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

Citation: [1984] 1 S.C.R. 347

Court: Supreme Court of India

Bench: P.N. BHAGWATI, R.S. PATHAK, AMARENDRA NATH SEN

Case summary

The Central Excises and Salt Act, 1944 relates to central duties of excise and to salt. 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...

Judgment text

UNION OF INDIA & ORS. ETC. ETC. · v. BOMBAY TYRE INTERNATIONAL LTD. ETC. ETC. October 7, 1983 8 [P. N. BHAGWATI, R. S. PATHAK AND AMARENDRA NATH SEN, JJ. ) . . Central ExciseS and Salt A. ct, 1944 (1 of 1944)-0/d s. 4 prior to and new s. 4 after a1nendment by the . Cen1ral Excises and Salt (An1endn1ent) Act, 1973 (22 ~! 1973) .. :... interpretation of-Sectioll val(dly enacted-Scheme and o/Jjeci of olds. 4 and news. 4 are sa1ne. ~Mode ofdeterndning value ofan article/or e:Xcise leVy-Vcilue-Whether can be confined to manufacturing cost and manufacturing profit only-Whether pos. t ma11ufact1irlng,eXpenses like freight,· insurance and + packinK etc. - can be iiicluded in the value ofarticle. , . Central Excises and Salt Aci, 1944-S. 4 (4) (c)-De/in1tion of "relate ld at such place, then the piice at which it iii aold or is capable of being sold by the asscssce at any other tftace nearest ·~ ) thereto.

[377 B-C] • In every· case the fundamental criterion for computina the value Of an cxCiabie article is the price at which the excisable articie or an aqiclc of th1 like kind·and quality is sold or i$ c D. tentiO-n that the provisions regarding related persons . arc • whoUy unncc«1ssary 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 tq determine the· true value of the excisable 'article, after taking into ace. aunt . ally concession shown to a special or favoured buyer because of extra-cothmercial Consideratia:n, in· order that the price be ascertained only on the basis th~t it is a transaction at arm's leD@th. •That requirement is emphasised by tbe provision in the· new. s. 4 (1) (a)· that the pricQ should b~ the ~ole c;:on! lideration for th~ ~ale. )u ev~ry such case, it . will • . UNION v.

BOMBAY TYRB ast be for the Revenue to determine oD. 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 ar:ticle for ·the purpose of excise duty. Nonetheless it was open to Parliament to inCQrporate provisisons in the seCtion declaring tbat certain specified categories of ~raos-· actions fall within the tainted class, in which case an irrebuttable presumPtion will arise that transactions belongi"i:ig to those categories are transactions which cannOt be dealt with under the usual meaning of the expression "n~rmal price" set forth in the news. 4 (1) (a). Th~y are'Cases where it will ·not be necessary for the Rcvenqe to exariiineihe entire gamut of evidence in order to determine whether the transaction is one prompted by- extra. commercial considerations. "u will be oPen tQ the Revenue, on ~eing satisfied that the third provisio to the news.

4 (I) (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. [3115 F-H; 386 A-DJ. The argument. that the assessment on the manufacturer by reference to ·the sale price charged by his distributor is '. iwholly incompatible with the nature of excise" has ·no force. It is a well known legislative practice to enact ' provisions in certain lin1ited cases y. 'here an assessee n1ay b~ taxed in respect of the incon1e or property truly belonging to another. ·They are cases where the Legislature intervenes to prevent the circ. umvedtion of the tax obliga1ion by tax payers seeking to avoid or reduce their tax. liability through modes r~sulting in the income or property arising to an_other.

The pfovisions of the -law n1ay be iiO 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 Lea;islature fastens the liability on the assessee. When the Legislature employs such a device, arid the liability is attached without qualification, it is reasonable. to infer that an irrebuttablc 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 pdwer of taxation. [3i6 D-H] · · · Balaji v. Income-Tax Officer, Special Investigation. Cirde [1962] 2 S. C. R. 938; Navnitlal~... faveri v. K. K. Sen, Appellate ASsisiant Commi~sioner of Income· JI tax. 'D' Range, [1965] I S. C. R. 909; Bombay and Punjab Distilling Industries Ltd. v. Commissioner oflnco1ne-Tax, Punjab, [1965] 3 S. C. R. 1•. referred to.

The a'rgument that the definition of the expression "related person" is so arbitrary that it includes within it a distribUtof"Sf the assessee is also with.. out m~ch force. The provision in the definition of "re1ated person" reiating to a distributo! can be legitimately"read down and its validity uPheld. The definition of related person Should be so read that the words "a relative and distributor of the assessee" should be understood to mean a distributor who is a relative of the asse~see. The Explanation io 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 bCina "a person who is so· assoCi&ted with the a-ssessee that they have interest, directly or indirectly, in the business of each other and includes a holding. con1pany; a subsidiary company ............... ", shows a s~ffi~iep. tly restricted basis for employing the legal fiction. Here igaill, ..

352 • SUl'RBMB COURT REPORts (1984] I s. C. tt. regard must be had tO the Explanation which provides that ·the expression ~'h~lding company and s. ubsidiarY'' have the san1e 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·II> 388 A) Tata Engineering and Locomotive Co. Ltd. v. State of Bihar and Others. · · 8 [1964] 6 S. C. R. 885; Juggi Lal Kam/apat v. Commissioner' of Income-Tax, U. P. .... [1969] l S. C. R. 988, referred to. The true position under the Central Excises. and Salt Act 1944 as amended by Act XXll of 1973 is as follows : (i) The price at Which the excisable goods are ordinarily sOld by · ..

the assessee to a buyer in the coUrS:e 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 excisab_le value provided, of c'ourse, the buyer is not a related person within the meaning of sub-section (4) (c) of section 4 and 1 "the price is the sole consideration fOr the sale. The proposition is subject to thC terms of the three provisOs ~o sub-section (I) (a) of section 4. [388 D·FJ ' (ii) Where the price o"f excisable goods in the course of wholesale trade for delivary :it the time an! -"f 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-IIJ ' . # (iii) .

Where wholesale price of any excisable eoods for delivery at the place of remoVat is not known and the value thereof is determined with reference t. O 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-Bl • • (iv) Of course, these principles cannot apply where the tariff value has been fixed in respect of anf excisable· goo. ds under sub;section (2) of section 3; [389'C] lV) 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 distri~utor but they are limited only t. o a distributor wlio· is a· relative· of the f . . tJNION •V. BOMBAY TYRE 353 a~sessee within the meaning of the Companies Act, 1956. So read, the definition of 'related1Jerson' is not unduly wid~ and does not ·suffer from, any constitutional infirmity.

It is within the legislative cor:D. peience of. Parliament. It 'is only _when an as;essee 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 tpersons) or where such goods are not sold to such dealers, to dealers (being related persons) who sen 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 . c ·s. 4 (a) and the news. 4 (1) (a) speak of the price fcir sale in the cours"e of wholesale trade of an. article for delivery at the time and place of ren1oval, namely, the factory gate. Wh~r~ th: price contemplated under the old·s. -4 (,a) or under news.

4 (1) (a} is not ascertainable, the price is determined under the oJJ s. 4 (b) or the news. 4 (1) (b). Now, the pi:ict! of an article is related to its • value (using this term in a general sense), and . jato that value have poured sever. al con1ponents. inl:luding those which have enriched its value arid given to _the article its market'ability in the trade. Therefore, the expenses incurred on acCount of the several factJrs 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 d~livery on account of storage charges, outward handling Cha~ges, interest on inventories (stocks carried by the ,manufacturer after cleararice), 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 saie 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] T The a·ssessee 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 ·insuran~e on the freight for transportation of the goods from the factory gate to the place or places of delivery. [39. 1 H; 392 A] Where freight is ~verag~d and the aveiaged 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 f. reight inclllded in such wholesale cash price· has to be deducted in order to arrive at'\he real ~holesale cash price at the factory gate and no excise duty can be charged on it. [392 A~B] . stJPlUlME COtJRT REPORTS (1984] 1 s:c. a. . The news. 4 (4) (d) (i) has made express provision for inch~iag th; cost • 'of packing in the de. termination of Hvalue" f9r the purpQse 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 d~livered at the time of removal.

The cost of primary packing, that is to say, the packing in which the article is contained arid in which it is made marketable for the ordinary consumer, must be tegarded as falling within s. 4 (4) (d) (i). There is secondary packing which consists of larger cartons in Which a·standard nbmber of primary cartons (in the sense mentioned earlier) ·ate 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 wholesate dealer takes delivery of the go6dS: to be considered for including the cost thereof in the "value" ? Or . does. the law. require a line ..... to be dra"':'n somewhere ? One must remember that while packing is necessary to make the excisaQle article, marketa. ble,. the stattitory provision calls for stri•t construction because the levy is sought to ·bC extended beyound the manufactured article itself.

It seems to us that the degree of secondary packing which is necessary fo~ putting the excisable arti~le in the condition• in which it is generally sold in the wholesale market ttt the factory gate is the degree of pac~ing whOse cost can be included in the "'value" of the article for the • purpose of the excise levy. To that extent, the cost of secondiiry packing cannot be dedllcted from the wholesale cash pdce 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 assessec at the instance of a whole-sale buyer which is not generally provided as a normal feature of the wholesale tra~e, the cpst of 13Uch packing shall be deduCted from the wholesale cash price. [393 F] · Pl • 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. · Ta/ukdar, Dr. Y. S. C. hita/e, K.

K; Venugoflf! l, Suraj Udai ·Singh, Dalveer Bhandari, C. V. Subba Rao, R. N. Poddar, M. S. Ganesh, Ravi Naghmave, T. Shrinivasamoorthi, K. S. John, Vitha/bhai B. P,atel, R. P. Kapur, Bhaskar Gupta, R. K. · Chaudlrary, A. T. Patra ·and Parveen Kumar for . the ·Appellants/ Petitiol)ers. N. A. Palkhiva/a, J. C. Bhatt, So/i J. Sorabjee, Ashok Desai, D. B. Engineer, B. H. Antia, Ravinder Narain, 0,C. Mathur, Talat Ansari, Mrs. A. K. Verma, Ashok Sagar, Miss Rainu WaUa, Sukumaran, D. N. Mish~a and A. N. Haskar for the Respondents. UNION v. BOMBAY TYRE (Pathak, J. ) 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 ~f 1973) and after such amendment. We record now the reasons for that order.

· At the outset, we may state that it js not possible ·in this judgment 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. 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.

- 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 inces and fJerar Act · N~. XIV of 1? 38 (supra), The Province ofMadras 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 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 convenient 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. " 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 ofMysore & Ors. (') and South Bihar Sugar Mills Ltd. etc. v, Ill Unio'n of India & Ors. (') 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". 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. (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 East. Punjab(') the Federal Court li. eld that a tax o~ 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 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 2 Budhia v. State of Bihar( ) 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 oRTS (1984] 1 s. c. a. · State level, and they may in their turn iell the goods to 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, 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 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 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 , · cost and selling profit of the wholesale dealer.

That would be plainly contrary' to the true nature of excise as explained 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 ''l. by him to the wholesale dealer less trade discount would 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 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• · B· sactions 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 ·. Alic Ltd. (supra), we may now proceed airectly 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 pricefot articles of the like and qtlality sold by 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 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 "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 ischarged 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" for levying excise under s. 4 '(a) of the Act. A sole distributor might or might not be a favoured buyer according as term0of 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 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· 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 ' 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 different price if the case falls within the third proviso to the new 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 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. 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 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 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 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 description. (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 ·t_,. a price being the maximum, fixed . nnder any such law, then ·the price · 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 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 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). · • 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 manufacturing 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 1 is taken from Luke v. - I. R. C. ,( ) 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, (Central), Calcutta v. B. N. Bhattachargee and Another. (') Learned 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 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 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.

assessee to a buyer in the course of·wholesale trade for delivery at the time 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 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 inCidence, 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 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. (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 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 manufacturing 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 the purposes of the levy, whether the goods are sold ex-factory or exdepot. 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 deductions other than the two permitted.

Finally, if the wholesale price • can be adjusted ·upward by the dopartment making additions thereto, • u it can be adjusted, downward, at the instance of the assessec, to make . 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. • Our attention has been drawn to the observation of this Court in Chotabhai Jethabhai Patel and Co. v. The Union ofIndia and An• other( )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 :· ' . "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. '.

' The learned Chief. Justic_e was referring in this statement to. the power,to make a iaw . respect of a duty of excise. He construed it as a: powe} to impose the duty upon the manufacturer or producer and explained that the levy related to the manufacture or productio~ and to no further Stage. It was the nature of the levy . which · was adverted to by the learned Qhief Justice, namely, that it was a levy on'goods man\! factur~d. or produced. It will be remembered that- - \ the question before the Federal Court in that case 'whether the levy l 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, ~amely, the sale of the article. ' The fask. before the Court was to identify the nature of the levy.. It was n9t concerned with the ~ssessment of. the value of the article _for the· purpose of the levy. , •.

· • This brings t<>' a: close in ihese cases the question whether the value of an article for the purpose of. the excise levy must be confined" ·to the mahufaqturing cost and the manufacturing profit in respect of the article. In our judg"1ent, the que5tiou has to be answered in the uegative. . 1 thl! ON v. BOMBAY TYRB (Pathak, J. ) 385 The . next question for consideration is ·whether the proyisions in the new s. ~ in respect of transactions effecte~ by the assessee to or A. through "a related 'person" are invalid. The new s. 4 (I) (a) provides that the. value shall be d'eemed to be the n9rnial 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 wber~ the buyer is not a "related person" atid ·the price is the sole consideration for the sale. The third proviso to the new. s. 4 (!

)(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 arelated 'persoa, the normal price of the ·goods sold by the assessee to or through such related person sball 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· goo~s are not sold to such dealers, to dealers (being related persons) who sell such goods in retail. The ·new s. 4 (4) (e). defines the expression "related person" as follows': • •, "(c) 'related person' means a person who is so asso"'1ted with the assessee that they have interest, directly or indirectly, in the busines-s 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 distribntor.

Explanation· :" In this clause 'holding company', ·•subsidiary company' and 'relative' ·have' the same meanings as in the Companies Act, 1956 (I of 1? 56). " 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 aud his wholesale buy~r 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 think, that the rtew s. 4 (I) 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 o( extra-commercial considerat_ions, in order that the price be ascer· tained only on the basis that i. t is a transaction at arms length. That requirement is emphasised by the provision in the new s.

4 (I) (a) that the price should be the sole consideration for the sale. In every 386 SUPREMR. COURT REPORfS tt~84) -I s. c. R. such case, it will be for the Revenue to determine on the evidence before it whether the transaction• is ·one where extra-coD;1mercial considerations have entered and, if so, what should be the price to be taken as the value of the exci$able article for the purpose of excise duty. Nonetheless, it was open to Parliament to incorporate provi- j sions in tbe· 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 1. are transactions which cannot be dealt with under the usual meaning of the expression "normal . price" set forth in the new s. 4 (I) (a,r.

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. dn being satisfied that the third · proviso 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. It is urged on behalf of the assessee that the provisions are whimsicai. 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 Jimi.

ted 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 circumven- . tion of the tax obligation by tax payers . seeking to avoid or reduce their tax liability through modes resulting in the income or property . arisiitg to ·another.. The provisions of the Jaw 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 dev\ce, and the liability is . attached.. without qualification, it is reasonable to infer that an irrebuttable pesumption has been created by law. , Such provisions have been. held to be. within the· Jegsilative competence of the Legislature and as falling within its power of tax~tion, and reference.

may be' made to Ba/aji v. lncome-T9x Officer, Speda/ Investigation Circ/e,(1) (I) [1962]. 2 S. C. R. 983. UN10N v. lloi. tBAY TYRE (Pathak, i. ) 387 Navnitlal C. la•eri v. K. K Sen, Appel/ate Assistant Commissioner of Income-Tax, 'D' Range, Bombay(') and Punj4b Distif/ing Industries A· Ltd. v. Commissioner of Income-Tax,Punjab. (') ' It is co~tended for the assessees that the definition of the expression "related person" is so orbitrary that it includes within that expression a distributor of the 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 t. ist I as a non-descript tax the attempt must fail because there is no charging section in the.

Central Excises and Salt Act empowerini: the levy of such ·non-descript tax nor any machinery provision in the Act for collecting such a tax. The char,ging provision and the machinery provisions of the Act, · it is pointed out, deal exclu>ively. 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. 1he · challenge made on behalf of the assessees is powc1ful and farreaching. B1t it seems to us unnecessary to enter into that quei\ion because we are satisfied that the . provision in the. definition 'Of ~'related )? erson" relating to a distributor can be Jegil! inately 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 assessO'e" should be understood to mean 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 provsions 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 emp. loying the legal fiction. Here again, regard mu~t be had. to the· Explanation which provides that ~e expression "holding compan¥ amd_ subsidiary" have the same meanings ils 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 (8) where the principle was . approved by this Court that the corporate veil could be lifted where (I) [196511 S. C. R. 909. (2) [1965]3 S. C. R. I. . (3) 11964) 6 S. C. R. 885.

' 388 ·SiJl>REMB COtJllT REPORTS 11~84} 1s. c. R. the companies shared the rBlationship of a holding . company ana a subsidiary . company, and to Juggi Lal Kam/apat v. Commissioner of Income: Tax, U. P. , (') where this Court held that'ihe veil of. corporate entity coμld 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_. ·B · At one stage, it was urged for the assessees lhat by makin provision in the Central Excises and Salt Act respecting transactions to or through. a "related persDn", 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 ~nd Lubricants Taxation Act,1938 . (supra) ) See also Jul/urldur Rubber Goods Manufacturers' Association. v.

Union ofIndia & Anr,{'! From what has gone . before, we consider that the true position under the Central Excises and Bait Act, 1944 as amended by Act xxn of 1973 can be set forth as follows : . (i) The price at which the excisable goods are ordinarily- ,sold by the a'ssessee to a buyer in the course of ·· wholesale trade for· delivery at the time and place of removal as defined in suiHection (4) (b) of . section 4 • is the basis for determination of excisable val11e pro,vided, 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. This proposion is subject to . the -terms of three provisos to sub-secti. on (I) (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 th~ reason· that such goods are not sold or for any other reason, the nearest asertainable 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; l (I) (1969] I S. C. R. 988. (2) [1970) 2 S. C. R. 68. ' • tiNION v. ilOMBAY TYRE (Pathak, i) 989 (iii) Where wholesale price of any excirnble goods for ·delivery at the place of removal ! s 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 transport~tion from the , place of removal to the place of delivery should be . excluded from such price; (iv) Of co-urse, these principles cannot . apply where the • tariff value has been fixed in respec·t 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 ~ection 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 assesse~ 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 Padiameni. It is o~ly when an assessee so arranges . ·that the goods are generally not sold by 'him in the . course of wholesale . trade ex. cept 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 frade . 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 io be taken as the excisable value of the goods proviso under (iii) to sub-section (I) (a) of section 4. ,We 'now proceed to the question whether any post manufactur• ing expenses are deductibk from the price when ·determining the "value" of the excisable article. The old s. 4 provided by the Explantiori there to thai in determining the price of any article under 'that section no abatement or deductio;,, 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 sub, s. (2) that where the price of excisable goods for delivery at the place SUPREME COURT iulfo! lts [1984] i s. c.. ii..

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 9ost of transportaiion from the place of removal to ·the place of delivery has to be excluded from such price. The new s. 4 also contains sub·s. (4) (dJ (ii) whieh declares that the expression "va'ue" in relation· to any excisable goods, does not include the amount of the duty of excise, sales tax and ether 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 whelesale trade at the time of removal in respect of such goods s~ld · or contracted for sale. Now these are clear provisions expressly providing for deduction, from the price, of certain items of exp. e11diture.

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 either categories of post manufacturing expenses: It is also urged that although the new s. 4(4) (d) (i) declares tha. t in computing the "value" of an exciwble article, the cost of packing shali . 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 : · • (I) Storage charges. (2) Freight or other transport chPrges, whether specific or equalised. · (3) Outward handling charges, whether specific or 11 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 expens.

es, inclu; ding advertisement and Publicity expenses. At the outset, we must make it clear . that the contentions in . ~Pis regard on ·behalf of the assessees proceeds on two broad bases. • 'UNION ,v. BOMBAY TYRE (Pathak, J. ) 391 ,The first is that to detrmine the value of an excisable article, all expenses must be exCludcd which do not enter into the formula of manufacturing cost plus·manufacturingprofit. This follows from the princip1l plank of the assessees' case that the "value" must be ,A confined to the mahufacturing cost, and the manufact~ri,ng profit. . , For, it is said, that if the deductions claimed are allowed, the price would be brought down to the conceptual value. All p6st manu: • facturing expenses are claiJT,ed frcm that perspective and within that context. The ather basis on which the claim proceeds, is that the price at the factory gate and the price at a depot outside the factory gate a·e 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 11ow 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 contemp· lated under the old s. 4(a) or under the new s. 4(1)(a) is not . ascertainable, the pdce 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 marketabiHy in the trade. Therefore, the expenses incurred on account of the ceveral factors whith have contributed to its value upto the date of sale, which. apparently would be the d•te of dd;very; 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 se~vice and. marketing and selling organisation expemes including advertisement expenses cannot be deducted. It will be noted that adv'~rtisement expenses, marketing and selling origan:sation expenses and after-sales. service promote the marketability of the article and enterinto its valne in the trade. Where the sale in the course of wholesale trade is effected by the assessec through its sales organisation at a place or places outside the factory gate, the expenses incurred by the assessee upto the date ot delivery. under the aforernid heads cannot, on the same groundsr be deducted. But the assessee will be entitled to deduction on account of the cm.

t of transportation 0f the excisable article from the factory gate to the place or places where it is sold. The cost of transpo1taticn will include the cost ofin;urance on the freight for transportation of the goods from the factory gate to the . A place or places of delivery. Where freight is averaged and the ·averaged freight is included in t~e wholesale cash. price so that the wholesale cash price at any place or places outside the factory gate is the same as the whole. " < sale cash price at the factory gate, ·the· averaged freight included in such wohlesale cash price has to be deducted in order to arrive at the. real wholesale cash price at the factory gate ~nd no excise duty can be charged on it. . \ . . . The case in respect of' the cost of pacl<;ing is somewhat com· plex. The new s. 4(4){d)(i) 11as made express provision fo~ including · tlie 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 c 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 . rem(Jval 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 dy the buyer to the assessee. ll 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 t)le packing ·or whlch 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 sofd in the course of wholesale trade to the wholesale buyer. The degree of packing · in whichthe excisable article is contained will vary from one class B· of articles to another. From the particulars detailed before us by the assessees, it is apparent that the cost ofprimary packing, that is to say, the packing in which the article is contained a. nd in which UNION v. BOMBAY TYRE (Pathak, J.. ) 393 it is made marketable for the ordinary consqmer,. 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). Th~t is iildeed 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 sec~ndary packing which consists of larger cartons in which a standard numb~. r of primary~cartons (in the.

sense mentioned earlier) ate packed. The large cartons may ·be packed in to even larger cartons for facilitating the easier transport of the goods RY the wholesale dealer. Is all the pa<:king, 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 rem. ember that while packing is necessary to make the·excisable article marke· table, 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 neces· sary for putting the excisable article in the ~ondition 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 froni the wholesale cash price of the excisable article at the factory gate. If any special secondary packing is provided by t! ie 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 lhall be deducted from the wholesale cash price, We have also been referred to s. 2(f) of the Act which defines the expressi'on. "manufacture'', and it is ·urged that the degree of packing to be considered for the purpose of inchiding its cost in the "value" of an excisable article should be spelled -0ut from that definition. We are unable to accept . the suggestion. The expression "manufacture" is related to the taxable event aud refers to a process which enters into the. character. of the article, while "packing" has been defined by s. 4 (4) (d) (il · in . relation to the "value" of the article.

That, we think, is the position in regard to the cost of pa~king'under the Act, both before a its amendment and ll. fter, We bave considered the claim to deauctions uuder the. specific heads enumerated· by the asses~ees, 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. · I 'These are the reasons for our Order of May 9,1983, and they explain the scope within which that Order must be construed as ·we)! as the_ basis on which it wa~ made.

The i11divid_ual appeals, writ petetions, special leave petitions and transferred cases will be listed now for appropriate orders in the light of this judgment on October 31, 1983. H. S. K. ·. .! ' •