S.K Jha, J.:— The petitioner in all these three applications under Articles 226 and 227 of the Constitution of India is the I.T.C Limited having its registered office at Calcutta and a factory at, amongst other places, Basudeopur in Monghyr in the State of Bihar. The relevant facts for the disposal of these applications are not at all in dispute.

2. The petitioner carries on the business of manufacturing and selling cigarettes and smoking tobacco of diverse kinds throughout India and owns and operates five cigarette factories in different States including a cigarette factory at Monghyr in this State. With effect from 1st of April, 1974 the name of the petitioner company was changed from ‘India Tobacco Company Limited’ to ‘I.T.C Limited’. Such change was effected under the provisions of Section 21 read with Section 23 of the Companies Act, 1956. For all practical purposes it is only the name which has been changed with the petitioner's rights and liabilities remaining as they were before such change. The petitioner follows a uniform pattern and procedure for selling and marketing its products mentioned hereinbefore, in accordance with which the petitioner's products reach the ultimate consumers of its products through a series of sales and resales in the following manner. The petitioner, which is the manufacturer, sells to the primary wholesale buyers or dealers otherwise known in the cigarette industry as distributors who, in their turn, sell to secondary wholesales known in common parlance in such industry as wholesalers. These secondary wholesalers, in their turn, sell to the retailers who pass on the products by selling to the consumers at large, The petitioner makes all sales of its products to its distributors otherwise known as wholesale buyers or dealers in large bulk entirely on a principal to principal basis. Such sales are evidenced by written contracts which represent normal commercial arrangements and are conducted in the usual course of business. During the relevant periods the petitioner never sold its products to any one in the chain set out above other than the distributors. These writ petitions are in respect of products which were and are sold to such distributors who are primary wholesale buyers or dealers. All the wholesale prices charged by the petitioner from its distributors are the sole consideration for the said sales and are subject to local taxes uniform throughout India. The petitioner does not extend or derive any extra commercial favour or privilege to or from any wholesale buyer or dealer. The transactions between the petitioner and its wholesale buyers and dealers commonly known as distributors, as already stated above, are at arms length and in the usual course of business and do not have any consideration other than price of the products as aforesaid. Admittedly, such transactions are bonafide. Such sales during the relevant periods were completed ex-factory and sometimes outside the said factory. But in any event the products are always capable of being sold on a wholesale basis ex factory.

3. The question that arises for consideration in all these applications is as to what should be the amount of excise duty assessable against the petitioner under the provisions of Section 4(a) of the Central Excises and Salt Act 1944 (hereinafter to be referred to as the Act) prior to its amendment in 1973. We are not concerned with that amendment which, as we are informed at the Bar, came into force with effect from October, 1975.

4. In C.W.J.C 939/74 the prayer made by the petitioner is for the issuance of appropriate writs quashing the order dated the 4th of April, 1974 passed by the Assistant Collector of Central Excise, Patna, respondent no. 4, that dated the 8th of May, 1974 passed by the Inspector, Central Excise, Range I.T Co., Monghyr, respondent no. 6, as also that dated the 14th of June, 1974 passed by respondent no. 6. These three orders are incorporated in annexures 15, 16 and 16/1 to the writ application. A further prayer has been made for the quashing of annexure 16/2 dated the 14th of June, 1974, which is a notice in form D.D 2 issued by respondent no. 6 under the authority of the Superintendent of Central Excise, I.T Co., Monghyr, respondent no. 5. The effect of these impugned annexures is that the Central Excise authorities have disallowed the petitioner's claim to deduct the post-manufacturing costs and selling expenses from the price charged by the petitioner from its wholesale dealers to ascertain the assessable value and/or to recover the sum of Rs. 36,90,056.57 which has been demanded as additional excise duty apart from that which has been shown by the petitioner in its return duly filed. A prayer has also been made for the issuance of the writ of prohibition restraining the respondents from proceeding any further in respect of the show cause notices issued by the Central Excise authority (respondent no. 4) dated the 26th of November, 1973 and 21st of December, 1973, copies of which have been marked annexures 6 and 8 respectively. This amount of additional excise duty demanded from the petitioner is in respect of the sales made during the period between the 18th of July, 1973 and the 7th of February, 1974. On 26.6.1974 this writ application was admitted, rule issued and an order of injunction was passed restraining the respondents from realising the sum of Rs. 36,90,056.57 till the disposal of this application.

5. In C.W.J.C 1203/74 a prayer has been made for the issuance of appropriate writs quashing annexures 9, 10, 14 and 15 to the writ application. Annexures 9 and 10 both dated the 19th of July, 1974 are orders and provisional assessments made by the Superintendent of Central Excise, I.T Co., Monghyr, respondent no. 5. Annexure 14 dated the 20th of July, 1974 and annexure 15 dated the 12th of July, 1974 also purport to enforce the provisional assessments made as per annexures 9 and 10 by the Superintendent of Central Excise, respondent no. 5. The effect of these orders was to provisionally assess sums of Rs. 8,50,475-93 and Rs. 22,491-01 as additional excise duty held by the Excise authority to be payable by the petitioner. This included the marketing, distribution expenses, advertisement expenses, freight, interest, etc. What had happened was that on 3.3.1974 the petitioner submitted a new price list indicating assessable values computed after eliminating post-manufacturing costs and expenses. The Excise authorities allowed the petitioner to remove their goods from the factory on the basis of the said price list under Provisional Assessment procedure. On 20.7.1974 the Excise authorities made final assessment in respect of the returns in form R.T 12 for the month of June, 1974 filed by the petitioner and demanded excise duty on post-manufacturing costs and expenses. On 25.7.1974 the Excise authorities returned the two price lists effective from 7th February, 1974 and 1st March, 1974 submitted earlier by the petitioner purporting to approve the same and directing the petitioner to clear the goods on the basis of the price list by including post-manufacturing costs and expenses and to pay duty thereon also. This writ application was thereafter filed to restrain the Excise authorities from collecting excise duty on post-manufacturing costs and expenses on the basis of the demands made in the R.T 12 return for the month of June, 1974 and orders passed in relation to the price list effective from the 7th February, 1974 and 1st March, 1974. On 5.8.1974 this writ application was admitted, rule issued in this case and an injunction was issued restraining the respondents from collecting excise duty on post-manufacturing cost and expenses. Despite the injunction order, the Excise authorities issued a demand notice for payment of a sum of Rs. 27,43,015-40. An amendment petition was thereafter filed in this Court, which has been allowed. By the aforesaid amendment petition, prayer has been made for quashing of annexures 16, 17 and 18 which are demand notices issued against the petitioner in pursuance of the orders aforesaid. This assessment and the consequential demands are in respect of the manufacture and sale by the petitioner effected during the month of June 1974, as stated earlier.

6. In C.W.J.C 1252/74 the petitioner claims that he had made a declaration of value under Section 4 as effective from the 3rd of July, 1974. Such a declaration was made as is contemplated by law. The Superintendent of Central Excise, respondent no. 5, passed orders on such declaration by the petitioner on 3rd August, 1974 as contained in annexure 4 and 11th July, 1974 as incorporated in annexure 5, whereby he has ordered that the wholesale price declared in column 5(c) of the price list which included post-manufacturing costs and expenses was approved and should be the basis of assessable value as per Section 4(a) of the Act. A prayer has been made for issuance of appropriate writs quashing such orders of respondent no. 5 and directing the Excise authorities to make assessment in accordance with law and restraining them from including post-manufacturing costs and expenses for the purpose of assessing the Excise Duty.

7. The question arising for determination in these cases as stated earlier, is the scope and true purport of the provision of Section 4(a) of the Act. Section 4(a) of the Act reads thus:

“4. Determination of value for the purposes of duty where, under this Act, any article is chargeable with duty at a rate dependent on the value of the article, such value shall be deemed to be (a) the wholesale cash price for which an article of 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.”

8. As a matter of fact, the scope of the aforesaid provision of the Act was a subject-matter of consideration by the Supreme Court in, inter alia, two cases which are reported. It is, therefore, not necessary to go into any detailed analysis of the scheme and purpose of the statutory provision. Mr. Ranadeb Choudhuri, learned counsel for the petitioner, invited our attention to the two decisions of the Supreme Court in this connection and a number of decisions of other High Courts. Before referring to the decisions of the other High Courts, it would be worthwhile to note the principles laid down by the Supreme Court in the two cases of (1) A.K Roy v. Voltas Ltd. (A.I.R 1973 S.C 225) and (2) Atic Industries Ltd. v. H.H Dave, Assistant Collector of Central Excise (A.I.R 1975 S.C 960). In the Voltas case (supra), Mathew, J., speaking for the Court, held as follows:

“There can be no doubt that the ‘wholesale cash price’ has to be ascertained only on the basis of transactions at arms length. If there is a special or favoured buyer to whom a specially low price is charged because of extra-commercial considerations, e.g, because he is relative of the manufacturer, the price charged for those sales would not be the ‘wholesale cash price’ for levying excise under Section 4(a) of the Act. A sole distributor might or might not he a favoured buyer according as terms of the agreement with him are fair and reasonable and were arrived at on purely commercial basis. Once wholesale dealings at arms length are established, the determination of the ‘wholesale cash price’ for the purpose of Section 4(a) of the Act may not depend upon the number of such wholesale dealings. The fact that the appellant sold 90 to 95 per cent of the articles manufactured to consumers direct 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(a), 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.” It was further held considering, the decision of the Judicial Committee of the Privy Council in the case of (3) Vacuum Oil Co. v. Secretary of State for India in Council (59 Indian Appeals 258) as follows:

“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 ‘wholesale price’ were used in the section in contradistinction 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.”

9. It has further been held that excise is a tax on production and manufacture of goods. Section 4 of the Act provides that the real value should be found after deducting the selling cost and selling profits and that the real value can include only the manufacturing cost and the manufacturing profit. The section makes it clear that excise is levied only on the “amount representing the manufacturing cost plus the manufacturing profit and excludes post-manufacturing cost and the profit arising from post-manufacturing operation, namely, selling profit. The section postulates that the wholesale price should be taken on the basis of cash payment thus eliminating the interest involved in wholesale price which gives credit to the wholesale buyer for a period of time and that the price has to be fixed for delivery at the factory gate thereby eliminating freight, octroi and other charges involved in the transport of the articles”. In determining such wholesale price, it is not necessary that there should be a large number of wholesales and the quantum of goods sold by a manufacturer on wholesale basis is entirely irrelevant for the purpose. When the mattar again came up for consideration in the case of Atic Industries (supra) their Lordships of the Supreme Court went further. In that case the sales in question were effected by the manufacturers to ICI and Atul at the price less 18 per cent trade discount. The ICI and Atul were primary wholesalers who, having purchased from, the manufacturer, the Atic Industries, in their turn, sold to secondary wholesalers. The facts of that case, therefore, are very much akin to the facts of the instant cases. The question that fell for consideration was as to what should be the price for the purpose of assessment of excise duty—whether the price charged from the primary wholesalers, namely, ICI and Atul or that charged from the Secondary wholesalers by ICI and Atul while overruling the contention put forward on behalf of the Excise Department, Bhagwati, J., speaking for the Court, held as follows:

“Here, on the contrary, no retail sales at all were effected by the appellants and the entire production was sold in wholesale to ICI and Atul under agreements (entered) into with them. Moreover, it was not in dispute between the parties that the agreements entered into by the appellants with ICI and Atul were made at arms length and in the usual course of business. It was not the case of the Excise Authorities at any time that specially low prices were charged by the appellants to ICI and Atul because of extra-commercial considerations or that the agreements were anything but fair and reasonable or arrived at on purely commercial basis. The wholesale dealings between the appellants and ICI and Atul were purely commercial dealings at arms length and the price charged by the appellants for sales in wholesale made to ICI and Atul less trade discount of 18% was, therefore, clearly ‘wholesale cash price’ within the meaning of Section 4(a) and 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 dye-stuffs in wholesale from the appellants.”

10. It has further been laid down in the case of Atic Industries that Section 4 “makes it clear that excise is levied only on the amount representing the manufacturing cost plus the manufacturing profit and excludes post-manufacturing cost and the profit arising from post-manufacturing operation, namely, selling profit. The value of the goods for the purpose of excise, therefore, must take into account only 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, thus, 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 goods from the “manufacturer and sells them in wholesale to another dealer were taken as the value of the goods, it would include not only the manufacturing cost and the manufacturing profit of the manufacturer but also the wholesale dealer's selling cost and selling profit and that would be wholly incompatible with the nature of excise.” In my view, the ratio of the two Supreme Court decisions referred to above, especially that of the latter case, squarely covers the point at issue in the instant cases. As I have already indicated at the outset the facts are not in controversy. Therefore, it goes without saying that excise can be levied against the petitioner only on the amount representing the manufacturing cost plus the manufacturing profit and it must, in the fitness of things, exclude post-manufacturing cost and the profit arising from the post-manufacturing operation, namely, the selling profit. The only relevant consideration for the purpose of excise would be the manufacturing cost plus the manufacturing profit and the Excise authorities shall not be justified in loading the value of product of the petitioner for the purpose of assessment of excise duty under Section 4 of the Act with any post-manufacturing cost or profit arising from the post-manufacturing operation. The price charged by the petitioner ex factory at the factory gate from its distributors representing the manufacturing cost alone plus the manufacturing profit shall determine the value for the purpose of assessment of excise duty. Although it is not necessary for me, in view of the decisions of the Supreme Court on these points, I think it worthwhile to observe that could be the only possible construction of Section 4 for computing the value of the products assessable to excise duty. It will be manifest that excise duty is levied by the Parliament on tobacco and other goods which are manufactured and produced in India under Entry 84 of List I of the 7th Schedule to the Constitution of India whereas if any post-manufacturing cost is to be included in the price, it will also entail in its turn and embrace within its sweep a certain amount of tax falling under the head-Sales tax-which is exclusively within the domain of the State Legislature under Entry 54 of List II of the 7th Schedule. This, in my view, reinforces the rationale behind the decisions of the Supreme Court referred to above that excise is a tax on the production and manufacture of goods and bence must necessarily exclude from its sweep any post-manufacturing expenses or selling profits.

11. I may now refer to the decisions of the different High Courts to which our attention was invited by Mr. Ranadeb Choudhuri, learned counsel for the petitioner, to wit, the case of (4) Indian Tobacco Company Ltd. v. The Union of India (Miscellaneous petition 293 of 1974) decided by a Bench of the Bombay High Court on the 15th December, 1975. Incidentally, the petitioner in that case was also the Indian Tobacco Company Limited. The other cases referred to at the Bar were those of (5) The Union of India v. I.T.C Limited (Writ Appeals 8 and 11 of 1975) decided on the 20th February, 1976, in which a Bench of the Karnataka High Court at Bangalore laid down the law to the same effect, so are also a decision of the Andhra Pradesh High Court in (6) The Vazir Sultan Tobacco Company Limited v. The Union of India (Writ Petitions 1748 and 7143 of 1974 and 2274, 2275 and 5136 of 1975 decided on the 19th December, 1975 and that of the Madras High Court in (7) The Madras Rubber Factory Ltd. v. The Superintendent of Central Excise (Writ Petition 2180 of 1972) decided on the 23rd March, 1976. It is needless to multiply the decisions of the various High Courts.

12. Mr. Ashwini Kumar Sinha, learned Standing Counsel for the Union of India, raised a number of points. In his painstaking arguments, he merely repeated, if I may say so with respect, the arguments which were advanced in the different cases both before the Supreme Court and before the various High Courts and which arguments not only did not find favour but were also categorically repelled and overruled in those decisions and, therefore, it is not necessary to mention his submissions at any length.

13. From the discussion of the law on the subject detailed above, it is clear that the respondents have exceeded their jurisdiction in demanding from the petitioner for the purpose of excise duty payable by it price of its products inclusive of any post-manufacturing cost and selling expenses. It is, however, not possible for us, while deciding these writ applications, to say with any amount of precision as to which particular items represent post-manufacturing cost or selling expenses. These impugned demands (namely, of Rs. 36,90,056-57 in C.W.J.C 939/74 and of Rs. 27,43,015-40 in C.W.J.C 1203/74) however, must be and are hereby quashed and the respondents are directed to reassess the excise duty in accordance with the principles laid down above on the value of the products of the petitioner for the purpose of assessment of excise under the provision of Section 4(a) of the Act and in so doing they are hereby commanded to exclude from the value of its products all post-manufacturing cost and selling profits and then arrive at the correct assessable value for the purpose of excise duty in accordance with law.

14. In the result, all these three writ applications are allowed. So far as C.W.J.C 1252/74 is concerned, all the reliefs prayed for must be allowed, for the petitioner has merely sought for a direction to the respondents to make assessment in accordance with law. In so far as the other two writ applications are concerned, while quashing the orders of the respondents and the consequent demand notices as incorporated in Annexures 15, 16, 16/1 and 16/2 of C.W.J.C 939/74 and those in Annexure 9, 10, 14, 15, 16, 17 and 18 of C.W.J.C 1203/74, I remit all the three cases back in the exercise of our jurisdiction under Article 227 of the Constitution to the competent Excise authority to go into the questions as indicated above end to make his decision in the light of the directions given above and in accordance with law. In the circumstances of the cases, there shall be no order as to costs.

15. Shambhu Prasad Singh, J.:—I agree.

Application allowed.