Citation Codes

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Case Number

Writ Petn. No. 174 of 1961

Attorney(S)

For the Appellant: G.R. Ethirajulu Naidu, V. Krishna Murthy, Advocates.

Judges

K.S Hegde
Mir Iqbal Husain, JJ.

Acts

Section 4(a) of the Central Excises and Salt Act, 1944.7.
S. 4 of the Central Excises and Salt Act, 1944,
SECTION 30 SEA CUSTOMS ACT 1878
section.8. Section 4(a)
Central Excise Rules

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Smart Summary

Court Opinion Summary — K.S. Hegde, J.

Factual and Procedural Background

This writ petition, brought under Articles 226 and 227 of the Constitution of India, sought a Writ of Certiorari (or other appropriate writ) to quash a levy made by the First Respondent on 16-11-1959 and the Order of the Second Respondent in appeal dated 14-10-1960.

The petitioner is Messrs Amco Batteries Limited (a private limited company) which manufactures electric storage batteries. The company began operations in 1955; its factory and office are located just outside the limits of Bangalore City. The petitioner manufactured batteries under three trademarks: “Amco”, “Oakes” and “Speed” (the latter not being manufactured for some time).

The petitioner sold primarily through a network of about fourteen distributors, each appointed for a particular territorial zone. Major purchasers of the petitioner's output included Messrs Addison and Company (P) Limited (with branches in Bangalore and Madras) and Messrs George Oakes (P) Limited (Bombay, with Bangalore operations). The petitioner charged the same ex-factory price to all distributors.

The petitioner had declared wholesale prices to Excise Authorities on 1-3-1956, 6-5-1956 and 21-1-1957, which were accepted and used for levy until 10-12-1958. In December 1958 the Excise Authorities informed the petitioner that the declared wholesale price could not be accepted because, in the Authorities' view, a wholesale market did not exist at the factory site and therefore the nearest wholesale market (Bangalore) prices should be used. The Authorities also observed (factually) that Addison and George Oakes had associations (some common directors) with the petitioner.

Legal Issues Presented

How should the term "value" for excise duty under Section 4(a) of the Central Excises and Salt Act, 1944 be interpreted in this case — does the first part of Section 4(a) (value determined at the factory site) apply, or is the second part applicable (use of the nearest wholesale market where no wholesale market exists at the factory site)?
Whether the relationships and pricing arrangements between the petitioner and its distributors meant that there existed a wholesale market at the factory site (i.e., whether the distributors were independent buyers such that ex-factory prices could be treated as wholesale cash prices at the factory)?
If the nearest wholesale market (Bangalore) must be used, what is the correct method to determine the "wholesale cash price" — specifically, whether deductions (overheads, incidental expenses, ordinary discounts) must be made from published wholesale prices relied upon by the Excise Authorities and whether the price considered must be the price prevailing at or about the time of removal from the factory?

Arguments of the Parties

Petitioner's Arguments

The petitioner contended that the case was governed by the first part of Section 4(a) — i.e., the value should be determined with reference to the wholesale cash price at the factory or premises of manufacture (the ex-factory price charged to distributors).
The petitioner, through learned counsel Sri V. Krishnamurthy, also argued that the impugned order was hit by Article 14 of the Constitution because different Collectors had applied different bases for assessment, suggesting lack of a uniform rule in levying excise duties on batteries.

Respondents' Arguments / Position

The respondents contended that the case fell under the second part of Section 4(a) — i.e., because a wholesale market did not exist at the factory site, the nearest wholesale market (Bangalore) prices should be used to determine value.
The Excise Authorities relied on wholesale prices or price lists prevailing in the Bangalore market (as shown by Addison and George Oakes) to determine the wholesale cash price for levy purposes. The Authorities also noted that Addison and George Oakes had some association (common directors) with the petitioner.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Ford Motor Company of India, Limited v. Secretary of State, AIR 1938 PC 15	The interpretation of a provision in pari materia (Section 30(a) of the Sea Customs Act) analogous to Section 4(a): where an actual wholesale cash price for the goods themselves exists at the time and place, clause (a) can apply even if there are no sales of other goods of like kind and quality; the clause can be applied distributively to each item.	The court relied on this authority to accept that if there was an actual wholesale cash price at the relevant market/time, clause (a) could be applied even where other sales of like goods were not available. This supported the proposition that the nearest wholesale market price (Bangalore) could be used if conditions required by S.4(a) were fulfilled.
National Tobacco Company of India Ltd. v. Collector of Central Excise, AIR 1961 Cal 477	Sets out three factors for determination of value under S.4: (i) location where calculation is to be made, (ii) time at which calculation is to be made, and (iii) method of calculation. Defines "wholesale market", "wholesale price", and prescribes that where no wholesale market exists at factory site calculation must be made with reference to the nearest wholesale market at the time of removal; if no actual transaction at that time exists, authorities must investigate the nearest transaction in point of time or make a notional calculation only if necessary.	The court adopted these tests and applied them to the present facts: it accepted the tests for determining location, time and method; it held that where no wholesale market exists at the factory, the nearest wholesale market (Bangalore) must be considered and the price used must reflect the wholesale cash price at or about the time of removal, with necessary deductions (overheads and discounts) taken into account.

Court's Reasoning and Analysis

The court proceeded in a stepwise manner, applying the statutory language of Section 4(a) of the Central Excises and Salt Act, 1944 and the principles from the cited authorities:

Interpretation of Section 4(a): The court examined the two parts of Section 4(a) — the first part applying where a wholesale market exists at the factory/premises of manufacture, and the second part directing the use of the nearest wholesale market where no such market exists at the factory site.
Determination of whether a wholesale market existed at the factory site: The court accepted the factual finding (by the Assistant Collector and Collector and not disputed by the petitioner) that the petitioner delivered all its output only to authorised distributors at prices fixed by the petitioner and that no sales were proved to have been made to independent buyers. Because the distributors were restricted purchasers (favoured buyers, not independent purchasers taking prices into account from the nearest wholesale market), the court concluded there was no wholesale market at the factory site.
Application of precedent as to market selection: Drawing on the Privy Council decision in the Ford Motor Company case, the court acknowledged that where an actual wholesale cash price for the goods themselves exists at the relevant time and place, clause (a) can apply; but that principle did not permit treating the ex-factory price charged to favoured, non-independent distributors as the wholesale cash price at the factory site.
Adoption of the National Tobacco tests: The court expressly accepted the tripartite test (location, time, method) and the definitions of wholesale market and wholesale price set out by D.N. Sinha, J. in National Tobacco. This meant that where no wholesale market exists at the factory, the nearest wholesale market (here, Bangalore) must be used and the price must reflect what the goods would have fetched at that market at the time of removal (or nearest transaction in point of time).
Critique of the Excise Authorities' approach: The court found that the Excise Authorities had relied solely on wholesale prices shown by Messrs Addison and Co. (P) Ltd. and Messrs George Oakes (P) Ltd. without making deductions for overheads and incidental expenses or for discounts to which those wholesalers would ordinarily be entitled. The court emphasized the necessity of basing the value on the wholesale cash price prevailing at or about the time of removal and of making the appropriate deductions from price lists before using them for assessment.
Conclusion from analysis: Because the Authorities did not properly apply the time/location/method tests nor make the necessary deductions from the Bangalore price data, the impugned levy could not stand.

Holding and Implications

Holding:

The court issued a writ of certiorari quashing the impugned levy made by the First Respondent and the appealed order of the Second Respondent. The core ruling is expressed as: Writ of certiorari granted — impugned levy quashed.

Immediate consequences and directions:

The court allowed the respondents to make a fresh assessment in accordance with law and in the light of the observations set out in the opinion. In particular, any reliance on Bangalore wholesale price lists must reflect the wholesale cash price prevailing at or about the time of removal and appropriate deductions (overhead/incidental expenses and ordinary discounts) must be made from the prices relied upon.
The court rejected the petitioner's Article 14 contention that differences in approach by different Collectors rendered the impugned order constitutionally invalid, observing that a law is not to be struck down merely because some officers have wrongly interpreted provisions.
No order as to costs was made in the circumstances of the case.

Note: The court explicitly relied on Ford Motor Company of India (AIR 1938 PC 15) and National Tobacco Co. of India Ltd. (AIR 1961 Cal 477) for legal principles concerning the selection of market, timing and method in determining the "wholesale cash price" under Section 4(a).

Order signed by: K. S. Hegde, J. — "Order accordingly."

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Messrs Amco Batteries (P) Ltd. Bangalore, v. Assistant Collector, Central Excise, Bangalore And Another,

K.S Hegde, J.:— In this petition, under Articles 226 and 227 of the Constitution of India, the petitioner prays for a Writ of Certiorari, or any other appropriate Writ or Order, quashing the levy made by the First Respondent on 16-11-1959 as well as the Order of the Second Respondent in appeal made on 14-10-1960.

2. The petitioner is a Private Limited Company manufacturing Electric Batteries. The Company was started in 1955. Its factory as well as its office (both housed in the same building) is located just outside the limits of Bangalore City. The facts found by the Assistant Collector of Central Excise, Bangalore, and affirmed by the Collector of Central Excise, Bangalore, and not disputed in the affidavit filed in this Court by the petitioner, are as follows:

3. The petitioner (Messrs Amco Batteries Limited, Bangalore) manufacturers Electric Storage Batteries under three trade marks, i.e “Amco”, ‘Oakes’ and ‘Speed’. “Amco” Batteries are marketed through a network of distributors, about fourteen in number, each of whom is the sole distributor for a specified zone in India: Messrs Addison and Company (P) Limited, Bangalore, are the distributors for the Mysore State and parts of Andbra. Messrs Addison and Company, (P) Limited, Madras, are the distributors for the areas comprised in the old Madras State and also areas included in the former States of Cochin and Travancore.

4. The Addisons and Company, Bangalore and Madras consume a major portion of the output of Amco Batteries. “Oakes” Batteries are manufactured by the petitioner, solely for Messrs George Oakes (P) Limited, Bombay. The latter market these Batteries in Bangalore through Messrs George Oakes (P) Limited, Bangalore. Messrs George Oakes (P) Limited, Bangalore, have their own net-work of wholesale dealers through whom they push forward their sales of “Oakes” Batteries. “Speed” Batteries were being manufactured solely for Speed-A-Way Limited, Madras, but for sometime now these Batteries have not been manufactured. For the purpose of levying excise duty, in the past, the wholesale cash prices of these Batteries were determined on the basis of the ex-factory price charged by the petitioner to its distributors. It is alleged on behalf of the petitioner and not denied by the respondents that the Ex-factory prices charged to all the distributors were and are the same.

5. On 1-3-1956, 6-5-1956 and 21-1-1957, the petitioner declared the wholesale price fixed by it for its various products as required by the Central Excise Rules and the same was intimated to the Authorities. The wholesale price so declared was accepted and excise duty levied accordingly till 10-12-1958. In about December 1958, the Excise Authorities intimated to the petitioner that the “wholesale price” declared by the petitioner cannot be accepted as correct as in their view the whole-sale market price at Bangalore is very much more than the wholesale price declared by the petitioner. This conclusion was arrived at on the ground that the Batteries manufactured by the petitioner have not got a wholesale market at the factory site and therefore the wholesale cash price ruling at Bangalore have to be taken into consideration. It is said that the wholesale prices charged by the petitioner to its distributors are very much less than the wholesale prices prevailing at Bangalore even after deducting the distributor's discount and incidental expenses. Incidentally it was mentioned “further, these two firms (Ms. Addison and Co. (P) Ltd., and Messrs George Oakes (P) Limited), are associate firms with Messrs Amco Batteries Limited”. We are unable to find out the real significance of this observation. We are informed that the aforementioned two firms as well as the petitioner firm have some common directors. Gut it is not the case of the Central Excise Authorities that on that ground any concession was being shown to these firms. It is admitted that same Ex. factory price was and is charged to all the fourteen distributors. The goods manufactured by the petitioner are solely distributed by the aforementioned distributors, particular territory being assigned to each distributor.

6. The petitioner and the respondents are at issue as regards the true interpretation to be placed on Section 4(a) of the Central Excises and Salt Act, 1944.

7. According to the petitioner, the case at hand is governed by the first part of Sec. 4(a), whereas according to the respondents it is governed by the second part of that section.

8. Section 4(a) reads:

“Where under this act, any article is chargeable with, duty at a rate dependent on the value of the article, such value be deemed to be—

(a) the wholesale cash price for which an article of the like kind and quality is sold or is capable of being sold at the time of the removal of the article, chargeable with duty from the factory or any other premises of manufacture or production for delivery at the place of manufacture or production, or if a wholesale market does not exist for such article at such place, at the nearest place where such market exists. * * * *”

9. In the instant case the “wholesale cash price” of the Batteries in question was not determined with reference to the sale of other batteries manufactured by other Companies. It was determined on the basis of the prices charged by distributors like Messrs Addison and Company, (P) Limited, and Messrs George Oakes (P) Limited, at Bangalore.

10. Dealing with Section 30(a) of the Sea Customs Act (1878), which provision for our present purposes is in pari materia with Section 4(a), the Judicial Committee, observed in Ford Motor Company of India, Limited v. Secretary of State, AIR 1938 PC 15 at page 19.

“The price upon which customs duty has been charged appears, therefore, to be a wholesale cash price, less trade discount, for which the goods under assessment were in fact sold at the time and place of imoortation. On this, footing their Lordships must now consider the more general arguments for the appellants against the application of clause (a) to the shipment in question. “Goods of the like kind and quality” is a phrase which suggests other goods than those under assessment. Upon this is based the argument that one must either disregard the price fetched by the goods themselves or should look to it only to see what price other similar goods would have realised. Unless that is ascertainable, it is contended, that the conditions of clause (a) are not satisfied. If, for example, one may assume that there were in Bombay no Ford Model A vehicles left undisposed of from previous shipments, then on this view the correct test is to ask oneself whether, apart from and in addition to those which arrived by the s.s “Algio”, further cars could have been sold in Bombay on or about 9th January 1929, and, if so, would they have fetched the same prices? If this be the true interpretation of the statutory test, there is difficulty in holding it applicable to the present case, and colour is certainly lent to the contention that clause (a) is intended only to have effect in the case of goods for which there is at the place of importation a market in the strict sense applicable only to staple commodities. But, in their Lordships' view, this is a misinterpretation of clause (a). The application of the clause does not depend upon any hypothesis to the effect that at the time and place of importation as indefinite amount of further goods added to the available supply has had effect upon the wholesale price. Ordinarily, at the time of making out the bill of entry there will not be an actual price relating to the goods themselves and complying with the requirements of clause (a). As a rule, therefore, the price appropriate to the goods under assessment will under the clause be deduced, if at all, from actual prices relating to other goods of like kind and quality. But if there is an actual price for the goods themselves at the time and place of importation and if it is a “wholesale cash price less trade discount”, the clause is not inapplicable for want of sales of other goods. The clause can be applied distributively to each of the motor cars in this consignment and even if they are regarded collectively the clause is not defeated. A particular car may be sold at a price which, having regard to other transactions in such cars or to other circumstances, is too high or too low. In that sense the actual price in a particular instance does not necessarily or finally establish a wholesale price to satisfy clause (a) whether the particular car or cars sold be part of the shipment in question or not. But the goods under assessment may under clause (a) be considered as members of their own class even although at the time and place of importation there are no other members. The price obtained for them may correctly represent the price obtainable for goods of the like kind and quality at the time and place of importation.”

11. Hence for determining the “wholesale cash price” of the goods in question the authorities could have, if other conditions mentioned in S. 4(a) are held to have been fulfilled, levied duty on the basis of the wholesale cash price fetched at the Bangalore market.

12. But, then the question is whether the Batteries in question had a “wholesale market” at the factory site. It is only if there was no wholesale market at the factory site, the wholesale ruling price at the Bangalore Market, which undoubtedly is the nearest wholesale market to the factory site, can be taken into consideration.

13. Interpreting S. 4 of the Central Excises and Salt Act, 1944, D.N Sinha, J. in National Tobacco Company of India limited v. Collector of Central Excise, AIR 1961 Cal 477, held that

“the determination of excise duty in terms of S. 4 of the Act, depends on the determination of the value for the purpose of duty, for the calculation of which there are 3 factors, (i) the location where the calculation is to be made, (ii) the time at which the calculation should be made and (iii) the method of calculation”.

14. According to the learned Judge the location is the factory, or any other premises of manufacture or production for delivery at the place of manufacture or production, if there is a wholesale market at such a location for the sale and purchase at a “wholesale cash price”, of the goods in question, or goods of the like kind and quality; “wholesale price” means, the price which a wholesale dealer and not a retail dealer charges for his goods, when he sells them in wholesale units; what will constitute a “wholesale unit” will have to be determined with reference to the practice of the trade at the place where the goods are sold; a “wholesale market” is where goods in question, or goods of a like kind and quality, are sold or are capable of being sold to an independent buyer; meaning thereby, any one who intends to effect such a purchase or sale, upon payment of the proper price, without restriction: if there is no wholesale market, at the site of the factory, or any other premises of manufacture or production for delivery, at the place of manufacture or production, then the nearest wholesale market to such a place, where such a market exists. I respectfully accept the tests above laid down.

15. In the instant case all the Batteries manufactured by the petitioner were delivered only to the distributors and that at a price fixed by the petitioner. The petitioner was not free to sell the articles to others and in fact no sales are proved to have been made to any one other than the authorised distributors. The distributors were free to sell to the customers at whatever price they pleased. In determining the price to be paid by the distributors, “wholesale cash prices” ruling in the nearest market (Bangalore) do not appear to have been taken into consideration. Hence the distributors cannot be considered as independent buyers. They are clearly favoured buyers. Therefore, it cannot be said that there was a “wholesale cash market” at the factory site nor can the price charged to the distributors be considered as the “whole sale cash price” ruling at the factory site.

16. From the above discussion it follows that the present case is not governed by the first part of Sec. 4(a). Therefore, the relevant criteria is the “wholesale cash price” prevailing at the time of the sales in question in the wholesale market nearest to the factory site.

17. The Central Excise Authorities have held that the nearest wholesale market to the Factory site is the Bangalore market. This finding cannot be properly challenged. I agree with the same.

18. Conclusions reached by me receive support from the decision of the Privy Council in Ford Motor Company of India, Limited's case, AIR 1938 PC 15 and the decision of the Mysore High Court in National Tobacco Co. of India Ltd's case, AIR 1961 Cal 477.

19. But in determining the “wholesale cash price” of the Batteries in question on the relevant dates, the Excise Authorities have solely relied on the “wholesale cash price” charged by Messrs Addison and Company (P) Ltd., and George Oakes (P) Ltd., to their wholesale customers. No deduction appears to have been given for the overhead charges and the incidental expenses incurred by Messrs Addison and Company (P) Limited, and George Oakes (P) Limited. Further, no provision appears to have been made for the discount to which these Companies would have been ordinarily entitled to. The order passed by the Authorities does not show that the “wholesale cash price” prevailing in Bangalore on the dates the goods were moved out of the Factory or the prices prevailing at about that time, were taken into consideration. As observed in the National Tobacoo Co.'s case AIR 1961 Cal 477, the determination of the value for the purpose of duty, should be based on the “wholesale cash price” for which the article in question or an article of the like kind and quality is sold or is capable of being sold at the time and at the location of the factory. If the Excise Authorities depend on the price list issued by Messrs Addison and Co. (P) Ltd., and George Oakes (P) Ltd., those price lists must show the “wholesale cash price”, prevailing on the relevant dates or at about those dates. Further from the prices shown in those lists, necessary deductions will have to be made. In this connection I may usefully quote a passage from the decision in The National Tobacco Co's case, AIR 1961 Cal 477. The relevant passage is available at page 481 of the report. It reads thus:

“The time at which the calculation is to be made, is the time of the removal of the article from the factory or any other premises of manufacture or production for delivery at the place of manufacture or production. If a wholesale market exists at the site of the factory, or premises of manufacture etc., then the determination of the time element is very simple. But where there is no wholesale market at the site of the factory, or the place of manufacture etc. a calculation has to be made, at the location of the nearest wholesale market. In that event, the calculation must be made at a point of time when the goods were removed from the factory or premises of manufacture etc., which means a determination of the wholesale cash price that the goods would have fetched at the nearest wholesale market at the time of such removal etc. If there is no wholesale market, at the site of the factory and/or place of manufacture etc. and if at the time of removal no actual transaction can be discovered at the nearest wholesale market, then the excise authorities must investigate and discover the nearest transaction in point of time. This however will be permissible only when the next transaction takes place at a short distance of time, otherwise a notional calculation will have to be made as to what the wholesale cash price would have been in such a wholesale market, at the requisite point of time, for the goods in question, or goods of similar quality. In other words, what will have to be determined is as to what would be the wholesale cash price that such goods would have fetched in such a wholesale market, at or about the time when the goods were removed from the factory and or premises of manufacture or production etc.”

20. I may add that in the instant case in determining the “wholesale cash price” of the Batteries in question, the Authorities will have to deduct the expenses that were likely to have been incurred by Messrs Addison and Co. (P) Ltd., and George Oakes (P) Ltd., and the discounts to which they are ordinarily entitled to. Quite clearly all those factors were not borne in mind by the Excise Authorities while making the impugned levy.

21. The contentions of Sri V. Krishnamurthy, the learned Counsel for the petitioner, that the impugned order is hit by Article 14 of the Constitution because different Collectors have adopted different basis for assessment and that no uniform rule has been applied in the matter of levying excise duties on Batteries, deserve no serious consideration. A law cannot be struck down under Art. 14 merely because some officers have wrongly interpreted the relevant provisions. For the reasons mentioned above, a Writ of certiorari will be issued quashing the impugned levy. Nothing in this order will prevent the respondents from making fresh assessment in accordance with law and in the light of the observations made above.

22. Under the circumstances of this case, there will be no order as to costs.

DG/R.G.D

Order accordingly.

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