s.4 that a similar conclusion must  follow. The  normal price  mentioned in the new s.4  (1) (a)  is  the  price  at  which  the  goods  are ordinarily sold  by the  assessee in the course of wholesale trade. It  is the  wholesale price  charged by  him. It is a price which  may vary, according to the first proviso to the new s.4  (a) with  different classes  of buyers. It may also be, according  to the  second proviso to the new s.4 (1) (a) the price  fixed as the wholesale price under any law or the maximum price  where the  law fixes a maximum. The price may also be a different price if the case falls within the third proviso to the new s 4 (1) (a). In that event it will be the price charged by a related person in the course of wholesale trade. Clearly,  it is not possible to conceive of the price under  the   new  s.4   (1)  (a)   being  confined   to  the manufacturing cost  and the  manufacturing profit. Moreover, it is  reasonable to  suppose that the central principle for the determination  of the  value of  the  excisable  article should be  the same, whether the case falls under cl. (a) or cl (b)  of the old s.4 or under the new s.4 (1). When regard is had  to the  provision of cl. (b) in each case, it is not possible to  limit the  price to its components representing the manufacturing cost and manufacturing profit.      We have  examined the  principles of an excise levy and have considered  the  statutory  construction  of  the  Act, before and  after  its  amendment,  in  view  of  the  three propositions formulated,  on behalf  of  the  assessees,  as principle constituting  the essential  characteristics of  a duty of  excise. It  is apparent that the first proposition, that excise  is a  tax on  the manufacture  or production of goods, and  not on  anything else,  is indisputable  and  is supported by  a catena  of cases  beginning with The Central Provinces and Berar Sales of Motor 380 Spirit and Lubricants Taxation Act. 1938 (supra). As regards the second  proposition, that  uniformity of  incidence is a basic characteristic  of excise,  we are  inclined to  think that the accuracy of the proposition depends on the level at which the statute rests it. We shall discuss that presently.

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As to  the third  proposition, that  the exclusion  of  post manufacturing expenses  and  post  manufacturing  profit  is necessarily  involved   in  the  first  principle  does  not inevitably  follow.  The  exclusion  of  post  manufacturing expenses and  post manufacturing  of  profits  is  a  matter pertaining to  the  ascertainment  of  the  "value"  of  the excisable article, and not to the nature of the excise duty, and as  we have  explained,  the  standard  adopted  by  the Legislature  for  determining  the  "value’  may  possess  a broader base  than that  on  which  the  charging  provision proceeds. The  acceptance of the further statement contained in the  formulation  of  the  third  proposition,  that  the exclusion  of   post   manufacturing   expenses   and   post manufacturing  profits   helps  to   achieve  uniformity  of incidence in the levy of excise duty, depends on what is the point at which such uniformity of incidence is contemplated. It is  not necessarily  involved at the stage of sale of the article by the manufacturer because we find for example that under the  amended s.3  (3) of  the Central Excises and Salt Act, different  tariff values  may be fixed not only (a) for different classes  of descriptions  of  the  same  excisable goods, but also (b) for excisable goods of the same class or description  (i)   produced  or  manufactured  by  different classes of  producers or  manufacturers,  or  (ii)  sold  to different classes  of buyers.  That the "value" of excisable goods determined  under  the  new  s.4  (a)  may  also  vary according to certain circumstances is evident from the three clauses of the proviso to that clause. Clause (i) recognises that in  the normal  practice of  wholesale trade  the  same class of  goods may  be sold  by the  assessee at  different prices to  different classes  of buyers; in that event, each such price  shall, subject  to the  other conditions  of cl. (a), be  deemed to  be the  normal price  of such  goods  in relation to  each class of buyers. Clause (ii) provides that where the goods are sold in wholesale at a price fixed under any law  or at  a price  being the  maximum, fixed under any such law,  then the  price or the maximum price, as the case may be,  so fixed,  shall in relation to the goods be deemed to be  the normal  price thereof. Under cl. (iii), where the goods are  sold in  the course  of wholesale  trade  by  the assessee to  or through  a related  person, the normal price shall be  the price  at which  the goods  are  sold  by  the related person  in the course of wholesale trade at the time of removal  to dealers  (not being related persons) or where such goods are not sold to such dealers, 381 to dealers  (being related  persons) who  sell such goods in retail. The  verity of  the three  principles propounded  by learned counsel for the assessees has been, as indeed it had to be,  examined in  the context of the Act before and after its amendment.  For the  case of  the assessees  is that the amendment has made no material change in the basic scheme of the levy and the provisions for determining the value of the excisable article.      Learned counsel  for the  assessees has  contended that the old  s. 4  (a) expresses  the conceptual  nature of  the "value" of an excisable article because neither the identity of the  manufacturer nor the identity of the goods sought to be charged  nor the  actual wholesale  price charged  by the manufacturer is  the determining factor. We have come to the conclusion after  carefully weighing  the matter  that on  a true construction  of its  provisions in  the context of the statutory scheme  the old  s (a)  should  be  considered  as applicable to  the circumstances  of the particular assessee himself and  not of  manufacturers generally. As regards the

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second element,  namely, the identity of the goods sought to be charged,  that also, to our mind, is a determining factor because the  statute speaks  of "an article of the like kind and  quality".   The  third   element,  namely,  the  actual wholesale price  charged by  the manufacturer  is likewise a determining factor  in  view  of  our  conclusion  that  the identity of  the manufacturer is material in the application of the old s. 4 (a).      Learned  counsel  for  the  assessees  urged  that  the expression "normal  price" in the new s. 4 (1) (a) means the price normal  for the  purposes of the excise duty and that, it  is   said,  means   the  manufacturing   cost  plus  the manufacturing profit.  It is urged that the normal price for the purposes  of the  levy must  be a  price not loaded with extraneous elements, extraneous to the nature of the impost. It is  pointed out  that in  order to bring the operation of the statute  within the  purpose intended by the Legislature the courts  are justified  is doing  "some violence  to  the words" and  support is  taken from  Luke v.  I.R.C., and the principle adopted  by this  Court in Commissioner of Income- Tax, Central,  Calcutta v.  National Taj  Traders and in KP. Varghese v.  Income-Tax Officer,  Ernakulam and  Another.  A somewhat similar  approach had  already been adopted by this Court in Commissioner of Income Tax, 382 (Central),  Calcutta  v.  B.N.  Bhattachargee  and  Another. Learned counsel also referred to Commissioner of Wealth-Tax, Bihar and  Orissa v.  Kripashankar Dayashankar Worah and R.B Jodha Mal  Kuthiala v.  Commissioner of  Income-Tax. Punjab. Jammu &  Kashmir and Himachal Pradesh. When the new s. 4 (1) (a) is  read as  a whole,  the  meaning  of  the  expression "normal price"  becomes plainly  evident. It will be noticed the expression  "normal price’  is followed  by  the  phrase "that is  to say". The phrase "that is to say" says Stroud’s Judicial Dictionary (Fourth Edition, Vol. 5 p. 2753)" is the commencement of  an  ancillary  clause  which  explains  the meaning of  the  principal  clause.  It  bas  the  following properties: (1)  it must  not be  contrary to  the principal clause; (2)  it must  neither increase  nor diminish it; (3) but where  the principal  clause is  general in terms it may restrict it,"  and reference  has been  made to Stuckeley v. Butler and  Harrington v Pole. Therefore, the phrase "normal price" is defined by the words in s. 4 (1) (a) which follow. It is  ’the price at which such goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and place of removal where the buyer is not a related person and the price is the sole consideration for the sale,"      Learned counsel  for the  assessees contended  that the new s.  4 (1)  (a) also  levies excise  on the  basis  of  a conceptual  value  which  must  exclude  post  manufacturing profit and  in support  of that submission  he has adduced a number of  reasons. It  is said that the essential principle of excise  dictates  the  exclusion  of  post  manufacturing expenses and  profit. That,  it  is  pointed  out,  is  also suggested by  the principle  of uniformity of incidence, for it is  only by  such exclusion that uniform criterion can be applied to  all manufacturers,  those who  have selling  and marketing  organisations   and  who   load  the   ex-factory wholesale price  to  recoup  themselves  the  costs  of  the selling organisation  and of equalised freight and those who do  not   load  their   wholesale  price   with  such   post manufacturing  expenses.   Reliance   is   placed   on   the legislative history,  it being  contended that the new s. 4. should be  interpreted on  the same  basis as  the old s. 4.

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Reference is made to the Statement of Objects and Reasons of Act XXIII of 1973  to show that no change 383 of substance in the basis of the charge or levy was intended by the  amendment of  s. 4. It is said that the phrase "that is to  say" in  the new  s. 4  (1) (a)  indicates  that  the conceptual  criterion   for   determining   the   value   is substantially the  same as  it was in the old s. 4. Then, it is pointed  out, s.  4 (1) (b) enacts that "where the normal price  is   not  ascertainable,  the  nearest  ascertainable equivalent thereof"  has to be determined. As a consequence, it is  urged that  where sales  are made  on ex-depots  post manufacturing expenses and post manufacturing profit must be deducted.  The   same  principle   should   apply   in   the construction of  the new  s. 4 (1) (a). By adopting the same principle for  cases falling under s. 4 (1) (a) and s. 4 (1) (b) it  is possible  it is  said,  to  reach  uniformity  of incidence in  both classes of cases. It is pointed out, that the value  of the goods must be the same for the purposes of the levy, whether the goods are sold ex-factory or ex-depot. It is  urged that although the new s. 4 (4) (d) (ii) permits two types  of deductions  of taxes and discount, it does not prohibit deductions  other shall the two permitted. Finally, if the  wholesale p.  ice can  be  adjusted  upward  by  the department making  additions thereto,  it can  be  adjusted, downward, at  the instance  of  the  assessee,  to  make  it conform to  the conceptual  criterion of  the value on which excise can be levied.      The essential  content of the reasons stated by learned counsel proceeds  on the  assumption that a conceptual value governs the assessment of the levy. We have already examined the validity of the three principles underlying the concept, and we  have indicated  the extent  to which  they cannot be accepted. We have observed that . the old s 4 as well as the new s.  4 determine  the value on the basis price charged or chargeable by  the particular  assessee, and  the  price  is charged  or   is  chargeable   in  respect  of  the  article manufactured by  him. The  value of the excisable article is determined  in   that  context.   When  that   is  so,   the fundamental basis  on which  the argument has been raised on behalf of  the assessees  cannot survive.  We may  add  that whether any  further deductions  can be claimed beyond those already mentioned  in the  statute will depend on the nature of those claims in the case of a particular assessee.      Our attention has been drawn to the observation of this Court in  Chotabhai Jethabhai  Patel and Co. v. The Union Of India and  Another that  "a duty  of excise is a tax-levy on home-produced goods of a specified class or description, the duty being calculated according 384 to the  quantity or  value of  the goods and which is levied because of  the mere  fact of the goods having been produced or manufactured  and unrelated  to and  not dependent on any commercial transaction  in then".  Clearly, when  the  Court referred to  the calculation  of the  duty according  to the quantity or  value of  the goods, it referred disjunctively- to the  nature of the levy, and it is the nature of the levy 13 not  the value  for assessing  the levy,  which it had in mind when  it pointed  to the  goods having been produced or manufactured, and  observed that  the nature  of the levy is not related  to or  dependent on any commercial transaction. The following  observation of  Gwyer, C.J.  in  The  Central Provinces and  Berar Sales  of Motor  Spirit and  Lubricants Taxation Act, 1938 (supra) was also placed before us:      "In my  opinion the  power to make laws with respect to

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    duties of  excise given  by the Constitution Act to the      Federal Legislature  is to  be construed  as a power to      impose  duties  of  excise  upon  the  manufacturer  or      producer of  the excisable articles, or at least at the      stage  of,   or  in  connection  with,  manufacture  or      production, and extends no further." The learned Chief Justice was referring in this statement to the power  to make  a law  respect of  a duty  of excise. He construed it  as  a  power  to  impose  the  duty  upon  the manufacturer  or  producer,  and  explained  that  the  levy related to  the manufacture  or production and to no further stage. It  was the  nature of the levy which was adverted to by the  learned Chief Justice, namely, that it was a levy on goods manufactured  or produced.  It will be remembered that the question  before the  Federal Court in that case whether the levy in question was a levy of excise or a levy of sales tax. A levy of excise turns on the manufacture or production of the  excisable article,  while a levy of sales tax by its nature, arises  at a  stage beyond,  namely, the sale of the article. The  task before  the Court  was  to  identify  the nature of the levy. It was not concerned with the assessment of the value of the article for the purpose of the levy.      This brings  to a  close in  these cases  the  question whether the  value of  an article  for the  purpose  of  the excise levy  must be  confined to the manufacturing cost and the manufacturing  profit in  respect of the article. In our judgment, the question has to be answered in the negative. 385      The next  question for  consideration  is  whether  the provisions in  the new  s. 4  in  respect  of  transactions’ effected by  the assessee  to or  through "a related person" are invalid.  The new  s. 4  (1) (a) provides that the value shall be deemed to be the normal price, and the normal price is defined  as the  price at  which the goods are ordinarily sold by  the assessee in the course of wholesale trade where the buyer  is not  a "related  person" and  the price is the sole consideration  for the  sale. The  third proviso to the new s.  4 (1)  (a)  provides  that  where  the  assessee  so arranges that the goods are generally not sold by him in the course of  wholesale trade  except to  or through  a related person, the  normal price  of the goods sold by the assessee to or  through such related person shall be deemed to be the price at  which they  are ordinarily  sold  by  the  related person in  the course  of wholesale  trade at  the  time  of removal, to  dealers (not  being related  persons) or  where such goods  are not  sold to such dealers, to dealers (being related persons) who sell such goods in retail. The new s. 4 (4) (c) defines the expression "related person" as follows:      "(c) ’related  person’   means  a   person  who  is  so           associated  with   the  assessee  that  they  have           interest, directly  or indirectly, in the business           of each  other and  includes a  holding company, a           subsidiary company,  a relative  and a distributor           of the  assessee, and any sub- distributor of such           distributor.           Explanation :-  In this  clause ’holding company’,      ’subsidiary  company’  and  ’relative’  have  the  same      meanings as in the Companies Act, 1956 (1 of 1956)."      Learned counsel  for the  assessees contends  that  the provisions regarding  related persons are wholly unnecessary because to counter-act evasion or avoidance any artificially arranged price  between the  manufacturer and  his wholesale buyer can  be rejected  in any  case under  s. 4, and we are referred to the observations of this Court in Voltas Limited (supra) and   Atic  Industries Ltd.  (supra). It is true, we

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think, that  the new  s. 4 (1) contains inherently within it the power  to determine  the true  value  of  the  excisable article, after taking into account any concession shown to a special  or   favoured  buyer  because  of  extra-commercial considerations, in  order that the price be ascertained only on the  basis that  it is a transaction at arms length. That requirement is  emphasised by  the provision in the new s. 4 (1) (a)  that the price should be the sole consideration for the sale. In every 386 such case,  it will  be for  the Revenue to determine on the evidence before  it whether  the transaction  is  one  where extra-commercial considerations  have entered  and,  if  so, what should  be the  price to  be taken  as the value of the excisable  article   for  the   purpose  of   excise   duty. Nonetheless,  it  was  open  to  Parliament  to  incorporate provisions in  the section  declaring that certain specified categories of transactions fall within the tainted class, in which case  an  irrebuttable  presumption  will  arise  that transactions belonging  to those categories are transactions which cannot  be dealt  with under  the usual meaning of the expression "normal price" set forth in the new s. 4 (1) (a). They are  cases where  it will  not  be  necessary  for  the Revenue to  examine the entire gamut of evidence in order to determine whether  the transaction is one prompted by extra- commercial considerations. It will be open to the Revenue on being satisfied  that the  third proviso to the new s. 4 (l) (a) read with the definition of "related person" in s. 4 (4) (c) is  attracted, to  proceed to  determine the  "value  in accordance with the terms of the third proviso.      It  is  urged  on  behalf  of  the  assessee  that  the provisions are,  whimsical and arbitrary, and cannot be said to be  reasonably calculated  to  deal  with  the  issue  of evasion  or  avoidance  of  excise.  It  is  said  that  the assessment on  the manufacturer  by reference  to  the  sale price charged  by his  distributor is  "wholly  incompatible with the  nature of  excise", and  we are  referred to  Atic Industries Ltd.  (supra). Now,  is a  well known legislative practice to  enact provisions  in certain limited case where an assessee  may be  taxed  in  respect  of  the  income  or property truly  belonging to  another. They  are cases where the Legislature  intervenes to  prevent the circumvention of the tax  obligation by tax payers seeking to avoid or reduce their tax liability through modes resulting in the income or property- arising  to another. The provisions of the law may indeed be  so enacted  that the  actual  existence  of  such motive may  be wholly  immaterial, and what has been done by the  assessee  may  even,  proceed  from  wholly  bona  fide intention. With  the aid  of legal  fiction, the Legislature fastens the  liability on the assessee. When the legislature employs such a device, and the liability is attached without qualification,  it   is  reasonable   to   infer   that   an irrebuttable presumption  has  been  created  by  law.  Such provisions have  been held  to  be  within  the  legislative competence of  the Legislature  and as  falling  within  its power of  taxation, and  reference may  be made to Balaji v. Income-Tax Officer, Special Investigation Circle, 387 Navnitlal  C.   Javeri  v.   K.K  Sen,  Appellate  Assistant Commissioner of  Income-Tax, ’D’  Range, Bombay  and  Punjab Distilling Industries  Ltd. v.  Commissioner of  Income-Tax, Punjab.      It is  contended for  the assessees that the definition of the  expression "related  person" is so arbitrary that it includes  within   that  expression  a  distributor  of  the

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assessee. It  is urged  that the provision falls outside the ambit of  Entry 84  of List I of the Seventh Schedule to the Constitution inasmuch  as it is wholly inconsistent with the levy of  excise, and  if it is attempted to seek support for the provision  from the  residuary Entry  97 of  List l as a non-descript tax  the attempt  must fail because there is no charging  section  in  the  Central  Excises  and  Salt  Act empowering  the  levy  of  such  non-descript  tax  nor  any machinery provision  in the  Act for  collection such a tax. The charging  provision and  the machinery provisions of the Act, it  is pointed  out, deal  exclusively with excise duty and not  with any  other tax. The validity of the provisions is assailed  also on the ground that it violates Articles 14 and 19  of the Constitution. The challenge made on behalf of the assessees  is powerful and far-reaching. But it seems to us unnecessary  to enter  into that  question because we are satisfied that  the provision  in the definition of "related person" relating  to a  distributor can be legitimately read down and  its validity  thus upheld.  In  our  opinion,  the definition of  related person  should he  so read  that  the words "a  relative and a distributor of the assessee" should be understood to mean a distributor who is a relative of the assessee. It  will be  noticed that the Explanation provides that the  expression "relative"  has the  same meaning as in the Companies  Act, 1956. As regards the other provisions of the definition  of "related  person", that  is  to  say,  "a person who is so associated with the assessee that they have interest directly  or indirectly,  in the  business of  each other and  includes a holding company, a subsidiary company. .",  we  think  that  the  provision  shows  a  sufficiently restricted basis  for  employing  the  legal  fiction.  Here again, regard  must be had to the Explanation which provides that the  expression "holding  company and  subsidiary" have the same  meanings as  in the Companies Act, 1956. Reference in this  connection may  be made  to  Tata  Engineering  and Locomotive Co.  Ltd. v.  State of Bihar and others where the principle was approved by this Court that the corporate veil could be lifted where 388 the companies  shared the  relationship of a holding company and a  subsidiary company,  and to  Juggi  Lal  Kamlapat  v. Commissioner   Of Income-Tax,  U.P., where  this Court  held that the  veil of  corporate entity  could be  lifted to pay regard to  the economic  realities behind  the legal facade, for example,  where the  corporate entity  was used  for tax evasion or to circumvent tax obligation.      At one  stage, it  was urged  for the assessees that by making  provision  in  the  Central  Excises  and  Salt  Act respecting transactions  to or  through a  "related person", Parliament was  very close  to making  the levy a sales tax. The contention  cannot be  accepted and we need merely refer to the  position delineated  earlier and  set forth  in  the series of  cases beginning  with The  Central Provinces  and Berar Sales  of Motor  Spirit and  Lubricants Taxation  Act, 1938 (supra)  See also Jullundur Rubber Goods Manufacturers’ Association v. Union of India & Anr,      From what  has gone  before, we  consider that the true position under  the Central  Excises and  Salt Act,  1944 as amended by Act XXII of 1973 can be set forth as follows .      (i)  The  price   at  which  the  excisable  goods  are           ordinarily sold  by the assessee to a buyer in the           course of wholesale trade for delivery at the time           and place of removal as defined in sub-section (4)           (b) of section 4 is the basis for determination of           excisable value  provided, of course, the buyer is

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         not  a   related  person  within  the  meaning  of           sub-section (4)  (c) of section 4 and the price is           the  sole   consideration  for   the  sale.   This           proposition is  subject  to  the  terms  of  three           provisos to sub-section (1) (a) of section 4.      (ii) There  the price  of excisable goods in the course           of wholesale  trade for  delivery at  the time and           place of  removal cannot  be ascertained  for  the           reason that  such goods  are not  sold or  for any           other reason, the nearest ascertainable equivalent           thereof determined in the manner prescribed by the           Central Excises  (Valuation) Rules. 1975 should be           taken as  representing the  excisable value of the           goods; 389       (iii) Where wholesale price of any excisable goods for           delivery at  the place of removal is not known and           the value  thereof is determined with reference to           the wholesale  Price for delivery at a place other           than  the   place  of   removal,   the   cost   of           transportation from  the place  of removal  to the           place of  delivery should  be excluded  from  such           price;      (iv) Of course, these principles cannot apply where the           tariff value  has been  fixed in  respect  of  any           excisable goods  under sub-section  (2) of section           3;      (v)   On a  proper interpretation  of the definition of           ’related person’ in sub-section (4) (c) of section           4, the  words "a relative and a distributor of the           assessee" do not refer to any distributor but they           are  limited  only  to  a  distributor  who  is  a           relative of  the assessee  with in  the meaning of           the Companies  Act, 1956.  So read, the definition           of ’relates  person’ is  not unduly  wide and does           not suffer  from any  constitutional infirmity. It           is   within    the   legislative   competence   of           Parliament.  It   is  only  when  an  assessee  so           arranges that  the goods are generally not sold by           him in  the course of wholesale trade except to or           through such  a related  person that  the price at           which the goods are ordinarily sold by the related           person in  the course  of wholesale  trade at  the           time of  removal to  dealers  (not  being  related           persons) or  where such goods are not sold to such           dealers, to  dealers (being  related  persons  who           sell such goods in retail is liable to be taken as           the excisable  value of  the goods  proviso  under           (iii) to sub-section (1) (a) of section 4.      We  now  proceed  to  the  question  whether  any  post manufacturing expenses  are deductible  from the  price when determining the "value" of the excisable article. The old s. 4 provided  by the  Explanation there to that in determining the price  of any article under that section no abatement or deduction would  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.  The  new  s.  4  provides  by subs.(2)  that  where  the  price  of  excisable  goods  for delivery at the place 390 of removal  is not  known and  the value  is determined with reference to  the price  for delivery  at a place other than the place  of removal,  the cost  of transportation from the place of removal to the place of delivery has to be excluded

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from such  price. The  new s. 4 also contains sub-s. (4) (d) (ii) which  declares that the expression "value" in relation to any  excisable goods,  does not include the amount of the duty of  excise, sales  tax and other taxes, if any, payable on such goods and, subject to such rules as may be made, the trade discount  (such discount  not being  refundable on any account whatsoever  allowed in  accordance with  the  normal practice of  the wholesale  trade at  the time of removal in respect of such goods sold or contracted for sale. Now these are clear  provisions expressly  a providing  for deduction, from the price, of certain items of expenditure. But learned counsel for  the assessees contend that besides the heads so specified a  proper construction  of the  section  does  not prohibit  the   deduction  of   other  categories   of  post manufacturing expenses.  It is  also urged that although the new s.  4(4) (d)  (i) declares that in computing the "value" of an  excisable article,  the  cost  of  packing  shall  be included, the  provision should  be construed as confined to primary packing  and as  not extending to secondary packing. The head  under which  the claim  to deduction  is made  are detailed below :      (1) Storage charges.      (2)  Freight  or   other  transport   charges,  whether           specific or equalised.      (3)   Outward handling  charges,  whether  specific  or           equalised.      (4)   Interest on  inventories (stocks  carried by  the           manufacturer after clearance).      (5)   Charges for  other services after delivery to the           buyer.      (6)   Insurance after  the goods  have left the factory           gate.      (7)  Packing charges.      (8)    Marketing  and  Selling  organisation  expenses,           including advertisement and Publicity expenses.      At  the   outset,  we  must  make  it  clear  that  the contentions in  this  regard  on  behalf  of  the  assessees proceeds on two broad bases. 391 The first  is that  to determine  the value  of an excisable article, all  expenses must  be excluded  which do not enter into the  formula of  manufacturing cost  plus manufacturing profit.  This  follows  from  the  principal  plank  of  the assessees’ case  that the  "value" must  be confined  to the manufacturing cost, and the manufacturing profit. For, it is said, that  if the deductions claimed are allowed, the price would be  brought down  to the  conceptual value.  All  post manufacturing expenses are claimed from that perspective and within that  context. The  other basis  on which  the  claim proceeds, is  that the  price at  the factory  gate and  the price at a depot outside the factory gate are identical.      We shall now examine the claim. It is apparent that for the purpose  of determining  the "value",  broadly  speaking both the  old s.  4(a) and  the now  s 4(1) (a) speak of the price for  sale in  the course  of  wholesale  trade  of  an article for  delivery at  the  time  and  place  of  removal namely, the  factory gate where the price contemplated under the old  s.  4(a)  or  under  the  new  s.  4(1)(a)  is  not ascertainable, the price is determined under the old s. 4(b) or the  new s.  4 (1)  (b). Now,  the price of an article is related to  its value  (using this term in a general sense), and  into   that  value   have  poured  several  components, including those  which have  enriched its value and given to the article  its marketability  in the trade. Therefore, the expenses incurred  on account  of the  several factors which

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have contributed  to its  value upto the date of sale, which apparently would  be the  date of delivery, are liable to be included. Consequently  where the  sale is  effected at  the factory gate,  expenses incurred  by the  assessee up to the date of  delivery on  account of  storage  charges,  outward handling charges, interest on inventories (stocks carried by the  manufacturer   after  clearance),   charges  for  other services after  delivery to  the buyer,  namely  after-sales service and  marketing  and  selling  organisation  expenses including advertisement expenses cannot be deducted. It will be noted  that advertisement expenses, marketing and selling organisation expenses  and after-sales  service promote  the marketability of the article and enter into its value in the trade. Where  the sale  in the  course of wholesale trade is effected by the assessee through its sales organisation at a place or  places outside  the  factory  gate,  the  expenses incurred by the assessee upto the date of delivery under the aforesaid heads cannot, on the same grounds, be deducted But the assessee  will be  entitled to a deduction on account of the cost of transportation of the excisable article from the factory gate  to the  place or  places where it is sold. The cost of transportation will include the cost of insurance on the 392 freight for  transportation of  the goods  from the  factory gate to the place or places of delivery.      Where freight  is averaged  and the averaged freight is included in  the wholesale  cash price so that the wholesale cash price  at any  place or places outside the factory gate is the same as the wholesale cash price at the factory gate, the averaged  freight included  in such wholesale cash price has to  be deducted in order to arrive at the real wholesale cash price  at the  factory gate  and Do  excise duty can be charged on it.      The case  in respect of the cost of packing is somewhat complex. The  new s.  4(4)(d)(i) has  made express provision for including  the cost  of packing  in the determination of "value" for the purpose of excise duty. Inasmuch as the case of the  parties is  that the new s. 4 substantially reflects the position  obtaining under  the unamended  Act. We  shall proceed on the basis that the position in regard to the cost of packing  is the same under the Act, both before and after the amendment of the Act S. 4(4) (d) (i) reads:      "(4) For the purposes of this section-           (d)  "value", in relation to any excisable goods,-           (i)   where the goods are delivered at the time of                removal in  a packed  condition, includes the                cost of  such packing-except  the cost of the                packing which  is of  a durable nature and is                returnable by the buyer to the assessee.           Explanation.-In this  sub-clause  "packing"  means      the wrapper,  container, bobbin,  pirn, spool,  reel or      sarp beam  or any  other thing in which or on which the      excisable goods are wrapped, contained or wound." It is  relevant to  note that the packing, of which the cost is included  is the  packing of which the goods are wrapped, contained or  wound when the goods are delivered at the time of removal. In other words, it is the packing in which it is ordinarily sold  in the  course of  wholesale trade  to  the wholesale  buyer.   The  degree  of  packing  in  which  the excisable article  is contained  will vary from one class of articles to another. From the particulars detailed before us by the  assessees, it  is apparent  that the cost of primary packing, that  is to  say, the ’packing in which the article is contained and in which

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393 it is made marketable for the ordinary consumer, for example a tube  of toothpaste  or a bottle of tablets in a cardboard carton,  or  biscuits  in  a  paper  wrapper  or  in  a  tin container, must  be  regarded  as  falling  within  s.  4(4) (d)(i). That  is indeed  conceded by learned counsel for the assessee. It  is the  cost of  secondary packing  which  has raised serious  dispute. Secondary  packing which  different grades. There  is the  secondary packing  which consists  of larger cartons in which a standard number of primary cartons in the  sense  mentioned  earlier)  are  packed.  The  large cartons  may  be  packed  in  to  even  larger  cartons  for facilitating the  easier  transport  of  the  goods  by  the wholesale dealer.  Is all  the packing,  no matter  to  what degree, in  which the wholesale dealer takes delivery of the goods to be considered for including the cost thereof in the "value" ?  Or does  the law  require  a  line  to  be  drawn somewhere? We  must remember that while packing is necessary to make  the excisable  article  marketable,  the  statutory provision calls  for strict construction because the levy is sought  to  be  extended  beyond  the  manufactured  article itself. It  seems to us that the degree of secondary packing which is  necessary for putting the excisable article in the condition in  which it  is generally  sold in  the wholesale market it  the factory  gate is  the degree of packing whose cost can  be included  in the "value" of the article for the purpose of  the excise  levy. To  that extent,  the cost  of secondary packing cannot be deducted from the wholesale cash price of the excisable article at the factory gate.      If any  special secondary  packing is  provided by  the assessee at  the instance  of a wholesale buyer which is not generally provided  as a  normal feature  of  the  wholesale trade, the  cost of  such packing shall be deducted from the wholesale cash price.      We have  also been referred to s. 2(f) of the Act which defines the  expression "manufacture",  and it is urged that the degree  of packing  to be  considered for the purpose of including its  cost in  the "value"  of an excisable article should be spelled out from that definition. We are unable to accept  the  suggestion.  The  expression  "manufacture"  is related to  the taxable  event and refers to a process which enters into  the character  of the  article, while "packing" has been  defined by  s. 4  (4) (d)  (i) in  relation to the "value" of the article.      That, we  think, is  the position in regard to the cost of packing  under the  Act, both  before a its amendment and after. 394      We have  considered the  claim to  deductions under the specific heads enumerated by the assessees, and our judgment is confined  to those  items. No  other head of expenses has been placed before us for our opinion.      Learned  counsel   for  the   parties  have  drawn  our attention to  a number  of decisions  rendered by  different High Courts  on some of the points raised before us. We have examined those  cases, but  we think it unnecessary to refer to them  as they  do not  add to  the considerations we have kept before us in arriving at our conclusions.      These are  the reasons for our order of May 9,1983, and they explain  the scope  within which  that  order  must  be construed as well as the basis on which it was made.      The individual  appeals, writ  petitions, special leave petitions and  transferred cases  will  be  listed  now  for appropriate orders  in the light of this judgment on October 31, 1983.

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H.S.K. 395