Sadanandaswamy, J.:— These appeals arise out of the common order passed by the learned Single Judge in Writ petitions Nos. 1957 of 1974 and 1292 of 1973 respectively. The petitioner in W.P No. 1957 of 1974 is the I.T.C Limited (formerly known as India Tobacco Company Ltd.,) It is a company engaged in the manufacture of cigarettes at several places in India. The petitioner in W.P No. 1292 of 1973 is M.M Rubber Company Private Limited. It is a company which manufactures rubber products. The petitioner in W.P No. 1957 of 1974 sells its goods to wholesalers in Bangalore as well as other places. Similarly the petitioner in W.P 1292 of 1973 has got its Branch Offices at several places where the goods manufactured by it are sold to wholesalers. Until the decision of the Supreme Court in A.K Roy v. Voltas Ltd.(1) was rendered, the petitioners were paying excise duty on the basis of the list prices at which the goods were sold to wholesalers at different places in India. After the above decision was rendered, the petitioners claimed before the Central Excise Authorities that the computation of their liability under the Central Excise and Salt Act, 1944 on the basis of the prices at which the goods were actually sold to the wholesalers at different places in India was incorrect and inconsistant with the principles laid down in Volta's Case. They contended that while determining the basis for the levy of excise duty, the Central Excise Authority should deduct from the prices at which the goods were sold to wholesalers at different places, several items of expenditure incurred by them, which according to them were incurred subsequent to the manufacture of the goods. The Assistant Collector of Central Excise, Bangalore, passed an Order on 1st April, 1974 rejecting the contentions of I.T.C Ltd., in respect of the periods referred to therein. In respect of the three other periods, he made a demand on that Company on the basis of the abovesaid Order to file fresh price lists so that Excise Duty payable by it could be computed on the basis of the prices at which the goods were sold to the wholesalers at different places. I.T.C Limited filed Writ Petition No. 1957 of 1974, aggrieved by his Order dated 1st April, 1974 and the three notices in respect of the subsequent periods.
2. M.M Rubber Company (Private) Limited has challenged the notice dated 26th April, 1973 issued by the Assistant Collector of Central Excise calling upon it to show-cause as to why it should not be made liable to pay excise duty in respect of 19.5 per cent of the list prices at which it sold its goods to the wholesalers, which according to the Company was attributable to post-manufacturing expenses incurred by it.
3. The learned Single Judge held that the expenses incurred in connection with marketing and distribution of goods, interest on the value of goods attributable to the period between the time at which the goods leave the premises and the time at which the price is paid by the wholesaler and the freight charges for transporting the goods from the factory gate to the selling points, where the goods are sold to the wholesalers, clearly fall outside the scope of the manufacturing expenses in view of the enunciation made by the Supreme Court in Volta's Case and that a proportionate deduction from the list prices has to be made before arriving at the wholesale cash price. He also held that the Assessing Authority has to decide on the evidence produced before him to what extent the advertisement expenditure incurred by the petitioners can be traceable to the selling activity and to allow deduction to that extent on the basis of such a finding from the list prices. He, accordingly, allowed the writ petitions quashing the Order passed by the Assistant Collector of Excise as well as the three notices issued to the Petitioner in W.P No. 1957 of 1974 and the notices issued to the petitioner W.P No. 1292 of 1973. He further directed the Assistant Collector of Excise to issue fresh notices to the petitioners in both the cases in the light of the decision in Volta's case and the observations made by him and to determine the liability of the petitioners under the Act. The Union of India has come up in appeal against the above order.
4. The main question involved in these appeals is the meaning to be attached to the expression ‘wholesale cash price’ in Section 4 of the Central Excise and Salt Act, 1944. Section 4 of the Act provides:
“4. Where under this Act, any article is chargeable with duty at a rate dependent on the value of the article, such value shall be deemed to be—
(a) the wholesale cash price for which an article of the like kind and quality is sold or is capable of being sold at the time of the removal, of the article chargeable with duty from the factory or any other premises of manufacture or production for delivery at the place of manufacture or production, or if a wholesale market does not exist for such article at such place, at the nearest place where such market exists, or
(b) where, such price is not ascertainable, the price at which an article of the like kind and quality is said or is capable of being sold by the manufacturer or producer, or his agent, at the time of the removal of the article chargeable with duty from such factory or other premises for delivery at the place of manufacture or production, or if such article is sold or is not capable of being sold at such place, at any other place nearest thereto.
Explanation.—In determining the price of any article under this section, no abatement or deduction shall be allowed except in respect of trade discount and the amount of duty payable at the time of the removal of the article chargeable with duty from the factory or other premises aforesaid.”
5. In A.K Roy v. Voltas Ltd., Voltas Limited organised the sales of the articles manufactured by them from its Head Office at Bombay as also its Branch Offices at Calcutta, Delhi, Madras, Bangalore, Cochin and Lucknow. From these offices it effected direct sales to consumers at list prices and the sales so effected came to about 90 to 95 per cent of its production of these articles in the factory in question during the relevant period. Apart from these sales, it also used to sell the articles to wholesale dealers from different parts of the country in pursuance of the agreements entered into with them. The agreements with the wholesale dealers provided, among other things, that the dealers should not sell the articles sold to them except in accordance with the list prices fixed by the company, that the company would sell them the articles at the list prices less 22 per cent discount. The question which fell for decision was whether the company was liable to be charged with excise duty on the basis of the price of retail sales made by it directly to the consumers from its Head Office and Branch Offices under clause (b) of Section 4 or whether it was liable to be charged on the basis of the price payable by the wholesale dealers, after deducting the 22 per cent discount, under clause (a) of Section 4 of the Central Excise Act, 1944 (hereinafter referred to as the ‘Act’). It was argued on behalf of the Excise Authorities that Section 4 clause (a) visualizes a wholesale market at the place of manufacture where articles of like kind and quality are sold or could be sold and that it also postulates a market where any wholesale purchaser can purchase the articles, and, as no articles of a like kind and quality were sold, at or near the place of manufacture, and as the wholesale sales were confined to the favoured buyers, there was no wholesale market at the place of manufacture. It was further argued that “Articles of a like kind and quality” is a phrase which suggests goods other than those under assessment and that one must disregard the price fetched by the sale of the goods themselves. Rejecting the contention, it was held that a wholesale market does not always mean that there should be an actual place where articles are sold and bought on a wholesale basis. These words can also mean the potentiality of the articles being sold on a whole-sale basis. So, even if there was no market in the physical sense of the term at or near the place of manufacture where the articles of a like kind and quality are or could be sold, that would not in any way affect the existence of market in the proper sense of the term provided the articles themselves could be sold wholesale to traders, even though the articles are sold to them on the basis of agreements which confer certain commercial advantages upon them. It was further held that the application of clause (a) of Section 4 of the Act does not depend upon any hypothesis to the effect that at the time and place of sale, any further articles of like kind and quality should have been sold, and if there is an actual price for the goods themselves at the time and place of sale and if that is a ‘wholesale cash price’, the clause is not inapplicable for want of sale of other goods of a like kind and quality.
6. On behalf of the appellant in that case, reliance was placed on the decisions in National Tobacco Co., of India Ltd. v. Collector of Central Excise(2) The Union of India v. Vengunta Suryaprakash Rao(3), Amco Batteries (P) Ltd., Bangalore v. Assistant Collector, Central Excise, Bangalore(4) Collector of Central Excise v. Shankar Lal Agarwalla(5) and Frizair Corporation v. Collector of Central Excise (6). It was held that these decision do not lay down correct law in so far as they hold that the prices of sales to wholesale dealers would not represent the “wholesale cash price” for the purpose of Section 4 clause (a), Act, merely because the manufacturer has entered into agreements with them stipulating for commercial advantages. It was held that if a manufacturer were to enter into agreements with dealers for wholesale sales of the articles manufactured on certain terms and conditions, it would not follow from that alone that the price for those sales would not be the “wholesale cash price” for the purpose of Section 4 clause (a) of the Act if the agreements were at arms length and in the usual course of business. It was further held that a sole distributor might or might not be a favoured buyer according as terms of the agreement with him are fair and reasonable and were arrived at on purely commercial basis and that once wholesale dealings at arms length are established, the determination of the “wholesale cash price” for the purpose of Section 4 clause (4) of the Act may not depend on the wholesale dealings. In that case it was held that the mere fact that the company sold 90 to 95 per cent of the articles manufactured by it to the consumers directly, would not make the price of the wholesale sales of the rest of the articles any the less the ‘wholesale cash price’ for the purpose of Section 4 clause (a) of the even if these sales were made pursuant to agreements stipulating for certain commercial advantages, provided the agreements were entered into at arms length and in the ordinary course of business.
7. Then, their Lordships proceeded to consider what exactly is the meaning of the term “wholesale cash price”. After considering the decision of the Privy Council in Ford Motor Company of India Ltd. v. Secretary of State for India in Council(7), their Lordships observed as follows.—
“In Vocuuni Oil Co. v. Secretary of State for India in Council, 59 Ind. App. 258—(AIR 1932 PC 168), it was held that the term means the price paid by retail traders on wholesale purchase. The essence of the idea is that the purchase must be wholesale purchase and not a retail one. In other words, the sale must be wholesale and not a retail one in order that the price realised may be termed the “wholesale cash price”. In that case the appellants before the Privy Council imported at Bombay, very large quantities of lubricating oil of a particular manufacturing and mark. They sold it direct to numerous customers, never to dealers. The price they charged was the same whether a large or small quantity was brought, except that if a consumer contracted to buy from them all hit requirements for a year, he was entitled to a discount from 2½ to 15 per cent according to the quantity bought in the year. No other lubricating oil of a like kind and quality was sold in Bombay. On the question whether the appellant was bound to pay custom's duty on the basis of clause (a) or clause (b) of Section 30 of the Sea Customs Act, 1878, the privy Council held that since the sales were to customers direct, the real value of he goods cannot be ascertained under cause (a) of Section 30 and that clause (b) of Section 30 was applicable. Their Lordships said that in determining the price which is to, represent the real value of the goods to be taxed, “the price must be conservative in every respect and free in particular from any loading for any post importation charges incurred in relation to goods”. “The price is to be a price for goods, as they are both at the time and place of importation. It is to be a ‘cash price’, that is to say a price free from any augmentation for credit or other advantage allowed to a buyer it is to be a net price, that is to say it is a price “less trade discount”. Their lordships, therefore, held that the words the ‘whole sale price’ were used in the section in contra-distinction to a ‘retail price and that not only on the ground that such is a well-recognised meaning of the words but because their association with the words ‘trade discount’ indicates that sales to the trade are those in contemplation, and also because only by attaching that meaning to the word is the ‘wholesale price’ relieved of the loading representing post-importation expenses which, as a matter of business, must always be charged to the consumer, and which are eliminated”.
8. It is thus clear that the wholesale price must be determined on the basis of the cash payment representing only manufacturing cost and manufacturing profit, but excluding the selling cost and selling profits and that the price has to be fixed for delivery at the factory gate. Some of the items to be excluded are the interest involved in the wholesale price when credit is allowed to the wholesale buyer for a period of time, freight, octroi and other charges involved in the transport of the articles.
9. It was contended by the learned Addl. Solicitor-General that the above observations were intended to apply only to the facts of that case. He has relied on certain observations in the later decision of the Supreme Court in Atic Industries Ltd. v. H.H Deve, Asst. Collector of Central Excise(8). In that case the articles manufactured by the Atic Industries were sold by them in entirety to the wholesale buyers, namely, ICI (India) Ltd. (hereinafter referred to as ICI) and Atul Products Ltd., (hereinafter referred to as Atul) under respective agreements entered into with them. Seventy per cent of the articles were sold to ICI. while the remaining 30 per cent to Atul. The price charged by Atic Industries to both these companies was a uniform price described as “the basic selling price” less trade discount of 18 per cent. ICI and Atul, in their turn, resold the articles purchased by them to two categories of buyers. One was textile mills and other large consumers, while the other was the category of distributors. The sales by the ICI and Atul to the textile mills and other large consumers were at the basic selling price without any discount, but so far as the distributors were concerned, the sales to them by the ICI and Atul were at a higher price, though with trade discount. ICI charged a higher price but allowed 10 per cent trade discount, while Atul charged a slightly lower price and allowed, two and a half per cent trade discount. The prices were, however, so adjusted that the net selling prices charged by ICI and Atul to the distributors were almost the same. The distributors, in their turn, resold the articles purchased by them from ICI and Atul to the small consumers at a slightly higher price referred to as “small consumers price” No discount was given by the distributors to the small with the wholesale dealers conferred certain extra-commercial advantages upon them, and so, the sales to them were not sales to independent purchasers but to favoured ones, and that therefore, the price charged would not represent the “wholesale cash price” mentioned in Section 4(a) of the Act. They argued that section 4(a) visualizes a wholesale market at the place of manufacture where articles of like kind and quality are sold or could be sold and that where wholesale sales were confined to the favoured buyers, there was no wholesale market at the place of manufacture. It was further argued that “articles of a like kind and quality” is a phrase which suggests goods other than those under assessment and that one must disregard the price fetched by the sale of the goods themselves. Repelling the above contentions of the Excise Authorities, the Supreme Court held that the wholesale dealings between the appellants and ICI and Atul were purely commercial dealings at arms length, that the price charged by the appellants for sales in wholesale made to ICI and Atul less trade discount of 18 per cent was, therefore, clearly “wholesale cash price” within the meaning of Section 4(a) and that it did not make any difference that the wholesale dealings of the appellants were confined exclusively to. ICI and Atul and apart from these two, no independent buyers could purchase the articles in wholesale from the appellants.
It had also been contended on behalf of the Excise Authorities that all that Section 4(a) provides is that the value of the article sought to be charged to excise duty shall be deemed to be the wholesale cash price for which the article is sold or is capable of being sold and it does not say which wholesale cash price shall be taken to be the value of the article that charged by the manufacturer to the wholesale dealer or that charged by the wholesale dealer who having purchased the articles from the manufacturer sells it in wholesale to another dealer. The latter price, they pointed out, would equally be the wholesale cash price within the meaning of Section 4(a) as it would be the price at which the article is sold or in any event capable of being sold in the wholesale market and that there is no reason why it should not be taken to be the value of the article for the purpose of assessment under Section 4(a). The connection, therefore, was that the price charged by ICI and Atul to the dealers less trade discount allowed to them should be taken to be the assessable value of the articles and not the price charged by the appellants to ICI and Atul less trade discount of 18 per cent. The Supreme Court rejected this contention on the ground that it violates two basic principles underlying imposition of excise duty. It was observed as follows.—
“In the first place, as pointed out by Mathew, J., in Voltas Case (Supra), excise is a tax on the production and manufacture of goods ………….. Section 4 of the Act therefore provides that the real value should be found after deduction the selling cost and selling profit and that the real value can include only the manufacturing cost and manufacturing profit. The section makes it clear that excise is levied only on the amount representing the manufacturing cost plus the manufacturing profit and excludes post-manufacturing cost and the profit arising from post-manufacturing operation, namely, selling profits'. The value of the goods for the purpose of excise must take into account only the manufacturing cost and the manufacturing profit and it must not be loaded with post-manufacturing cost or profit arising from post-manufacturing operation. The price charged by the manufacturer for sale of the goods in wholesale would, therefore, represent the real value of the goods for the purpose of assessment of excise duty. If the price charged by the wholesale dealer who purchases the good? from the manufacturer and sells them in wholesale to another dealer were taken as the value of the goods, it would include not only the manufacturing cost and the manufacturing profit of the manufacturer but also the wholesale dealer's selling cost and selling profit and that would be wholly incompatible with the nature of excise. It may be noted that wholesale market in a particular type of goods may be in several tiers and the goods may reach the consumer after a series of wholesale transactions.
In fact the more common and less expensive the goods, there would be greater responsibility of more than one tier of wholesale transactions. For instance, in a textile trade, a manufacturer may sell his entire production to a single wholesale dealer and the latter may in his turn sell the goods purchased by him from the manufacturer to different wholesale dealers at State level, and they may in their turn sell the goods to wholesale dealers at the district level and from the wholesale dealers at the district level the goods may pass by sale to wholesale dealers at the city level and then, ultimately from the wholesale dealers at the city level, the goods may reach the consumers. The only relevant price for assessment of value of the goods for the purpose of excise in such a case would be the wholesale cash price which the manufacturer receives from sale to the first wholesale dealer, that is, when the goods first enter the stream of trade, once the goods have entered the stream of trade and are on their onward journey to the consumer, whether along a short or a long course depending on the nature of the goods and the conditions of the trade, excise is not concerned with what happens subsequently to the goods. It is the first immediate contact between the manufacturer and the trade that is made decisive for determining the wholesale cash price which is to be the measure of the value of the goods for the purpose of excise. The second or subsequent price, even though on wholesale basis, is not material. If excise were levied on the basis of second or subsequent wholesale price, it would load the price with a post-manufacturing element, namely, selling cost and selling profit of the wholesale dealer. That would be plainly contrary to the true nature of excise as explained in the Voltas' case (Supra). Secondly, this would also violate the concept of the factory gate sale which is the basis of determination of value of the goods for the purpose of excise”.
Thereafter, it was also observed as follows:
“There can, therefore, be no doubt that where a manufacturer sells the goods manufactured by him in wholesale to a wholesale dealer at arms length and in the usual course of business, the wholesale cash price charged by him to the wholesale dealer less trade discount would represent the value of the goods for the purpose of assessment of excise. That would be the wholesale cash price for which the goods are sold at the factory rate within the meaning of Section 4(a). The price received by the wholesale dealer who purchases the goods from the manufacturer and in his turn sells the same in wholesale to other dealers would be irrelevant to the determination of the value and the goods would not be chargeable to excise on that basis. The conclusion is, therefore, inescapable that the assessable value of the dye-stuffs manufactured by the appellants must be taken to be the price at which they were sold by the appellants to ICI and Atul less 18 per cent trade discount, and not the price charged by ICI and Atul to their dealers”.
10. On the basis of the latter observations it was contended by the learned Addl. Solicitor General that the wholesale cash price charged by the manufacturer to the wholesale dealer less trade discount would represent the value of the goods for the purpose of assessment of excise under Section 4(a) and that except trade, discount and the amount of duty as provided in the explanation to Section 4, no other amount can be deducted out of the price charged by the manufacturer to the wholesale dealer for the purpose of assessment of excise duty. But these observations must be understood in the context in which they were made. They were made while refuting the contention of the Excise Authorities that the price charged by ICI and Atul to the dealers, less the trade discount allowed to them, should be taken to be the assessable value of the articles and not the price charged by the manufacturer to ICI and Atul, less 18 per cent discount. It can not be said that their Lordships expressed a different opinion as to the meaning of the expression “wholesale cash price” in Section 4(a) from that expressed in the Voltas' case. On the other hand the earlier observations cited above show that they were in entire agreement with the observations of Mathew. J., in Voltas' case to the effect that under that section, the real value for the purpose of levy of duty can include only the manufacturing cost and it should be determined after excluding the selling cost and selling profits i.e, the post-manufacturing cost and the profit arising from post-manufacturing operation, and can include only the manufacturing cost and manufacturing profit.
11. It was further contended by the learned Additional Solicitor-General that the explanation to Section 4 indicates the intention of the Legislature to exclude only the trade discount and the amount of duty from the wholesale cash price for the purpose of assessment of excise duty and that it is not permissible to give deduction to any other item which is included in the wholesale cash price for such an assessment. But before deduction has to be made as provided in the explanation to Section 4, the value of the wholesale cash price has first to be determined for the purpose of clause of (a) or clause (b) of Section 4, as the case may be. It is only after determination of such value that exclusion has to be made as provided in the Explanation. The wholesale cash price, as laid down in the Voltas' case, is not necessarily the price at which the manufacturer sells the articles to the wholesale dealer. If such price includes any item which represents post-manufacturing cost or the profit arising from post-manufacturing operations, in other words, selling cost or the selling profit, such constituents of the wholesale price charged by the manufacturer to the wholesale dealer, have to be excluded for the purpose of determining the assessable value under Section 4(a) of the Act.
12. It was next urged by the learned Additional Solicitor-General that where the manufacturer himself has fixed the wholesale price at which he sells the articles manufactured by him to the wholesale dealers, it is not open to him to contend that such wholesale price is not the wholesale cash price under Section 4 Clause (a).
13. In Commissioner of Income Tax, Madras v. Firm Muar(9), it has been observed as follows:
“The doctrine of “approbate and reprobate” is only a species of estoppel; it applies only to the conduct of parties. As in the case of estoppel it cannot operate against the provisions of a statute. If a particular income is not taxable under the income tax act, it cannot be taxed on the basis of estoppel or any other equitable doctrine. Equity is out of place in tax law; a particular income is either exigible to tax under the taxing statute or it is not. If it is not, the Income-tax Officer has no power to impose tax on the said income”.
These observations equally apply to the present case.
14. The unreported decisions of the Kerala High Court in O.P Nos. 1290 and 1524 of 1973; of the Bombay High Court in Indian Tobacco Co., Ltd. v. The Union of India(10), and the Andhra Pradesh High Court in Writ Petitions Nos. 1748 and 7143 of 1974 and 2274, 2273 and 5136 of 1975 have taken the same view as we have done, following the decision in Voltas case.
15. Mr. Soli Sorabjee, learned Counsel for the respondent in Writ Appeal No. 8 of 1974, has relied on the decision in The Commissioner of Income Tax, Bombay v. Ahmed Bhai Umarbhai and Co., Bombay(11), in support of his contention that it is the duty of the Excise Authorities to apportion that part of the wholesale cash price charged by the manufacturer to the wholesale dealer and to levy excise duty only on that part of the wholesale cash price which is attributable solely to the manufacturing cost and the manufacturing profit in that case the assessee-firm was a resident and was registered in India under the Income-tax Act having an oil mill in a princely state and wag manufacturing oil and selling the same in the then British India. It owned three mills at Bombay and one at Raichur for manufacturing oil from groundnuts and it used to sell the oil partly at Raichur and partly in Bombay. The question was in respect of its liability under the Excess Profits Tax Act for the oil manufactured at Raichur but sold in Bombay. It was held that the manufacturing operations of the assessees at Raichur were part of their business under Section 5 proviso 3 and that profits which arose at Raichur were exempted from Excess Profits Act.
16. Mr. Sorabjee also relied on Exhibit ‘B’, the Order of the Central Board of Revenue dated 16th October, 1957 in the appeal of Messrs Bata Shoe Co. (P) Limited, to show that it is possible to apportion the assessable value of the wholesale price under section 4 of the Act in the light of the principles laid down in Voltas' case. In that order, the Central Board permitted deduction from the wholesale prices certain percentages thereof under different heads, namely distribution charges, travelling expenses, advertisement expenses, insurance charges, interest, freight, apart from trade discount, sales tax and excise duty.
17. The learned Single Judge was therefore justified in directing the wholesale cash price should be determined after eleminating the expenses incurred in connection with marketting and distributing of goods, interest on the value of goods attributable to the Period between the time at which the goods left the factory premises and the time at which the price was paid by the wholesaler as well as the freight, octroi and other charges involved in the transport of the articles from the factory gate to the selling points. He was also justified in directing the Excise Authorities to determine what portion of the advertisement expenses incurred by the manufacturer can be allowed to be deducted depending upon how far it can be traceable to the selling operation and not attributable to the manufacturing operation or manufacturing profit. The items referred to above are not exhaustive but only illustrative of the nature of deductions which have to be made before arriving at the assessable value for the purpose of Section 4 Clause (a).
These appeals are accordingly dismissed. No costs.