UNION OF INDIA & ORS. ETC. ETC.· v. BOMBAY TYRE INTERNATIONAL LTD. ETC. ETC.

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 ~f 1973) and after such amendment. We record now the reasons for that order. · B

At the outset, we may state that it js not possible ·in this judg- ment to deal. with the numerous individual appeals, writ petitions, special ieave petitions and transferred cases before us on the parti• cular facts of each, and we propose to consider the· points ari'sing therein from a general perspective. c The Central Excises and Salt Act, 1944 relates to central duties of excise and to salt. Sub-s, ( l) of s. 3 provltles 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 C~ntral Government to fix, for the purpose of levying the duties, tariff ·values of the articles enumerated in the First Scheaule 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.- E

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 - .F (a) the wholesale cash< price. for which an article of the like kind and quality is sold or is capable of being sold at tbe tinie oftbe removal of the article chargea- ble with duty fr~~ the factory or any other premises of manufacture or production for delivery at the ' place of manufacture or production, or if a whole- sale market does not exist for such article at such place,~ the nearest place where such market exists, or B (b) where such price is not ascertainable, the price at whi~h an article ofthe like kind and quality is sold or. is capable of being sold by the manufacturer or

SUPREME COl.iRt REPORTS (1984) I s.c.a.

producer, or his agent, at the time of' the reincival of A the article chargeable with duty from. such factory or othe.r premises for delivery at the place. of manu- facture 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. B Explanation-In determining the price of any article under this section, no abatement or deductiou shall be allowed except in respect of trade discount and the amout o~ duty payable at the time of the r.emoval of the article chargeable witb duty from the factory or other premises c aforesaid." It seems that with the increase in the ad valorem levies in the Central Excise Tariff the operation of s.4 presented certain pra~tical difficulties, some of 'IVhich were prominently brought ouf in the judgment of this Court in A. K. Roy & Anr, v. Volt as Limited.(') Among other observations the Court appears to have said that the real value ·or an article for the purposes of the excise levy would include only the manufacturillg cost plus the manufacturing profit. Jn order to overcome the various difficulties, Parliament enacted AC! XXII of !'973 which substituted a new s.4 for the original Provision with effect from October I, 1975. The new section 4 provides:- E . "4. Valuation of excisable goods for purposes . of charging of duty of excise.-(!) Where under· this Act, the duty of excise is chargeable on any excisable goods with ref~rence to value, such value shall, subject to the other provisions of this section be deemed to be - F (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 deli- very at the time and place of removal, where the buyer is not a relate<l 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 go.ods are sol<l

(1) (1973) 2 S.C.R. 1089.

i:J~ION v. BOMBAY TYRE (Pathak, J.) 357

by the assessee, at different prices to different classes of buyers (not being related persons) each such price, ' shall, subject to the existence 0£ the other circumstances specified in clause (a), be deemed to be the normal priee of such goods in relation to each such class of buyers; B (ii) where such goods are sold by the assessee in the • course of wholesale trade for delivery at the ti)lle and ·place of removal at a price fixed under any law for. the time being in force, or at a price, being the maximum fixed under any such 1aw' then' notwith-. standing 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 arran~es 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 per~ sons) ·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 ascer- F tainable 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 .. G (2) V. here, 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 B place of removal, to the place of delivery shall be excfoded from such price.

• ' 358 SUPREME OOURT REPORTS . (1984] I S,C R,

(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 B pay the duty of excise under this Act and inclu- des his agent;

(b) "place of removal" means -.

(i). a factory or any other place or premises of c production or manufacture of the excisable goods; or

(ii) a warehouse or any other place or premises • wherein . the..excisable goods have been nermitted to . be deposited . without payment' of duty,

from where such goods are removed;

(c) "related person" means a person who is so ass6ciated with the assessee that they have interest, directly or indirectly, in the business of of ei!ch other and includes. a holding company, a subsidiary compa,ny, a relative and a distri•. butor of the assessee, and any sub•distributor of iuch distributor, - · · ·

Explanation.-In this clause "holding com• pany", ''a s·ubsidiary compa~y" alld "re]ative" ~have the same meanings as i'n the Companies Aci, 1956; G (d) "value", in relation to any excisable goods.-·

\ (i) where the goods are delivered:at the time· of removal in a packed condition, includes. H the cost of such packing except. the cost of a . the packing which is of durable. nature and is returnable by the buyer to the . ·assessee.

. UNION v. BOMBAY TYRE (Pathak, J.) 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 exci- sable goods are .wrapped. contained or wound;

(ii) does not include the amount of the duty of excise, sales tax and other taxes, ii any, payable on sucb goods and, subject to such rules as may B be made, t.he trade discount (such discount not being refundable on any account whatso- ever) allowed in accordance with the normal practice of the wholesale trade at the time of remova,l in respect of such goods sold or ·con- c tracted for sale; ' (e) "whoiesale trade" means sales to dealers, industrial consumers, Government local authorities and other ·buyers, who or which purchase. their requirementg otherwise than in retail."

In t'he 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 a.dvantage of headn~ counsel of eminence on both sides, a,nd 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 m.ust be determined by F reference.exclusively to the manufacturing cost and the manufacturing profit of the manufacturer or should be represented oy 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 (con-· . veniently referred to as "post manufacturing expenses" and "pqst manufacturing profit") arising between the completion of.the manu-' facturing process and the point of sale by the manufacturer. H 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, excis~ is a tax on.

I "360 SUPREME COURT REPORTS . (1984) I .sc.R.' . . manufacture or production and not on anything else. Secondly, uni- A formity 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 kelps to achieve the second: Learn 'd couniel urges that where .excise duty is levied. on an ad valorem basis · the value on which such duty is B 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 w~tt as tl}e actual wholesale price charged by the manufacturer are not the determining factors. ·rt is urged that the old s.4 (a) clearly indicates that a conceptuar value forms the basis of the levy, and that the actual wholesale price c charged by the particular assessee cannot be the basis of the excise levy. Tt is said that the criterion adopted in clause (a) succeeds in producing uniform taxatio,n, whether the- assessees are manufacturers who ;ell 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, D and whether they load the ex-factory price with post 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 pri~ciple of uniformity of taxation requires the exclusion of post manufacturing expenses ahd profits, a factor which would vary from one manufac-

F turer to another. It is po_inted out that such exclusion is necessary to create a direct and immediate nexus betweeµ 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 (I) (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 G 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 thatthe basis on which ii the value is determined is constituted by the same conceptual criter- ion, that post manufacturing expenses and post manufacturing profit .must be excluded. Considerable emphasis ·has been laid on the l

submission that as excise duty is a tal on the manufacture or

UNION v. BOMBAY TYRE (Pathak, J.) 361

procjuction of goods it must be a tax intimately linked with the manu• facture or production of the excisable article and, there.fore, it can A' 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 B 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 Parlia- ment under Entry 84 of List I of the Seventh Schedule ,fo the Consti- tution to legislate in respect of "value" is restricted by the conceptual c 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 Attorrney General of India) has strongly contended that ·the value of an excisable article for the purposes of the levy must be taken at !Jie price charged by the manu- facturer on a wholesale transaction, the computation being made strictly in terms of the express provisions of the statute and, be says, there is no warrant for confining the value to the assessee's manu- facturing· 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 w.itb the measure so long as it bears a nexus with tli: 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 weli as the nature of the deductions which can be claimed by the assessee as post manufactuhng expenses and post manufacturing profit from the price for the purpose of detel'- minirig the "value". · G

The subm'issions made by learned counsel for the parties in support of their respective contentions cover a wide area, and several• questtons of a fundamental nature have been raised. We consider it necessary to deal with them because they enter into and determine H the conclusions r~acbed by u.s.

p. 362 Copy page pinpoint

. 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 Seve.nth 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 whicli the Amendment Act of 1973 was enacted, refer to "Duties. of excise on ...... -. ......... goods manufactured or produced in India". B · A duty of excise, according to the Federal Court in The' Central Provinces and Berar Sales of Motor Spirit and Lubricants Taxation Act, 1938(1) is a duty ordinarily levied on the manufacturer .or producer. in respect of the manufacture or production of the commodity taxed. A distinction w{s drawn between the nature of the tax and the point at whic)l it was collecteJ:], and Gwyer C.J. observed that theoretically "there can be no reason why an ex~ise 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 ma.tier 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 c.onsumer, who ·pays as he c~munies or expends; and it continues. to- be an excise duty, that is, a duty on home-produ- E ced ·~r .borne-manufactured goods, no maiter at what stage it is collected" (emphasis supplied). The position was explained further

- in The Province of Madras v. Messers. Qoddu Paidanna awl Son•(') where the FedQl'al Court observed :- ·

'.'There is in theory nothing to ·prevent the Central Legislature from imposing a duty of excise on a commo· dity 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 scuh 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 commo- dity 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 qonsumer, which he could not do if the commodity had,

(1) [1939] F.C.R. 18. (2) (1942] F.C.R. 90, 101.

UNION v. BOMBAY TYRE (Pathak, J.) 363

for example, been' destroyed in.the factory itself. It is the fact of manufacture which attracts the duty, even though A .. 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 ween iis manufacture is completed B but will rest on considerations of administrative convenience, atid that generally it is 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 manufactu; er does not detract from its true nature, that it is a levy on the fact of manufacture. In a subsequent case, Governor-Genera/ fn Co~nci/ v/ c Province of Madras,(1) the Privy Council Teferred to both in The Central Provinces and Berar ·Sa/es of Motor Spirit and Lubricants Ta5calion Act, 1938 (supra) and The Province of Madras v. Messers. Boddu Paidanna and Sons (supra) and affirmed that when 0

excise was levied on a.ma nufacturer at the point of the first ·sale by . D. hiin "th_at may be because· the taxation authority imposing a duty of excise finds it CQ.llvenient to impose. that duty at the moment when '7 the excisa~le 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 E excise, which is attracted by the manufacture itself." This ·Court

- had occasion to contider a similar question in R.C. Jal/ v. Union of lndia('). In that case, the Central Government was authorised by an Ordinance to levy and collect as a cess on CQal 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 F duty of excise on coal and coke when such coal< and coke was des- · patched by rail from the collieries of the coke piants, 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 assessec that the excise duty cauld not legally be G levied on the con5ignee 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,"

(I) [1945] F.C.R. 179. (2) [19621 Suppl. 3 S.C.R. 43~ ..

364 • SUPREME COURT RE)'ORTS (1984) l s.c.a.

·and reference was made to In re. the Central Pro>inces and fJerar Act · A N~. XIV of 1?38 (supra), The Province of Madras v. Boddu Paidqm1a 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 B the country. It is an' indirect duty which the I\]anufacturer or producer passes on to the·ultimate consumer, that is, it; 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 con- c venient stage so long as the ~haracter 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 adminstrative convenience."

D 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 oj the Cent;(ll Excises And Salt A;t, 1944,(1) Union of India v. Delhi Cloth & Genera{ Mills,(') M/s Guruswamy & Co. Etc. v. State of Mysore & Ors.(') and South Bihar Sugar Mills Ltd. etc. v, Ill Unio'n of India & Ors.(')

F, . We think we have shown sufficiently that ~hile 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 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".

G We move on now to a different dimension, to the conceptual consideration of the measure of the tax. S. 3 of the G:entral Excises and Salt Act provides for the levy of the duty of excise. It creates·

(I) [19641 3 S.C.R. 787. H (2) [1963JSuppl.1S.C.R.586, (3) [1967] I S.C.R. 548. (4) [1968J .3 S.C.R. 21,

UNION P. BOMBAY TYRE (Pathak, J.) 365

the charge, and defines the nature of the charge. That it is a levy on excisable goods, produced or manufactured in India, is ~entioned 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 tho 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 j, be confused with the nature of the tax. In Ra/la Ram v. Province of .a East. Punjab(') the Federal Court li.eld that a tax o~ buildings under s. 3 of the' Punjab Urban Immovable Property Tax Act, 1940. measu- red 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 re 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 levJes remained separate and distinct imposts by virtue of their nature. In other w6rds, 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 Rqm D Budhia v. State of Bihar( 2 ) where a tax on passengers and goods was asses,ed as a rate on the fares and freights payable by the owners of the motor vehicles. Atm~ 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 ·E coutention that the levy was a tax upon income and not upon passen-.

- gers 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 an<] goods". The point was considered by this Court again in D.C. Gouse and Co. ,etc. v. State of Kera/a & Anr. etc.(') where reference was made to the measure adopted for the purpose F ·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 witli the annual value of the building and prescribing a uniform formula for determining its capital value and for calcula- ting the tax. In the course of its. judgment, the Court cited with approval a passage from Seervai's Constitutional Law of India.(')

(I) [19481 F.C.R. 207. (2) A.I.R. 1952 Patna 359. R (3) [196211 S.C.R. 517. (4) [198011 S.C.R. 804. (5) Second Edition, Vol. 2 at page 12~8,

366 .• • SUPREME COURT REPORTS [t 984) I s.c.a. "Another principle for reconciling apparently conflic- ting tax entries follows from the fact that a tax has two element,s : the person, thing of activity on which the tax is imposed, and the amount of the tax. The amount may • be measured in niay 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 meas· n.. ured. These two elements are described ag the subject of a tax and the measure of a tax.''

It is, therefore, clear ihat the levy of a tax is defined by its nature, . while the measure of the t~x may be assessed by its own standard. C It is true that the standard .adopted :as the measure of the levy may indicate the nature of the tax but it does nor 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 lreiand), 1934(')'when it said:·

" ........ It. is the essential characteristic of the par· ticular 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." E • The case was referred to by a Constitution Bench of this Court in· R.R. Engineering Co. v. Zila Parishad, Barei/ly & Anr.('), where the relationship was succinctly described thus:·. .- "It may be, and ls often so, that the tax on circum·· F stances 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 o~ 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 Gpvt. of Ireland Act (supra), the measure of the tax is not a true test of the nature of the tax. There· fore, 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;''

(I) L.R. 1936 A.C. 352. • (2) !1980) 3 S.C.R.),

UN!O\.i \i'. BOMB~y TY!Ul (Pathak, i.) The principle was reaffirmed by this Court in The Hingir-Rampur Coal Co., Ltd. and Others .v. The State of Orlssa and Others (1) A where the form in which the levy was imposed was held tci be and ~ impermissible test for defining in itself the character of the levy . ..i It was observed:-

"~..... ; .. the mere fact that the levy imposed by_ the B impugned Act had adopted the method of determining the rate of the levy by reference to the minerals produced by th.e 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 c other relevant circumstances!'

It is apparent, therefore, that when enacting a measure to serve as a standard for assessing the levy the Legislature need notcontour it ·along lines which spell.out the character of the levy itself. 'Viewed · •from this standpoint, it is not possible .to accept th~ 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 determinining the measure of the levy; Any standard which maintains a nexus with the essential character of the levy ~an 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 Excices 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 chargable 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 <lid • 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 :iscertainable, the value would be deemed to be the price to be the price at which an article of the H

(!) [1961] 2 S.C.R. 537,

• (19S4) i S.C.R.

like kind and quality was sold .or was capable of being sold by the manufa?turer or producer, or his , agent, at the time of ihe removal of the articie chargeable with duty from such factory or other premises for delivery at the place of manufacture ar 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 expla?ation which declared that no abatement or . 8 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 wholeasale price was envisaged as a cash price in· order .to make it a uniform standard, because·it was then a price ..... fr~ed from the burden of an increase on account of credit oi;, other c advantage allowed to a buyer, a factor which may vary from tran- saction to transaction and from buyer to buyer. The essential distinc- · tion between cl. (a) and cl. (b) of s.4 appears to lie in thi~. that cl. (a) is invoked when the wholesale cash price is ascertainable and cl. (b) when the wholesale cash price cannot be ascertained. D 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 ma.sure. · Price and sale E are related concepts, and· price has a definite connotation. The 1'· "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 as!:essees, that the ·measure was to be found by reading s.} 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), a(ld 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 thi's stage, it would be advantageous fo 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 CouncU (1) the Privy Council had to construe tije scope .of s.30 of the Sea Customs Act, 1878 which contained els. (a) and (b) substa· ntially comparable with the two clauses of the old s.4 of the. Central

(I) LR 59 I.A. 258

UNION V. BOMBAY TYRE .(Pothak, J.) 36~

IJxcises and Salt Act. The appellants in this case manufactured: diffe• • rent 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 io 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 place, ....... .''. The government c9ntended that the reai value of the ap_pellants' c oil was its "wholesale cash price" referred to in s.30(a) a price asc~rtainable, without difficulty. The appellants replied that in . view of the unique cha.racter of their oil and of the invariable course of business pursued by them in relation to its sale, a "whole- sale cash price" for_ that oil had never exi;ted and was ·not ascerta- inable 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 i 0 per cent above the entry price, the difference representing the appellant's retailing profit and the expen- ses incurred· by them in respeci 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 impor• ted 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 regar, ded as attracting s. 30 (b). On the other side of the line is Ford Motor Company of B India Ltd. v. Secretary of State for India· in Council\'), in which the (!) L.R. 65 I.A. 32.

370 SUPREME COURT• REPoRTS (1984] 1 s.C.R.

• Privy Council had to consider the 'scope of s. 30 of the Indian Sea A Customs Act again. The appellants imported · Ford D)Otor vehicles into India from Canada and sold them to authorised dealers or distributors. They possessed a monopoly iµ In.dia as regards the supply of such vehicles. The appellants issued from time to time a price list and t])e terms of business were that the retail price to be charged by the distributors to the public was that otat'ed in tbe price B 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 motpr-cars in c 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 . D than could be satisfiea by the result of a mere estimate. The Privy Council held that tbe. appellant's price to the distributors was a wholesale p_rice 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 bad been deduced to a price· referable to a car in E the condition in which it arrived in Bombay. H was contended for the appelants that "goods of the like kind and quality'' in cl. '(a} was a phrase which suggested other goods than that under assessment • and 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 -- F 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 ari indefinite amount of further goods added to the available supply had had effect upon ihe wholesale price.·· 'And G what is important, the Privy Council further observed : "But if there . is an actual pric~ 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 H consignment, and even if they are regarded collectively the clause is not defeated. A particular car may be sold ·at a price which, having to regard other transactions in ,sccb cars, or to .cther circumstances,

tJNION V.,BOMBAY TYRE "(Pathak, J.) 371

is too high or too low. In that sense, the actual price in a parti• cular 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 inay under cl. (a) be considered as members of their own class even . although . at the time and' place . of importation there are - no othet .. members. . The price olitained for them may correctly represent the pr.ice obtainable for goods of the like kind and· quality at the time B and place of importation.". ·

These two cases illustrate the fundamental distincHon between· provisions such as the two clauses of s. 4 of the Central· Excises and• ~~ c Grea.t reliance has 'been p\aced 'by. the assessees on two · important decisions 'of this Court- in support of the contention that only t)le 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 asses- D · see manufactured air conditioners and water coolers, and sold those article from its head office at Bombay and at b'n\nch 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 Ill which required them to sell the products at list prices, and that the assessee would seil them the articles at the listed price le~ 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 l\Ot the wholesale . cash price. The r Y· case was taken by writ petition 'to the High Court, which held that the duty fell to be as.sessed under th,e old s.4(a) of the Central (; Excises and S11t Act .on the b1Sis of the wholesale cas~ 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 ff 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, could also mean ''the ·poteptiality of the articles. being

. 372 SUPREMfl COURT REPoRTS !19841 i s.c.it. sold on a ',\'holesale · ba~is" .. 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 d_epend 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 8 ·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 'J,nd manufacture . of goods (see Union of India v. Delhi Cloth and General c Mills (supra). Section-;! 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 manufact- uring 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 CGurt intended t<l 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 manufact- 1 • ured article . (which would have to take into account the deduction of 22% allowed as discount) would co"nstitute the real value had to I.I' be arrived at after off-loading the discount of 22%, which in fact I

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,

G . ·The other case is Alic Industries Ltd. v. H.H. Dove, Asstt, Co//ector of Central Excise and Ors.(1) 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 · .H "basic selling price" less a trade . discount of 18%. The wholesale 1r dealers hi turn resold the dyestuffs to distributors and also directly to

(!) [1975) 3 S.C_;R. 563.

. UNION v. BOMBAY TYRE (Pathak, J.)

large consumers, including textile mills. The large consumers paid the basic selling price, while the distributors paid a higher price but A subject to a trade .discount. The. distributors sold the product to • consumers, The question arose as to how the value of the dyestuffs manufactu_red 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, Jess a B uniform trade discount of 18%. The excise authorities took the view that the value should be the price at which the wholesale buyers bad sold the dye stuffs to the distributors witho_ut taking into acco- unt the discount given to the destributors. Before this Court, the excise authorities pressed the same contention, urging that s.4 (a) ddd not provide that in every case the wholesale price charged by c the manufacturer should be taken into consideration and not the wholesale price _charged. by the wholesale 'buyers who sold the· · I;roduct also in wholesale to the.next buyers. One of us (Bhagwati J.) spoke for the Court"in that case, and delivered a closely· enuncia- . . ted and lucid exposition of the true legal position. It was explained : . •D "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 fro111 post· manufact· uring operation: The price charged by the manufa2turer E for sale of the goods in wholesale would, therefore, re pre· sent the real ~alue of the goods for the purpose of assess-

' ment of excise duty. If the price charged by the whole· sale dealer who purchases the goods from the manufact· urer and ;ells them in wholesale to . another d~aler were taken as the value of the goods, it would include not only f the manufacturing cost and the manufacturing profit • of the manufacturer but also the wholesale dealer's selling -v "cost and selling profit and that ·WOUid be Wholly incom-. patible with the nature of excise. It may be noted that ( wholesale market in a particular type of goods may be in G several tiers and the goods may reach the consumer after a series of wholesale 'transactiol)s. In fact the more com- mon and less expensive the goods, there wonld be greater possibility of more than one tier' of wholesale transactions. For instance, in a textile trade, a manufacturer may sell 'H 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

974 SUPRllME COURT REi>oRTS (1984] 1 s.c.a. · State level, and they may in their turn iell the goods to A wholesale dealers at the district level and from the whole· sale dealers at the district level the goods may pass by · sale to wholesale dealers at the. city level and then, ulti- mately 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 · ..... B of excise in such a case would be the wholesale casq price which the manufacturer from sale to the first wholesale . '

dealer, thai 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 .c along a short' or a long course depending .on the 'nature of the gooqs and the conditions of.the trade, exc.ise is n~t concerned with what happens subs«quently to the goods. It is the fir•t immediate contact between the manufacturer and the trade ihat is made decisive for determining the wholesale cash .price which is to be the measu.re of the D value of the goods for the purpose of excise. The second or subsequent price, eve~ though on wholesale basis, .is not material. If excise were levied on the basis of second or subsequent wholesale price, it would iload the · price with a post manufacturing element, ·namely, selling , E · cost and selling profit of the wholesale dealer. That would be plainly contrary' to the true nature of excise as expla- ined in the Xoltas' 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. Ii' There can, therefore, be no doubt· that where a manufacturer sells the. goocls manufactured by him in· wholesale to a wholesale dealer at arms length · and in the usual course of business, the whole~ale cash price charged by him to the wholesale dealer less trade discount would ''l. G represent the value of the goods for the putpose 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). Tlje price . received by the wholesale dealer who purchases the goods from the H manufacturer and' in his turn sells the same in wholesale to other dealers would be irrelevant to the determination

UNION v. BOMBAY TYRE (Pathak, J.) 375

of the value and the goods would not be charteable. to excise en that basis." . A This case also does not support the case of the assessees. When ). it refers to post-manufacturing expenses and post-manufacturing proj\t arising from post.manufacturing qperations, it clearly intends to refer not to the expenses and profits pertaining to the sale tran• · sactions effected by the manufacturer but to those pertaining to the B· "subsequent sale transactions effected by the wholesale buyers in favour of .other dealers.. Having.explained the true scope of "Voltas Ltd. (supra) and ·. Alic Ltd. (supra), we may now proceed airectly to the consideration c 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 pricefot articles of the like and qtlality sold by D the assessee. · At first blµsh, it. would'seem that the former constru• ction should be accepted, and indeed some support can be derived for that view from the observations of the Privy Council in Vac1'um Oil Co. (supra), where the "wholesale cash. price" mentioned in s.30 . (a) of!he Sea Customs Act, 1878, was construed t<A mean "that

- price current for staple articles. the amount of which, if not a sub- ject of daily publication in the press. is easily ascertainable in appro· ·priate trade circles". But this. geneTal observation can be of no help to tile assessees, because since then, he courts ·have proceeded'to make the position amp.ly 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

J '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 imporfati<in there G were no other members. The price obtained for them, it was said, would correctly represent the price obtainable for g6ods 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 J!rlic!es of li)l:e )l:iqd and quality should have been sold. If there was·

SUPREME COURT REPORTS [1984i I s.c.R.

an actual prict!'for the _goods themselves at the time and place of A .. sale and if that was a "wholesale cash price", the c:Jause was not inapplicable for want of sale of other goods of a like kind and qua- 'lity. It s.eems to us that the more practical w~y of' looking at the problem is that there are very few cases indeed where two manufac- turers produce an article of the like kind. and quality. An instance has been supplied by learned counsel for the assesse1is, and we are B referred to.the case of a factory which manufactures identical electric bulbs for supply to a number of c6mpanies who sell them in the

- market under their own distinctive trade names. While such exam· pies are possible, we are inclined to accep't the statement of· the k:arned Solicitor General that goods manufactured by different manufacturers generally differ in both kind and quality. Further, c the manufacturing and other costs would vary from one manufac- urer to another, depending on the efficiency of manufacturing . ). techniques and managen1ent ·methods employed. Other important considerations . are certainly 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 assessec must "e ascertained on the basis that the sale to the wholesale dealer is at arm's ·length. We are, therefore, 9'r the view that we should prefer the construction suggested by the Revenue that s.4 (a) applies to the goods manufactured by the '\ssessee himself. We may also point out that this conclusion is .in E '\CCord with the general intent expressed in the new s.4 (l) (a), and a,s we shall show presently it is the case of both th(: assessees and the Revenue that in enacting the new s.4 in superscssion of tht old section, no material departure was intended from the basic scheme for determining the value of the excisable article. F Accordingly; we hold that pursuant to the old s.4 (a) the value of an excisable article for the purpose of the exci"e levy should be taken to be the price· at which the ·excisable artieie 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 9f th'~ like kind and " quality .is not sold in wholesale trade at the place of removal, .that is,

UNION V. BOMBAY TYRE (Pathah, J.) 377 at the factory gate, but is sold in the wholesale trade at a place out• side the factory gate, the value shoule be determined as the price at A. which the excisable article is sold in the wholesale trade at such place, after deducting therefrom the cost of transportation of the l excisable article froin the factory g!ite to such place. The claim to other deductions will be dealt with later.

Fi!].ally, where the wholesale price of the excisable article or. B an article of the like kind and quality is not ascertainable, then pursuant to the old s.4 (b) the value of the excisable a~ticle shall be the price at which the excisable article or an article of the like kind·. a~d quality is sold or is capable of being sold by the ass;ssee at the time and place of removal or if th~ excisable article is not sold or is .C 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 'or an excisable article is the price at which the excisable article D or an article of the like kind an·d quality is sold or is capable of

.. being sold by determining sucli volue. ·

As we have noted, Parliament amended the General Excises and Salt Act by Act XXII of 1973:' In particular, Parliament intro- duced a new s.4 which· tbtally superseded the old section, and E

- embodied a much more comprehensive and clearly enunciated scheme tor 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 . F place Of removal where the buyer is not '1 related person and the price is the sole consideration for the sale."

Where the normal price of such good is not asertainable 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 prescibed 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 SUPREME COURT REPORTS ' (1984) 1 S.C.R,

• ·rrom that em6odied .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 empfoyed 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 tr_ade 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 ecxisa• ble 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 c from where such goods are removed. The judicial construction of the provisions !>f the old s·4 bad 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 be.!nmentioned here earlier, this Court pointeo out in Vo/tas Limited (supra) that D "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 extracommercial considerations, ~.g., because he is a relative of the manufaciure~. the price charged for those sales wol\ld not be the "wholesale cash price" E for levying excise under s.4 '(a) of the Act. A sole distributor might or might not be a favoured buyer according as term 0 of the agreement with him are fair . and reasonable and were arrived at ·on purely commerci:ll basis."

That was ~!so the view'taken in Atic Industries Ltd. (supra). The hew s.4 makes express provision iri tba_t 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, an<l therefor,e the "normal price" . mentioned iri the new s.4 ( 1) (a) speaks ofa price "where the buyer is not the related G person and the price is the Sole consideration for the sale." . The expression "related person" has been specifically 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 (!) (a).

H 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 ..

UNION v. BOMBAY TYRE (Pathak, J.) 319

Reference was made in that connecti(l!l> 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 limit:itions should be read into the new s.4, the learned Solicitor General approa~hed 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 manufacturiag 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 thatthe old s.4 defined the value of an excisable article in terms of the manu· c facturing cost and manufacturing profit exclusively. We find from an examination of the provisions of the new s.4 that a similar conclu· sion must follow. The normal price mentioned in the new s.4 (I) (a) is the price at whicl\ the goods are ordinarily sold by the l)SSe· ssee in the course ·of wholesale trade. It is the wholesale price D ' 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 t.o the second proviso to the new s.4 (I) (a) the price fixed as the wholesale price under any law l'r 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 E s 4 (I) (a). 'In that event it will be the price charged by a related

- person in the course of wholes.ale trade. Clearly, it is not possible to conceive of the price under the new s.4 (l) (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 F case falls under cl. (a) or cl. (b) of the old s.4 or under the new s.4 (I). 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. G We have examined the p;inciples of. an' excise levy and have considered the statutory consrutction of the Act, before and after it.s amendment, in view of the three propositions formulated, on behalf of the assessees, as principle constituting the essential charac'teristics of a duty of excise. It is app~rent that the first proposition, that H excise is a tax on the manufacture or production of goods, ;md not on anything else, is indisputable: and is supported by a Catena of cases beginning with The Central Prov1\1c~~ an{i Berar Sales of Motor

380. SUPltEMB COUltT REPORTS [1984) 1 s.c.lt. ·• Spirit and Lubricants TaxatiDll Act. 1938 (supra). As regards the 4 second proposition, that uniformity of incidence is a basic charact· eristic. of excise, w~ are inclined. to ihink that the accuracy of the proposition depends on the level at which the statute rests it. We shall discuss that presently. 'As to the third proposition, that the ~- exclusion of post manufacturing expenses and post· manufacturing profit "is necessarily invcilve.d in the first principle does. not inevitably B follow. The exclusion of post manufacturing ·.expenses and post manufacturing of profits is a matter pertaining· to the ascertainment of the "value" o( 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 broade.r base c than th~t 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 manufaciuring 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 contemp!'ated. 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 A"ct, 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 descrip- tion. (i) produced or manufactured by different classes ofp;oducers 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 whol~sale 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 )r ·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 .nnder any such law, then ·the price · ·t_,. G or the maximum price, as the case may b•, so fixed, shall in relation to the goods be deemed to be the normal price tliereof. 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 tlie H course of wholesale trrde at t!ie time of removal to dealers (not being related ,p~r~q11s) or w]\ere sqch ~ooqs are no\ sold tq ~11ch dealers,

.. UNION 1'. l!OMBAY TYRE (Pathak, J.) 381

·to dealers (being'telated persons) who sell such goods in retail. The .. verity of the three principles propounded by learned couns.el for the assessees has been, as indeed it had to be, examined in the context of the Act before aµd after its amendment. For the case of the · assessees is that the amendment has 'made no material change in the basic schme of the levy and the privisions for determining the Vjllue of the excisable artiCle. · ·B J,,earned counse1 for the assessees has contended that t!\e old · s.4 (a) expresses the conceptual nature of .the "value" of an excisable article because neither the identity of the manufacturer nor · the iden,tity of the goods sought to be· charged nor the actual whole· sale price charged by the manufacturer is the determining factor. We'have come to. the conclusion after carefully weighing the .matter c that on a true>construction of its provisions in the context of the · statutory scheme the old s (a) ;hould be -consid·ered as applicable to the circumstances of the particular assessee himself and not of manu• · facturers generally. As regards the" 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 eleme~t, namely, the actual • wholesalcprice charged by the manufacturer is lij(ewise 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). · E

- • Learned counsel for the assessees urged that the expression "normal price" in the new s.4 (I) (a) means the price· normal for the purposes. of the excise du)y and that, it is•said,.means the manufact- uring cost plus the manufacturing profit. It is urged that the nor· ma! 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 in doing "some.violence to the words" and support is taken from Luke v.- I.R.C.,( 1) and the principle adopted by this Court in Commis~io.ner of Income-Tax, Central, Calcutta v. National Taj Traders(') and· in K.P. Varghese v. Income-Tax Officer, Ernakulam and Another.(') A somewhat similar approach had already been adopted by this Court in Commississioner of Income Tax, .H (I). [1963] A.C. 557. (2) [1980] 121 ITR 535., (3) [1981] 131 JTR·597,

382 . SUPREME COURT REPORTS . 1.1984] 1 s.c.P..

(Central), Calcutta v. B.N. Bhattachargee and Another.(') Learned A counsel also referred to Cormissioner of Wealth-Tax, Bihar and Ortssa v. Kripashankar Dayashankar Wora/J(') and R.B Jodha Mal Kuthiala v. 'Commissioner of Income-TAX. Punjab. Jammu & ·Kashmir and Himachal Pradesh.(') When the new s.4 (!) (a) is read as a whole, the meaning of the expression "normal price" becomes · plai~ly evident. It will be noticed the expression "normal price' 'is B followed by the phrase "that is to say". 'The phrase "that is to say'' says Stroud's Judidal Dictionary (Fourth Edition, Vol.5 p. 2753)" is the commencement of an ancillary da.use which explains the meaning of the principal clause. It has the following properties: (1) ,. it must not be contrary to the prin~ipal clause; (2) it must neither c increase nor diminhh it; (3) but where the principal clause Is general .in terins it may restrict it," and reference has been made to Stuckeley(') v. Butler and Harrington. v Pole.(') Therefore, the phrase "normal price" is defined hy the words in s.4 (11 (a) which follow. It is •·the price at which such goods are ordinarily sold by the. asses see to a buyer in the course of·wholesale trade for delivery at the time D a~d place of removal where the buyer is not a related person and the price is the sole consideiation for the sale,"

Learned counsel for the astessees contended that the new s.4 · (I)(a) ·also levies excise on the basis. of a conceptual value which E n1u')t excluclc· post ma.riufa'cturing expenses and post manufacturing profit. and in Sllpport of that submission l,e has adduffd ·a number of reasons. It is said that the essential principle of excise .dictates the exclusion of post manufacturing exrenses and profit. That, it is ·pointed 'out, is also suggested by the principle of uniformity of inCi- F dence, for it is only by such exclusion that uniform criterion can be applied to all manufacturers, those who have sellin_g and marketing or.ganisations 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 G history, it being contended that the new sA should be interpreted on the same basis as the old s.4. Reference is· made to the. Statement of · Objects and Reasons' of Act XXII of 1973 \q show tha\ no ~liaDge --~-------- • Cl)[1979) 1181TR4~1. H (2)[1971] 81 !TR 76;. (3) [1971] 82 lTR 570. (4) Hob. 171.' (5) Dy. 77b, p. 1.38.

U\.i10ii v. fioi.!BAY TYRE (Path.:k, J.)

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 A new s.4 (I) (a) indicates that the conceptual criterion for determining the value is substantially the same a5 it was. in the old s.4. Then, it is, pointed· out, s.4 (I) lb) enacts that "where tne normal price is not a5certainaole, the nearest ac.cenainablc equivalent thereof" has to be determined. As a consequence, it is urged thai where sales 8 are made on ex-depots post manufacturing expenses and post manu- facturing profit must be deducted. The same principle should apply in the construction of the new s.4 (I) (~). By adopting the same principle for cases falling under s.4 (I) (a) and s.4 (1) (bl it is possible it is.said, to reach uniformity of incid~nce in both classes of cases. It is pointed out, that the value of the goods must be the same for c the purposes of the levy, whether the goods are sold ex-factory or ex- depot. It is urged that alihough the new s.4 (4) (d) (ii) permits two types of deductions of taxes and discount, it does not pcohibit deduc- • tions other than the two permitted. Finally, if the wholesale price can be adjusted ·upward by the dopartment making additions thereto, it can be adjusted, downward, at the instance of the assessec, to make u • .it conform to the c'onceptual criterion of the value on which excise can be levied. • The essential content of the reasons stated by learned coumel ·'"'. proceeds on the assumption that a conceptual . valuiog01·erns 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 >Nell as the new s.4 d~termine the value on the basis price charged or ~hargeable by the particular a'sessee, and the price is charge.d 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 alre.ady mentioned in the statute will derend on the nature of those claims in the case of a particular assessee . G

Our attention has been drawn to • the observation of this Court in Chotabhai Jethabhai Patel and Co. v. The Union of India and An• other(1 )that "a duty of excise ~s a tax'-Jevy on home-produce~ goods of a.specified class or description,.the duty being calculated according

(I) [1962] Suppl. 2 S.C.R. I, 26,

384 . SUPR.EME . COuRT REPORTS (1984) i s.c.it.

, 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 ou any commercial transaction . in then". Clearly, when the Court referred to the caiculation 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 not the value for assessing the levy, which it had in mind. when it p"ointed. 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 Ceiitral Provinces and Berar ·Sales of Motor Spirit and Lubricants Taxation Act; 1938 (supra) was also placed before us :· c ' . "In my opinion the power to make laws with respect to ·. ~ to _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 o_f the exeisable articles; cir at least at the stage of, or in· connexion· with, · manufacture or produc- · tion, and extends no_ furtl;er.'.'