Civil Appeal No 2269 of 1980 etc
From the Judgment and order dated 30780 of the High Court of Bombay in Appeal No 2521980 etc
K Parasaran Sol
 NC Talukdar Dr YS Chitale KK Venugopal Suraj Udai Singh Dalveer Bhandari CV Subba Rao RN Poddar MS Ganesh Ravi Naghmave T Shrinivasamoorthi KS John Vithalbhai B Patel RP Kapur Bhaskar Gupta RK Chaudhary A T Patra and Parveen Kumar for the Appellants Petitioners
NA Palkhivala JC Bhatt Soli J Sorabjee Ashok Desai DB Engineer BH Antia Ravinder Narain OC Mathur
Talat Ansari Mrs AK Verma Ashok Sagar Miss Rainu Walia Sukumaran DN Mishra and AN Haskar for the Respondents
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  both before its amendment by the Central Excises and Salt Amendment Act
1973 Act XXII of 1973 and after such amendment
We record now the reasons for that order
At the outset we may state that it is not possible in this judgment to deal with the numerous individual appeals writ petitions special leave petitions and transferred cases before us on the particular facts of each and we propose to consider the points arising therein from a general perspective
The relates to central duties of excise and to salt
Sub section
1 of s3 provides 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 section
2 empowers the Central Government to fix for the purpose of levying the duties tariff values of the articles enumerated in the First Schedule as chargeable with duty ad valorem
Before its amendment by Act XXII of 1973 s4 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 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 sold or is capable of being sold by the manufacturer or 356 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 not 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
 It seems that with the increase in the ad valorem levies in the Central Excise Tariff the operation of s4 presented certain practical difficulties some of which were prominently brought out in the judgment of this Court in A K Roy  Anr vs Voltas Limited
Among other observations the Court appears to have said that the real value of an article for the purposes of the excise levy would include only the manufacturing cost plus the manufacturing profit
In order to overcome the various difficulties Parliament enacted Act XXII of 1973 which substituted a new s4 for the original Provision with effect from October 1 1975
The new section 4 provides 4
Valuation of excisable goods for purposes of charging of duty of excise 1 Where under this Act the duty of excise is chargeable on any excisable goods with reference to value such value shall subject to the other provisions of this section be deemed to be a the normal price thereof that is to say the price at which such goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and place of removal where the buyer is not a related person and the price is the sole consideration for the sale Provided that i where in accordance with the normal practice of the wholesale trade in such goods such goods are sold 357 by the assessee at different prices to different classes of buyers not being related persons each such price shall subject to the existence of the other circumstances specified in clause a be deemed to be the normal price of such goods in relation to each such class of buyers ii where such goods are sold by the assessee in the course of wholesale trade for delivery at the time and place of removal at a price fixed under any law for the time being in force or at a price being the maximum fixed under any such law then notwithstanding anything contained in cl
iii of this proviso the price or the maximum price as the case may be so fixed shall in relation to the goods so sold be deemed to be the normal price thereof iiiwhere the assessee so arranges that the goods are generally not sold by him in the course of wholesale trade except to or through a related person the normal price of the goods sold by the assessee to or through such related person shall be deemed to be the price at which they are ordinarily sold by the related person in the course of wholesale trade at the time of removal to dealers not being related persons or where such goods are not sold to such dealers to dealers being related persons who sell such goods in retail b where the normal price of such goods is not ascertainable for the reason that such goods are not sold or for any other reason the nearest ascertainable equivalent thereof determined in such manner as may be prescribed
2 Where in relation to any excisable goods the price thereof for delivery at the place of removal is not known and the value thereof is determined with reference to the price for delivery at a place other than the place of removal the cost of transportation from the place of removal to the place of delivery shall be excluded from such price
358 3 The provisions of this section shall not apply in respect of any excisable goods for which a tariff value has been fixed under sub section 2 of Section 3
4 or the purposes of this section a assessee means the person who is liable to pay the duty of excise under this Act and includes his agent b place of removal means i a factory or any other place or premises of production or manufacture of the excisable goods or ii a warehouse or any other place or premises wherein the excisable goods have been permitted to be deposited without payment of duty from where such goods are removed c related person means 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 a relative and a distributor of the assessee and any sub distributor of such distributor
Explanation
In this clause holding company a subsidiary company and relative have the same meanings as in the  d value in relation to any excisable goods i where the goods are delivered at the time of removal 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 by the buyer to the assessee
359 Explanation
In this sub clause packing means the wrapper container bobbin pirn spool reel or warp beam or any other thing in which or on which the excisable goods are wrapped
contained or wound ii does not include the amount of the duty of excise sales tax and other 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 wholesale trade at the time of removal in respect of such goods sold or contracted for sale e wholesale trade means sales to dealers industrial consumers Government local authorities and other buyers who or which purchase their requirements otherwise than in retail
 In the cases before us there has been considerable debate on the true meaning and scope of s4 before and after its amendment
The points raised are not without difficulty but we have had the advantage of hearing counsel of eminence on both sides and we are grateful to them for the considerable assistance they have given us throughout the hearing of these cases
The central issue between the parties is whether the value of an article for the purposes of the excise levy must be determined by reference exclusively to the manufacturing cost and the manufacturing profit of the manufacturer or should be represented by the entire wholesale price charged by the manufacturer
The wholesale price actually charged by the manufacturer consists of not merely his manufacturing cost and his manufacturing profit but includes in addition a whole range of expenses and an element of profit conveniently referred to as post manufacturing expenses and post manufacturing profit arising between the completion of the manufacturing process and the point of sale by the manufacturer
Mr NA Palkhivala learned counsel for the assessees has propounded three principles which he contends form the essential characteristics of a duty of excise
Firstly he says excise is a tax on 360 manufacture or production and not on anything else
Secondly uniformity of incidence is a basic characteristic of excise
And thirdly the exclusion of post manufacturing expenses and post manufacturing profits is necessarily involved in the first principle and helps to achieve the second
Learned counsel urges that where excise duty is levied on an ad valorem basis the value on which such duty is levied is a conceptual value and that the conceptual nature is borne out by the circumstance that the identity of the manufacturer and the identity of the goods as well as the actual wholesale price charged by the manufacturer are not the determining factors
It is urged that the old s4 a clearly indicates that a conceptual value forms the basis of the levy and that the actual wholesale price charged by the particular assessee cannot be the basis of the excise levy
It is said that the criterion adopted in clause a succeeds in producing uniform taxation whether the assessees are manufacturers who sell their goods in wholesale semi wholesale or in retail whether they have a vast selling and marketing net work or have none whether they sell at depots and branches or sell at the factory gate and whether they load the ex factory price with post manufacturing expenses and profits or do not do so
Because the value of the article rests on a conceptual base it is urged the result of the assessment under s4 a cannot be different from the result of an assessment under s 4 b
The contention is that the principle of uniformity of taxation requires the exclusion of post manufacturing expenses and profits a factor which would vary from one manufacturer to another
It is pointed out that such exclusion is necessary to create a direct and immediate nexus between the levy and the manufacturing activity and to bring about a uniformity in the incidence of the levy
Learned counsel contends that the position is the same under the new s4 which he says must needs be so because of the fundamental nature of the principles propounded earlier
Referring to the actual language of the new s4 1 a it is pointed out that the expression normal price therein means normal for the purposes of excise that is to say that the price must exclude post manufacturing expenses and post manufacturing profit and must not be loaded with any extraneous element
It is conceded however that under the new s4 1 a there is no attempt to preserve uniformity as regards the amount of duty between one manufacturer and another but it is urged that the basis on which the value is determined is constituted by the same conceptual criterion that post manufacturing expenses and post manufacturing profit must be excluded
Considerable emphasis has been laid on the submission that as excise duty is a tax on the manufacture or 361 production of goods it must be a tax intimately linked with the manufacture or production of the excisable article and therefore it can be imposed only on the assessable value determined with reference to the excisable article at the stage of completed manufacture and to no point beyond
To preserve this intimate link or nexus between the nature of the tax and the assessment of the tax it is urged that all extraneous elements included in the value in the nature of post manufacturing expenses and post manufacturing profits have to be off loaded
It is pointed out that factors such as volume quantity and weight which enter into the measure of the tax are intimately linked with the manufacturing activity and that the power of Parliament under Entry 84 of List I of the Seventh Schedule to the Constitution to legislate in respect of value is restricted by the conceptual need to link the basis for determining the measure of the tax with the very nature of the tax
Shri K Parasaran the learned Solicitor General of India when these cases were heard and now the Attorney General of India has strongly contended that the value of an excisable article for the purposes of the levy must be taken at the price charged by the manufacturer on a wholesale transaction the computation being made strictly in terms of the express provisions of the statute and he says there is no warrant for confining the value to the assessee s manufacturing cost plus manufacturing profit
According to him although excise is a levy on the manufacture of goods it is open to Parliament to adopt any basis for determining the value of an excisable article that the measure for assessing the levy need not correspond completely to the nature of the levy and no fault can be found with the measure so long as it bears a nexus with the charge
Besides this fundamental issue there are other points of dispute principally in respect of the connotation of the expression related person in the new s4 as well as the nature of the deductions which can be claimed by the assessee as post manufacturing expenses and post manufacturing profit from the price for the purpose of determining the value
The submissions made by learned counsel for the parties in support of their respective contentions cover a wide area and several questions of a fundamental nature have been raised
We consider it necessary to deal with them because they enter into and determine the conclusions reached by us
362 We think it appropriate that at the very beginning we should briefly indicate the concept of a duty of excise
Both Entry 45 of List I of the Seventh Schedule to the Government of India Act 1935 under which the original was enacted and Entry 84 of List I of the Seventh Schedule to the Constitution under which the Amendment Act of 1973 was enacted refer to Duties of excise on goods manufactured or produced in India
A duty of excise according to the Federal Court in The Central Provinces and Berar Sales of Motor Spirit and Lubricants Taxation Act 1938 is a duty ordinarily levied on the manufacturer or producer in respect of the manufacture or production of the commodity taxed
A distinction was drawn between the nature of the tax and the point at which it was collected and Gwyer CJ observed that theoretically there can be no reason why an excise duty should not be imposed even on the retail sale of an article if the taxing Act so provides
Subject always to the legislative competence of the taxing authority a duty on home produced goods will obviously be imposed at the stage which the authority find to be most convenient and the most lucrative wherever it may be but that is a matter of the machinery of collection and does not affect the essential nature of the tax
The ultimate incidence of an excise duty a typical indirect tax must always be on the consumer who pays as he consumes or expends and it continues to be an excise duty that is a duty on home produced or home manufactured goods no matter at what stage it is collected emphasis supplied
The position was explained further in The Province of Madras vs Messers
Boddu Paidanna and Sons where the Federal Court observed There is in theory nothing to prevent the Central Legislature from imposing a duty of excise on a commodity as soon as it comes into existence no matter what happens to it afterwards whether it be sold consumed destroyed or given away
A taxing authority will not ordinarily impose such a duty because it is much more convenient administratively to collect the duty as in the case of most of the Indian Excise Acts when the commodity leaves the factory for the first time and also because the duty is intended to be an indirect duty which the manufacturer or producer is to pass on to the ultimate consumer which he could not do if the commodity had 363 for example been destroyed in the factory itself
It is the fact of manufacture which attracts the duty even though it may be collected later
 The observations show that while the nature of an excise is indicated by the fact that is imposed in respect of the manufacture or production of an article the point at which it is collected is not determined by the point of time when its manufacture is completed but will rest on considerations of administrative convenience and that generally it is collected when the article leaves the factory for the first time
In other words the circumstance that the article becomes the object of assessment when it is sold by the manufacturer does not detract from its true nature that it is a levy on the fact of manufacture
In a subsequent case Governor General in Council vs Province of Madras the Privy Council referred to both in The Central Provinces and Berar Sales of Motor Spirit and Lubricants Taxation Act 1938 supra and The Province of Madras vs Messers
Boddu Paidanna and Sons supra and affirmed that when excise was levied on a manufacturer at the point of the first sale by him that may be because the taxation authority imposing a duty of excise finds it convenient to impose that duty at the moment when the excisable article leaves the factory or workshop for the first time on the occasion of its sale
But that method of collecting the tax is an accident of administration it is not of the essence of the duty of excise which is attracted by the manufacture itself This Court had occasion to consider a similar question in RC Jall vs Union of India
In that case the Central Government was authorised by an ordinance to levy and collect as a cess on coal and coke despatched from collieries in British India duty of excise at a specified rate
Rule 3 made under Ordinance empowered the Government to impose a duty of excise on coal and coke when such coal and coke was despatched by rail from the collieries of the coke plants and the duty was to be collected by the Railway Administration by means of a surcharge on freight either from the consignor or consignee
It was contended by the assessee that the excise duty could not legally be levied on the consignee who had nothing to do with the manufacture or production of coal
The Court remarked The argument confuses the incidence of taxation with the machinery provided for the collection thereof 364 and reference was made to In re
the Central Provinces and Berar Act No XIV of 1938 supra The Province of Madras vs Boddu Paidanna and Sons supra and Governer General in Council vs 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 manufacturer or producer passes on to the ultimate consumer that is its 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 character 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 administrative 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 section 20 of the  and section 3 of the  Union of India vs Delhi Cloth  General Mills Ms Guruswamy  Co Etc
vs State of Mysore  Ors
and South Bihar Sugar Mills Ltd etc
vs Union of India  Ors
We think we have shown sufficiently that while 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
section 3 of the provides for the levy of the duty of excise
It creates 365 the charge and defines the nature of the charge
That it is a levy on excisable goods produced or manufactured in India is mentioned 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 the 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 be confused with the nature of the tax
In Ralla Ram vs Province of East Punjab the Federal Court held that a tax on buildings under section 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 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 levies remained separate and distinct imposts by virtue of their nature
In other words 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 Ram Budhia vs State of Bihar where a tax on passengers and goods was assessed as a rate on the fares and freights payable by the owners of the motor vehicles
Atma Ram Budiha supra was referred to with approval by this Court in Ms Sainik Motors Jodhpur and Others vs The State of Rajasthan
This Court in that case repelled the contention that the levy was a tax upon income and not upon passengers 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 and goods
The point was considered by this Court again in DC Gouse and Co etc
vs State of Kerala  Anr
where reference was made to the measure adopted for the purpose of the levy of tax on buildings under the Kerala Building Tax Act
The Court examined the different modes available to the Legislature for measuring the levy and upheld the action of the Legislature in linking the levy with the annual value of the building and prescribing a uniform formula for determining its capital value and for calculating the tax
In the course of its judgment the Court cited with approval a passage from Seervai s Constitutional Law of India
366 Another principle for reconciling apparently conflicting tax entries follows from the fact that a tax has two elements the person thing of activity on which the tax is imposed and the amount of the tax
The amount may be measured in may ways but decided cases establish a clear distinction between the subject matter of a tax and the standard by which the amount of tax is measured
These two elements are described as the subject of a tax and the measure of a tax
 It is therefore clear that the levy of a tax is defined by its nature while the measure of the tax may be assessed by its own standard
It is true that the standard adopted as the measure of the levy may indicate the nature of the tax but it does not necessarily determine it
The relationship was aptly expressed by the Privy council in Re
A Reference under the Government of Ireland Act 1920 and Sect
3 of the Finance Act Northern Ireland 1934 when it said 
It is the essential characteristic of the particular tax charged that is to be regarded and the nature of the machinery often complicated by which the tax is to be assessed is not of assistance except in so far as it may throw light on the general character of the tax
 The case was referred to by a Constitution Bench of this Court in RR Engineering Co vs Zila Parishad Bareilly  Anr where the relationship was succinctly described thus It may be and is often so that the tax on circumstances and property is levied on the basis of income which the assessee receives from his profession trade calling or property
That is however not conclusive on the nature of the tax
It is only as a matter of convenience that income is adopted as a yardstick or measure for assessing the tax
As pointed out in Re
a Reference under Govt
of Ireland Act supra the measure of the tax is not a true test of the nature of the tax
Therefore while determining the nature of a tax though the standard on which the tax is levied may be a relevant consideration it is not a conclusive consideration
 367 The principle was reaffirmed by this Court in The Hingir Rampur Coal Co Ltd and Others vs The State of Orissa and Others where the form in which the levy was imposed was held to be and impermissible test for defining in itself the character of the levy
It was observed  the mere fact that the levy imposed by the impugned Act had adopted the method of determining the rate of the levy by reference to the minerals produced by the mines would not by itself make the levy a duty of excise
The method thus adopted may be relevant in considering the character of the impost but its effect must be weighed along with and in the light of the other relevant circumstances
 It is apparent therefore that when enacting a measure to serve as a standard for assessing the levy the Legislature need not contour it along lines which spell out the character of the levy itself
Viewed from this standpoint it is not possible to accept the contention that because the levy of excise is a levy on goods manufactured or produced the value of an excisable article must be limited to the manufacturing cost plus the manufacturing profit
We are of opinion that a broader based standard of reference may be adopted for the purpose of determining the measure of the levy
Any standard which maintains a nexus with the essential character of the levy can be regarded as a valid basis for assessing the measure of the levy
In our opinion the original s4 and the new s4 of the satisfy this test
S4 envisages a method of collecting tax at the point of the first sale effected by the manufacturer
Under the old s4 a the value of the excisable article was deemed to be the wholesale cash price for which an article of the like kind and quality was sold or was capable of being sold at the time of the removal of the article 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 did not exist for such article at such place then delivery was envisaged at the nearest place where such market existed
Sec4 b declared that where such price was not ascertainable the value would be deemed to be the price to be the price at which an article of the 368 like kind and quality was sold or was 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 and if such article was not sold or was not capable of being sold at such place at any other place nearest thereto
Then there was an explanation which declared that no abatement or deduction would be allowed except in respect of trade discount and the duty payable at the time of the removal of the article from the factory
The wholesale price was envisaged as a cash price in order to make it a uniform standard because it was then a price freed from the burden of an increase on account of credit or other advantage allowed to a buyer a factor which may vary from transaction to transaction and from buyer to buyer
The essential distinction between cl
a and cl
b of s4 appears to lie in this that cl
a is invoked when the wholesale cash price is ascertainable and cl
b when the wholesale cash price cannot be ascertained
As we have said it was open to the Legislature to specify the measure for assessing the levy
The Legislature has done so
In both the old s4 and the new s4 the price charged by the manufacturer on a sale by him represents the measure
Price and sale are related concepts and price has a definite connotation
The value of the excisable article has to be computed with reference to the price charged by the manufacturer the computation being made in accordance with the terms of s4
A contention was raised for some of the assessees that the measure was to be found by reading s3 with s4 thus drawing the ingredients of s3 into the exercise
We are unable to agree
We are concerned with s31 and we find nothing there which clothes the provision with a dual character a charging provision as well as a provision defining the measure of the charge
At this stage it would be advantageous to refer to certain decisions which have some bearing on the proper construction of cl
a and cl
b of the old s4
In Vacuum Oil Company vs Secretary of State for India in Council the Privy Council had to construe the scope of s30 of the which contained cls
a and b substantially comparable with the two clauses of the old s4 of the Central 369 Excises and Salt Act
The appellants in this case manufactured different grades of lubricating oil in the United States
Large quantities of lubricating oil of particular manufacture and mark were imported into India through the port of Bombay and sold by the appellants directly to consumers
A dispute arose as to the provisions under which duty under the was attracted
Section 30 of that Act provided that for the purposes of the duty the real value should be deemed to be a the wholesale cash price less trade discount for which goods of the like kind and quality are sold or are capable of being sold at the time and place of importation  or b where such price is not ascertainable the cost at which goods of the like and quality could be delivered at such place  The government contended that the real value of the appellants  oil was its wholesale cash price referred to in s30a a price ascertainable without difficulty
The appellants replied that in view of the unique character of their oil and of the invariable course of business pursued by them in relation to its sale a wholesale cash price for that oil had never existed and was not ascertainable and that therefore its real value must be determined in accordance with s30b of the Act
The Privy council observed that there was no other oil in Bombay which could be said to be of the like kind and quality as the oil imported by the appellants and therefore the relevant wholesale cash price for the appellants if there be such price was to be found in the actual sales of those oils in Bombay by the appellants themselves provided that such sales had taken place
It was noted that large stocks of oil were imported at Bombay and all contracts for sale were made with reference to stocks
The oils were disposed of directly to consumers and never to dealers
The appellants themselves discharged all the functions of retailers of their oil as so sold
Besides the selling price to consumers was about 70 per cent above the entry price the difference representing the appellant s retailing profit and the expenses incurred by them in respect of matters subsequent to importation
The quantities of oil purchased by individual consumers were in some cases very large indeed
The Privy council took the view that in no sense could the price charged to consumers for the oils imported by the appellants be regarded as a wholesale case price and that therefore the case did not fall within s30a but must be regarded as attracting s30 b
On the other side of the line is Ford Motor Company of India Ltd vs Secretary of State for India in Council in which the 370 Privy Council had to consider the scope of section 30 of the Indian again
The appellants imported Ford motor vehicles into India from Canada and sold them to authorised dealers or distributors
They possessed a monopoly in India as regards the supply of such vehicles
The appellants issued from time to time a price list and the terms of business were that the retail price to be charged by the distributors to the public was that stated in the price list current at the time of arrival of the vehicles in India and the price payable by the distributors to the appellants was the same price less a discount of 20 per cent
The Collector of Customs assessed customs duty on a consignment of 256 Ford motor cars under section 30 a
The appellants contended that for the motor cars in question no wholesale cash price was ascertainable and the duty should have been assessed under section 30 b
The Privy Council approached the case from the stand point that if a wholesale price satisfying the description contained in section 30 a was ascertainable the goods could not be dealt with under section 30 b and in this connection they referred to the expression ascertainable as importing more than could be satisfied by the result of a mere estimate
The Privy Council held that the appellant s price to the distributors was a wholesale price within the meaning of section 30 a because it was a cash price and only discount had been deducted and the sum payable by the distributor had been deduced to a price referable to a car in the condition in which it arrived in Bombay
It was contended for the appellants that goods of the like kind and quality in cl
a was a phrase which suggested other goods than that under assessment and therefore the price fetched by the goods themselves must be disregarded or should be considered only to see what price other similar goods would have realised
It was urged that since that test was not satisfied cla could not be invoked
The Privy Council rejected the contention observing that the application of cla did not depend upon any hypothesis to the effect that at the time and place of importation an indefinite amount of further goods added to the available supply had effect upon the wholesale price
And what is important the Privy Council further observed 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 371 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 cl
a whether the particular car or cars sold be part of the shipment in question or not
But the goods under assessment may under cl
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
 These two cases illustrate the fundamental distinction between provisions such as the two clauses of section 4 of the 
Great reliance has been placed by the assessees on two important decisions of this Court in support of the contention that only the manufacturing cost and the manufacturing profit can be taken into account for assessing the value of an excisable article
The first case is AK Roy vs Voltas Ltd supra
The assessee manufactured air conditioners and water coolers and sold those article from its head office at Bombay and at branch officers in different towns in the country directly to consumers at list prices
The sales so effected amounted to about 90 to 95 of its production
It also sold the articles to wholesale dealers on terms which required them to sell the products at list prices and that the assessee would sell them the articles at the listed price less 22 discount
The assessee contended before the excise authorities that the list price minus 22 discount allowed to the wholesale dealers would constitute the wholesale cash price for ascertaining the real value of the articles
The contention was accepted by the excise authorities and assessments were made on that basis
Subsequently the Superintendent of Central Excise began to assess the duty on the basis of the retail price and not the wholesale cash price
The case was taken by writ petition to the High Court which held that the duty fell to be assessed under the old s4a of the on the basis of the wholesale cash price payable by the wholesale dealers and not under s4b on the basis of the price of retail sales effected directly to the consumers
The case was brought in appeal to this Court
The Court observed that for the purposes of s4a it was not necessary for a wholesale market to exist in the physical sense of the term where articles of a like kind or quality are or could be sold
A wholesale market it was observed could also mean the potentiality of the articles being 372 sold on a wholesale basis
What was necessary was that the articles could be sold wholesale to traders
It was observed further that the application of s4a of the Act did not depend upon any hypothesis to the effect that at the time and place of sale any further articles of the like kind and quality should have been sold
If there was an actual price for the goods themselves at the time and place of sale and if that was a wholesale cash price  the clause was not inapplicable for want of sale of other goods of a like kind and quality
Later follow the words which have brought on the present controversy Excise is a tax on the production and manufacture of goods see Union of India vs Delhi Cloth and General Mills supra
Section 4 of the Act therefore provides that the real value should be found after deducting the selling cost and selling profit and that the real value can include only the manufacturing cost and the 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
 Those observations were made when the Court was examining the meaning of the expression wholesale cash price
What the Court intended to say was that the entire cost of the article to the manufacturer which would include various items of expense composing the value of the article plus his profit on the manufactured article which would have to take into account the deduction of 22 allowed as discount would constitute the real value had to be arrived at after off loading the discount of 22 which in fact represented the wholesale dealer s profit
A careful reading of the judgment will show that there was no issue inviting the Court s decision on the point now raised in these cases by the assessees
The other case is Atic Industries Ltd vs HH Dove Asstt
Collector of Central Excise and Ors
The appellant Atic Industries Ltd was a manufacturer of dye stuffs
It sold its products to two wholesale buyers 70 of its total production to one and 30 to the other
The price charged was a uniform price described as the basic selling price less a trade discount of 18
The wholesale dealers in turn resold the dyestuffs to distributors and also directly to 373 large consumers including textile mills
The large consumers paid the basic selling price while the distributors paid a higher price but subject to a trade discount
The distributors sold the product to consumers
The question arose as to how the value of the dyestuffs manufactured by the appellants should be determined under s4
The appellants contended that the value should be the price at which the appellants sold in wholesale to the two wholesale buyers less a uniform trade discount of 18
The excise authorities took the view that the value should be the price at which the wholesale buyers had sold the dye stuffs to the distributors without taking into account the discount given to the distributors
Before this Court the excise authorities pressed the same contention urging that s4 a did not provide that in every case the wholesale price charged by the manufacturer should be taken into consideration and not the wholesale price charged by the wholesale buyers who sold the product also in wholesale to the next buyers
One of us Bhagwati J spoke for the Court in that case and delivered a closely enunciated and lucid exposition of the true legal position
It was explained 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 whole sale 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
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 possibility 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 374 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 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
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 gate within the meaning of s4 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 375 of the value and the goods would not be chargeable to excise on that basis
 This case also does not support the case of the assessees
When it refers to post manufacturing expenses and post manufacturing profit arising from post manufacturing operations it clearly intends to refer not to the expenses and profits pertaining to the sale transactions 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 Atic Ltd supra we may now proceed directly to the consideration of certain aspects of the provisions of the old s4
There has been serious argument on the question whether s4 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 price of articles of the like and quality sold by the assessee
At first blush it would seem that the former construction should be accepted and indeed some support can be derived for that view from the observations of the Privy Council in Vacuum Oil Co supra where the wholesale cash price mentioned in s30 a of the  was construed to mean that price current for staple articles
the amount of which if not a subject of daily publication in the press is easily ascertainable in appropriate trade circles
But this general observation can be of no help to the assessees because since then he courts have proceeded to make the position amply clear
The problem presented itself again to the Privy Council in Ford Motor Co of India Ltd supra and while taking note of what it had said in the earlier case the Privy Council laid down that where the excisable goods constituted a class of their own and it was not possible to say that other manufacturers produced goods of that kind and quality the goods under assessment could be considered as members of their own class for the purpose of s30 a even although at the time and place of importation there were no other members
The price obtained for them it was said would correctly represent the price obtainable for goods of the like kind and quality at the time and place of importation
Then in Voltas Ltd supra this Court observed that the application of s4 a of the did 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
If there was 376 an actual price for the goods themselves at the time and place of sale and if that was a wholesale cash price the clause was not inapplicable for want of sale of other goods of a like kind and quality
It seems to us that the more practical way of looking at the problem is that there are very few cases indeed where two manufacturers produce an article of the like kind and quality
An instance has been supplied by learned counsel for the assessees and we are referred to the case of a factory which manufactures identical electric bulbs for supply to a number of companies who sell them in the market under their own distinctive trade names
While such examples are possible we are inclined to accept the statement of the learned Solicitor General that goods manufactured by different manufacturers generally differ in both kind and quality
Further the manufacturing and other costs would vary from one manufacturer to another depending on the efficiency of manufacturing techniques and management methods employed
Other important considerations are certainty and convenience in the administration of the levy from the view point of both the assessee and the Revenue
There is the further consideration that the wholesale cash price charged by the assessee must be ascertained on the basis that the sale to the wholesale dealer is at arm s length
We are therefore of the view that we should prefer the construction suggested by the Revenue that s4 a applies to the goods manufactured by the assessee himself
We may also point out that this conclusion is in accord with the general intent expressed in the new s4 1 a and as we shall show presently it is the case of both the assessees and the Revenue that in enacting the new s4 in supersession of the old section no material departure was intended from the basic scheme for determining the value of the excisable article
Accordingly we hold that pursuant to the old s4 a the value of an excisable article for the purpose of the excise levy should be taken to be the price at which the excisable article is sold by the assessee to a buyer at arm s length in the course of wholesale trade at the time and place of removal
Where however the excisable article is not sold by the assessee in wholesale trade but for example is consumed by the assessee in his own industry the case is one where under the old s4 a the value must be determined as the price at which the excisable article or an article of the like kind and quality is capable of being sold in wholesale trade at the time and place of removal
Where the excisable article or an article of the like kind and quality is not sold in wholesale trade at the place of removal that is 377 at the factory gate but is sold in the wholesale trade at a place outside the factory gate the value should be determined as the price at which the excisable article is sold in the wholesale trade at such place after deducting therefrom the cost of transportation of the excisable article from the factory gate to such place
The claim to other deductions will be dealt with later
Finally where the wholesale price of the excisable article or an article of the like kind and quality is not ascertainable then pursuant to the old s4 b the value of the excisable article shall be the price at which the excisable article or an article of the like kind and quality is sold or is capable of being sold by the assessee at the time and place of removal or if the excisable article is not sold or is not capable of being sold at such place then the price at which it is sold or is capable of being sold by the assessee at any other place nearest thereto
In every case the fundamental criterion for computing the value of an excisable article is the price at which the excisable article or an article of the like kind and quality is sold or is capable of being sold by determining such value
As we have noted Parliament amended the General Excises and Salt Act by Act XXII of 1973
In particular Parliament introduced a new s4 which totally superseded the old section and embodied a much more comprehensive and clearly enunciated scheme for the determination of the real value of an excisable article
Clause a of the new s4 speaks of the value being the normal price that is to say the price at which such goods are ordinarily sold to a buyer in the course of wholesale trade for delivery at the time and place of removal where the buyer is not a related person and the price is the sole consideration for the sale
 Where the normal price of such good is not ascertainable for the reason that such goods are not sold or for any other reason the new s4 1 b provides that the nearest ascertainable equivalent thereof determined in such manner as may be prescribed shall be the value of the excisable goods for the purpose of charging the excise duty
It will be noticed that the basic scheme for determination of the price in the new s4 is characterised by the same dichotomy as that observable in the old s4
It was not the intention of Parliament when enacting the new s4 to create a scheme materially different 378 from that embodied in the superseded s4
The object and purpose remained the same and so did the central principle at the heart of the scheme
The new scheme was merely more comprehensive and the language employed more precise and definite
As in the old s4 the terms in which the value was defined remained the price charged by the assesseee in the course of wholesale trade for delivery at the time and place of removal
Under the new s4 the phrase place of removal was defined by s4 b not merely as the factory or any other place or premises of production or manufacture of the excisable goods from where such goods are removed but was extended to a warehouse or any place or premises wherein the excisable goods have been permitted to be deposited without payment of duty and from where such goods are removed
The judicial construction of the provisions of the old s4 had 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 been mentioned here earlier this Court pointed out in Voltas 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 is charged because of extra commercial considerations eg because he is a relative of the manufacturer the price charged for those sales would not be the wholesale cash price for levying excise under s4 a of the Act
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
 That was also the view taken in Atic Industries Ltd supra
The new s4 makes express provision in that behalf
Under the new s4 also it is necessary to take the price charged by the manufacturer as one which is un effected by any concessional or manipulative considerations and therefore the normal price mentioned in the new s4 1 a speaks of a price where the buyer is not the related person and the price is the sole consideration for the sale
 The expression related person has been specifically defined in the new s4 4 c and transactions in which a related person is involved are covered by the third proviso of s4 1 a
Both learned counsel for the assessees and the learned Solicitor General for the Revenue are agreed that in enacting the new s4 Parliament did not intend to bring into existence a scheme of valuation different from that embodied in the old s4 379 Reference was made in that connection 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 s4 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 limitations should be read into the new s4 the learned Solicitor General approached the problem from the other end and contended that since on a plain reading of the new s4 the price actually charged by the assessee was the true criterion and was not limited to the manufacturing cost and manufacturing profit it is that construction which should be put also on the old s4
We have earlier indicated our inability to accept the proposition that the old s4 defined the value of an excisable article in terms of the manufacturing cost and manufacturing profit exclusively
We find from an examination of the provisions of the new s4 that a similar conclusion must follow
The normal price mentioned in the new s4 1 a is the price at which the goods are ordinarily sold by the assessee 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 s4 a with different classes of buyers
It may also be according to the second proviso to the new s4 1 a the price fixed as the wholesale price under any law or the maximum price where the law fixes a maximum
The price may also be a different price if the case falls within the third proviso to the new s 4 1 a
In that event it will be the price charged by a related person in the course of wholesale trade
Clearly it is not possible to conceive of the price under the new s4 1 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 s4 or under the new s4 1
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 principles of an excise levy and have considered the statutory construction of the Act before and after its amendment in view of the three propositions formulated on behalf of the assessees as principle constituting the essential characteristics of a duty of excise
It is apparent that the first proposition that excise is a tax on the manufacture or production of goods and not on anything else is indisputable and is supported by a catena of cases beginning with The Central Provinces and Berar Sales of Motor 380 Spirit and Lubricants Taxation Act
1938 supra
As regards the second proposition that uniformity of incidence is a basic characteristic of excise we are inclined to think 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 involved 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 of 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 broader base than that 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 manufacturing 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 contemplated
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 s3 3 of the  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 of producers or manufacturers or ii sold to different classes of buyers
That the value of excisable goods determined under the new s4 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 wholesale 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 conditions of cl
a be deemed to be the normal price of such goods in relation to each class of buyers
Clause ii provides that where the goods are sold in wholesale at a price fixed under any law or at a price being the maximum fixed under any such law then the price or the maximum price as the case may be so fixed shall in relation to the goods be deemed to be the normal price thereof
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 the course of wholesale trade at the time of removal to dealers not being related persons or where such goods are not sold to such dealers 381 to dealers being related persons who sell such goods in retail
The verity of the three principles propounded by learned counsel for the assessees has been as indeed it had to be examined in the context of the Act before and after its amendment
For the case of the assessees is that the amendment has made no material change in the basic scheme of the levy and the provisions for determining the value of the excisable article
Learned counsel for the assessees has contended that the old section 4 a expresses the conceptual nature of the value of an excisable article because neither the identity of the manufacturer nor the identity of the goods sought to be charged nor the actual wholesale 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 should be considered as applicable to the circumstances of the particular assessee himself and not of manufacturers 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 element namely the actual wholesale price charged by the manufacturer is likewise a determining factor in view of our conclusion that the identity of the manufacturer is material in the application of the old section 4 a
Learned counsel for the assessees urged that the expression normal price in the new section 4 1 a means the price normal for the purposes of the excise duty and that it is said means the manufacturing cost plus the manufacturing profit
It is urged that the normal 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 is doing some violence to the words and support is taken from Luke vs IRC and the principle adopted by this Court in Commissioner of Income Tax Central Calcutta vs National Taj Traders and in KP
Varghese vs Income Tax Officer Ernakulam and Another
A somewhat similar approach had already been adopted by this Court in Commissioner of Income Tax 382 Central Calcutta vs BN Bhattachargee and Another
Learned counsel also referred to Commissioner of Wealth Tax Bihar and Orissa vs Kripashankar Dayashankar Worah and RB Jodha Mal Kuthiala vs Commissioner of Income Tax
Punjab
Jammu  Kashmir and Himachal Pradesh
When the new section 4 1 a is read as a whole the meaning of the expression normal price becomes plainly 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 Judicial Dictionary Fourth Edition Vol
5 p 2753 is the commencement of an ancillary clause which explains the meaning of the principal clause
It bas the following properties 1 it must not be contrary to the principal clause 2 it must neither increase nor diminish it 3 but where the principal clause is general in terms it may restrict it and reference has been made to Stuckeley vs Butler and Harrington v Pole
Therefore the phrase normal price is defined by the words in section 4 1 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 and place of removal where the buyer is not a related person and the price is the sole consideration for the sale Learned counsel for the assessees contended that the new section 4 1 a also levies excise on the basis of a conceptual value which must exclude post manufacturing profit and in support of that submission he has adduced a number of reasons
It is said that the essential principle of excise dictates the exclusion of post manufacturing expenses 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 selling and marketing organisations 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 section 4 should be interpreted on the same basis as the old section 4
Reference is made to the Statement of Objects and Reasons of Act XXIII of 1973 to show that no change 383 of substance in the basis of the charge or levy was intended by the amendment of section 4
It is said that the phrase that is to say in the new section 4 1 a indicates that the conceptual criterion for determining the value is substantially the same as it was in the old section 4
Then it is pointed out section 4 1 b enacts that where the normal price is not ascertainable the nearest ascertainable equivalent thereof has to be determined
As a consequence it is urged that where sales 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 section 4 1 a
By adopting the same principle for cases falling under section 4 1 a and section 4 1 b it is possible it is said to reach uniformity of incidence 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 ex depot
It is urged that although the new section 4 4 d ii permits two types of deductions of taxes and discount it does not prohibit deductions other shall the two permitted
Finally if the wholesale p ice can be adjusted upward by the department making additions thereto it can be adjusted downward at the instance of the assessee to make it conform to the conceptual criterion of the value on which excise can be levied
The essential content of the reasons stated by learned counsel proceeds on the assumption that a conceptual value governs 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 well as the new section 4 determine the value on the basis price charged or chargeable by the particular assessee and the price is charged 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 already mentioned in the statute will depend 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 vs The Union Of India and Another that a duty of excise is a tax levy on home produced goods of a specified class or description the duty being calculated according 384 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 on any commercial transaction in then
Clearly when the Court referred to the calculation 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 13 not the value for assessing the levy which it had in mind when it pointed 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 CJ in The Central 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 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 of the excisable articles or at least at the stage of or in connection with manufacture or production and extends no further
 The learned Chief Justice was referring in this statement to the power to make a law respect of a duty of excise
He construed it as a power to impose the duty upon the manufacturer or producer and explained that the levy related to the manufacture or production and to no further stage
It was the nature of the levy which was adverted to by the learned Chief Justice namely that it was a levy on goods manufactured or produced
It will be remembered that the question before the Federal Court in that case whether the levy 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 namely the sale of the article
The task before the Court was to identify the nature of the levy
It was not concerned with the assessment of the value of the article for the purpose of the levy
This brings to a close in these cases the question whether the value of an article for the purpose of the excise levy must be confined to the manufacturing cost and the manufacturing profit in respect of the article
In our judgment the question has to be answered in the negative
385 The next question for consideration is whether the provisions in the new section 4 in respect of transactions  effected by the assessee to or through a related person are invalid
The new section 4 1 a provides that the value shall be deemed to be the normal 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 where the buyer is not a related person and the price is the sole consideration for the sale
The third proviso to the new section 4 1 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 a related person the normal price of the goods sold by the assessee to or through such related person shall be deemed to be the price at which they are ordinarily sold by the related person in the course of wholesale trade at the time of removal to dealers not being related persons or where such goods are not sold to such dealers to dealers being related persons who sell such goods in retail
The new section 4 4 c defines the expression related person as follows c related person  means 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 a relative and a distributor of the assessee and any sub distributor of such distributor
Explanation  In this clause holding company  subsidiary company  and relative  have the same meanings as in the 1 of 1956
 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 and his wholesale buyer can be rejected in any case under section 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 new section 4 1 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 of extra commercial considerations in order that the price be ascertained only on the basis that it is a transaction at arms length
That requirement is emphasised by the provision in the new section 4 1 a that the price should be the sole consideration for the sale
In every 386 such case it will be for the Revenue to determine on 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 article for the purpose of excise duty
Nonetheless it was open to Parliament to incorporate provisions in the 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 are transactions which cannot be dealt with under the usual meaning of the expression normal price set forth in the new section 4 1 a
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 on being satisfied that the third proviso to the new section 4 l a read with the definition of related person in section 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 whimsical 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 limited 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 circumvention of the tax obligation by tax payers seeking to avoid or reduce their tax liability through modes resulting in the income or property arising to another
The provisions of the law 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 device and the liability is attached without qualification it is reasonable to infer that an irrebuttable 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 power of taxation and reference may be made to Balaji vs Income Tax Officer Special Investigation Circle 387 Navnitlal C Javeri vs KK Sen Appellate Assistant Commissioner of Income Tax D  Range Bombay and Punjab Distilling Industries Ltd vs Commissioner of Income Tax Punjab
It is contended for the assessees that the definition of the expression related person is so arbitrary 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 List l as a non descript tax the attempt must fail because there is no charging section in the empowering the levy of such non descript tax nor any machinery provision in the Act for collection such a tax
The charging provision and the machinery provisions of the Act it is pointed out deal exclusively 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
The challenge made on behalf of the assessees is powerful and far reaching
But it seems to us unnecessary to enter into that question because we are satisfied that the provision in the definition of related person relating to a distributor can be legitimately 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 assessee should be understood to mean a 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 
As regards the other provisions 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 employing the legal fiction
Here again regard must be had to the Explanation which provides that the expression holding company and subsidiary have the same meanings as in the 
Reference in this connection may be made to Tata Engineering and Locomotive Co Ltd vs State of Bihar and others where the principle was approved by this Court that the corporate veil could be lifted where 388 the companies shared the relationship of a holding company and a subsidiary company and to Juggi Lal Kamlapat vs Commissioner Of Income Tax UP where this Court held that the veil of corporate entity could 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
At one stage it was urged for the assessees that by making provision in the respecting transactions to or through a related person 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 and Lubricants Taxation Act 1938 supra See also Jullundur Rubber Goods Manufacturers  Association vs Union of India  Anr From what has gone before we consider that the true position under the as amended by Act XXII of 1973 can be set forth as follows 
i The price at which the excisable goods are ordinarily sold by the assessee to a buyer in the course 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 excisable value provided 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 proposition is subject to the terms of three provisos to sub section 1 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 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 Excises Valuation Rules
1975 should be taken as representing the excisable value of the goods 389 iii Where wholesale price of any excisable goods for delivery at the place of removal is 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 transportation from the place of removal to the place of delivery should be excluded from such price iv Of course these principles cannot apply where the tariff value has been fixed in respect 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 section 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 assessee with in the meaning of the 
So read the definition of relates person  is not unduly wide and does not suffer from any constitutional infirmity
It is within the legislative competence of Parliament
It is only when an assessee 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 persons or where such goods are not sold to such dealers to dealers being related persons who sell such goods in retail is liable to be taken as the excisable value of the goods proviso under iii to sub section 1 a of section 4
We now proceed to the question whether any post manufacturing expenses are deductible from the price when determining the value of the excisable article
The old section 4 provided by the Explanation there to that in determining the price of any article under that section no abatement or deduction 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 section 4 provides by subs2 that where the price of excisable goods for delivery at the place 390 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 cost of transportation from the place of removal to the place of delivery has to be excluded from such price
The new section 4 also contains sub section
4 d ii which declares that the expression value in relation to any excisable goods does not include the amount of the duty of excise sales tax and other 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 wholesale trade at the time of removal in respect of such goods sold or contracted for sale
Now these are clear provisions expressly a providing for deduction from the price of certain items of expenditure
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 other categories of post manufacturing expenses
It is also urged that although the new section 44 d i declares that in computing the value of an excisable article the cost of packing shall 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  1 Storage charges
2 Freight or other transport charges whether specific or equalised
3 Outward handling charges whether specific or 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 expenses including advertisement and Publicity expenses
At the outset we must make it clear that the contentions in this regard on behalf of the assessees proceeds on two broad bases
391 The first is that to determine the value of an excisable article all expenses must be excluded which do not enter into the formula of manufacturing cost plus manufacturing profit
This follows from the principal plank of the assessees  case that the value must be confined to the manufacturing cost and the manufacturing profit
For it is said that if the deductions claimed are allowed the price would be brought down to the conceptual value
All post manufacturing expenses are claimed from that perspective and within that context
The other basis on which the claim proceeds is that the price at the factory gate and the price at a depot outside the factory gate are identical
We shall now examine the claim
It is apparent that for the purpose of determining the value broadly speaking both the old section 4a and the now s 41 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 contemplated under the old section 4a or under the new section 41a is not ascertainable the price is determined under the old section 4b or the new section 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 marketability in the trade
Therefore the expenses incurred on account of the several factors 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 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 service and marketing and selling organisation expenses including advertisement expenses cannot be deducted
It will be noted that 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 sale 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 But the assessee will be entitled to a deduction on account of the cost of transportation of the excisable article from the factory gate to the place or places where it is sold
The cost of transportation will include the cost of insurance on the 392 freight for transportation of the goods from the factory gate to the place or places of delivery
Where freight is averaged and the averaged 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 freight included in such wholesale cash price has to be deducted in order to arrive at the real wholesale cash price at the factory gate and Do excise duty can be charged on it
The case in respect of the cost of packing is somewhat complex
The new section 44di has made express provision for including the 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 section 4 substantially reflects the position obtaining under the unamended 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 section 44 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 removal 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 by the buyer to the assessee
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 the packing of which 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 sold in the course of wholesale trade to the wholesale buyer
The degree of packing in which the excisable article is contained will vary from one class of articles to another
From the particulars detailed before us by the assessees it is apparent that the cost of primary packing that is to say the packing in which the article is contained and in which 393 it is made marketable for the ordinary consumer 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 section 44 di
That is indeed 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 secondary packing which consists of larger cartons in which a standard number of primary cartons in the sense mentioned earlier are packed
The large cartons may be packed in to 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 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 remember that while packing is necessary to make the excisable article marketable 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 necessary for putting the excisable article in the condition 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 from the wholesale cash price of the excisable article at the factory gate
If any special secondary packing is provided by the 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 shall be deducted from the wholesale cash price
We have also been referred to section 2f of the Act which defines the expression manufacture and it is urged that the degree of packing to be considered for the purpose of including its cost in the value of an excisable article should be spelled out from that definition
We are unable to accept the suggestion
The expression manufacture is related to the taxable event and refers to a process which enters into the character of the article while packing has been defined by section 4 4 d i in relation to the value of the article
That we think is the position in regard to the cost of packing under the Act both before a its amendment and after
394 We have considered the claim to deductions under the specific heads enumerated by the assessees 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
These are the reasons for our order of May 91983 and they explain the scope within which that order must be construed as well as the basis on which it was made
The individual appeals writ petitions special leave petitions and transferred cases will be listed now for appropriate orders in the light of this judgment on October 31 1983


Summary:
Sub sec
1 of sec
3 of the provided that duties of excise shall be levied and collected on all excisable goods other than salt which were produced or manufactured in India at the rates set forth in the First Schedule
Sub sec
2 of sec
3 empowered the Central Government to fix for the purpose of levying the duties tariff values of the articles enumerated in the First Schedule as chargeable with duty ad valorem
Section 4 of the Act provided that the value of an article for the purposes of duty shall be a the wholesale cash price for which an article of the like kind and quality was sold or was capable of being sold at the time 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 b where such price was not ascertainable the price at which an article of the like kind and quality was sold or was capable of being sold at the time of the removal of the article chargeable with duty from such factory or other premises for delivery at the place of manufacture or production
With the increase in the ad valorem levies in the Central Excise Tariff the operation of sec
4 presented certain practical difficulties some of which were prominently brought out in the judgment of this court in AK Roy and Anr
vs Voltas Ltd 1973 2 SCR 1089
In that case the Court inter alia said that 348 the real value of an article for the purposes of the excise levy would include only the manufacturing cost plus manufacturing profits
In order to overcome various difficulties the original sec
4 of the Act was substituted by a new sec
4 by Act 22 of 1973
The new sec
4 provided that the value of an article for the purposes of duty shall subject to the other provisions of this section be deemed to be the normal price thereof that is to say the price at which such goods were ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and place of removal where the buyer was not a related person and the price was the sole consideration for the sale and where the normal price of such goods was not ascertainable for the reason that such goods were not sold or for any other reason the nearest ascertainable equivalent thereof determined in such manner as may be prescribed
Clauses c and d of sub sec
4 of sec
4 defined related person and value respectively
The Central issue which arose between the Revenue and the assessees in these appeals was whether the value of an article for the purposes of the excise levy must be determined by reference exclusively to the manufacturing cost and the manufacturing profit of the manufacturer as contended by the assessees or should be represented by the entire wholesale price charged by the manufacturer which consisted of not merely his manufacturing cost and his manufacturing profit but included post manufacturing expenses and post manufacturing profit arising between the completion of the manufacturing process and the point of sale by the manufacturer
The other points of dispute were principally in respect of the connotation of the expression related person  in the new s4 as well as the nature of the deductions which could be claimed by the assessee as post manufacturing expenses and post manufacturing profit from the price for the purpose of determining the value
HELD The question whether the value of an article for the purpose of the excise levy must be confined to the manufacturing cost and the manufacturing profit in respect of the article has to be answered in the negative
While the levy of excise duty 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 this country has the status of a constitutional concept the point of collection is located where the statute declares it will be
384 H 364 F G The Central Provinces and Berar Sales of Motor Spirit and Lubricants Taxation Act 1938  The Province of Madras vs Messers Boddu Paidanna and Sons  101 Governor General in Council vs Province of Madras  RC Jall vs Union of India 1962 Suppl
3 SCR 436 In Re
The Bill To Amend section 20 of the  and section 3 of the    Union of India vs Delhi Cloth  General Mills 1963 Suppl
1 SCR 586 MS Guruswamy  Co Etc
vs State of Mysore  Ors
1967 1 SCR 548 and South Bihar Sugar Mills Ltd etc
vs Union of India  Ors
1968 3 SCR referred to
The levy of a tax is defined by its nature while the measure of the tax may be assessed by its own standard
It is true that the standard adopted as the 349 measure of the levy may indicate the nature of the tax but it does not necessarily determine it
When enacting a measure to serve as a standard for assessing the levy the legislature need not contour it along lines which spell out the character of the levy itself
A broader based standard of reference may be adopted for the purpose of determining the measure of the levy
Any standard which maintains a nexus with the essential character of the levy can be regarded as a valid basis for assessing the measure of the levy
The original section 4 and the new section 4 of the satisfy this test
366 C 367 D F Ralla Ram vs The Province of East Punjab 1948 FCR 207 Atma Ram Budhia vs State of Bihar AIR 1952 Patna 359 Ms Sainik Motors Jodhpur and Ors
vs The State of Rajasthan   DC Gouse and Co etc
vs The State of Kerala  Anr
   Searvai s Constitutional Law of India Second Edition
2 at page 1258 Re
A Reference under the Government of Ireland Act 1920 and Sec
3 of the Finance Act Northern Ireland  RR Engineering Co vs aila Parished Bareilly  Anr   and The Hingir Rampur Coal Co Ltd and Ors
vs The State of Orissa and Ors  referred to
It was open to the legislature to specify the measure for assessing the levy
The legislature has done so
In both the old section 4 and the new section 4 the price charged by the manufacturer on a sale by him represents the measure
Price and sale are related concepts and price has a definite connotation
The value of the excisable article has to be computed with reference to the price charged by the manufacturer the computation being made in accordance with the terms of section 4
368 D E On a true construction of its provisions in the context of the statutory scheme the old section 4 a should be considered as applicable to the circumstances of the particular assessee himself and not of manufacturers generally381 C D Pursuant to the old section 4 a the value of an excisable article for the purpose of the excise levy should be taken to be the price at which the excisable article is sold by the assessee to a buyer at arm s length in the course of wholesale trade at the time and place of removal
Where however the excisable article is not sold by the assessee in wholesale trade but for example is consumed by the assessee in his own industry the case is one where under the old section 4 a the value must be determined as the price at which the excisable article or an article of the like kind and quality is capable of being sold in wholesale trade at the time and place of removal
376 F H Where the excisable article or an article of the like kind and quality is not sold in wholesale trade at the place of removal that is at the factory gate but is sold in the wholesale trade at a place out side the factory gate the value should be determined as the price at which the excisable article is sold in the wholesale trade at such place after deducting therefrom the cost of transportation of the excisable article from the factory gate to such place
376 H 77 A B 350 Where the wholesale price of the excisable article or an article of the like kind and quality is not ascertainable then pursuant to the old section 4 b the value of the excisable article shall be the price at which the excisable article or an article of the like kind and quality is sold or is capable of being sold by the assessee at the time and place of removal or if the excisable article is not sold or is not capable of being sold at such place then the price at which it is sold or is capable of being sold by the assessee at any other place nearest thereto
377 B C In every case the fundamental criterion for computing the value of an excisable article is the price at which the excisable article or an article of the like kind and quality is sold or is capable of being sold by the manufacturer and it is not the bare manufacturing cost and manufacturing profit which constitutes the basis for determining such value
377 D Vacuum Oil Company vs Secretary of State for India in Council LR 59 IA 258 Ford Motor Company of India Ltd vs Secretary of State for India in Council LR 65 IA 32 and Atic Industries Ltd vs HH Dave Asst Collector of Central Excise and Ors
1975 3 SCR 563 referred to
The basic scheme for determination of the price in the new section 4 is characterised by the same dichotomy as that observable in the old section 4
It was not the intention of Parliament when enacting the new section 4 to create a scheme materially different from that embodied in the superseded section 4
The object and purpose remained the same and so did the central principle at the heart of the scheme
The new scheme was merely more comprehensive and the language employed more precise and definite
As in the old section 4 the terms in which the value was defined remained the price charged by the assessee in the course of wholesale trade for delivery at the time and place of removal
377 H 378 A B It is not possible to conceive of the price under the new section 4 1 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 section 4 or under the new section 4 1
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
379 E G The contention that the provisions regarding related persons are wholly unnecessary 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 section 4 is not acceptable
The new section 4 1 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 of extra commercial consideration in order that the price be ascertained only on the basis that it is a transaction at arm s length
That requirement is emphasised by the provision in the news
4 1 a that the price should be the sole consideration for the sale
In every such case it will 351 be for the Revenue to determine on 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 article for the purpose of excise duty
Nonetheless it was open to Parliament to incorporate provisions in the 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 are transactions which cannot be dealt with under the usual meaning of the expression normal price set forth in the new section 4 1 a
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 on being satisfied that the third provision to the new section 4 1 a read with the definition of related person in section 4 4 c is attracted to proceed to determine the value in accordance with the terms of the third proviso
385 F H 386 A D The argument that the assessment on the manufacturer by reference to the sale price charged by his distributor is wholly incompatible with the nature of excise has no force
It is a well known legislative practice to enact provisions in certain limited cases 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 circumvention of the tax obligation by tax payers seeking to avoid or reduce their tax liability through modes resulting in the income or property arising to another
The provisions of the law may be so 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 Legislature fastens the liability on the assessee
When the Legislature employs such a device and the liability is attached without qualification it is reasonable to infer that an irrebuttable 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 power of taxation
386 D H Balaji vs Income Tax Officer Special Investigation Circle  Navnitlal C Javeri vs KKSen Appellate Assistant Commissioner of Income tax D  Range   Bombay and Punjab Distilling Industries Ltd vs Commissioner of Income Tax Punjab 1965 3 SCR 1 referred to
The argument that the definition of the expression related person is so arbitrary that it includes within it a distributor of the assessee is also without much force
The provision in the definition of related person relating to a distributor can be legitimately read down and its validity upheld
The definition of related person should be so read that the words a relative and a distributor of the assessee should be understood to mean a distributor who is a relative of the assessee
The Explanation to section 4 4 c provides that the expression relative has the same meaning as in the 
The definition of related person  as being 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   shows a sufficiently restricted basis for employing the legal fiction
Here again 352 regard must be had to the Explanation which provides that the expression holding company and subsidiary have the same meanings as in the 
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 H 388 A Tata Engineering and Locomotive Co Ltd vs State of Bihar and Others
  Juggi Lal Kamlapat vs Commissioner of Income Tax UP  referred to
The true position under the as amended by Act XXII of 1973 is as follows i The price at which the excisable goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and place of removal as defined in subsection 4 b of section 4 is the basis for determination of excisable value provided 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
The proposition is subject to the terms of the three provisos to sub section 1 a of section 4
388 D F ii Where the price of excisable goods in the course of wholesale trade for delivery at the time and 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 H iiiWhere wholesale price of any excisable goods for delivery at the place of removal is 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 transportation from the place of removal to the place of delivery should be excluded from such price 389 A B iv Of course these principles cannot apply where the tariff value has been fixed in respect of any excisable goods under sub section 2 of section 3 389 C v 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 distributor but they are limited only to a distributor who is a relative of the 353 assessee within the meaning of the 
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 Parliament
It is only when an assessee 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 persons or where such goods are not sold to such dealers to dealers being related persons who sell 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 section 4 a and the new section 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 contemplated under the old section 4 a or under new section 4 1 a is not ascertainable the price is determined under the old section 4 b or the new section 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 marketability in the trade
Therefore the expenses incurred on account of the several factors 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 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 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 sale 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 The assessee 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 insurance on the freight for transportation of the goods from the factory gate to the place or places of delivery
391 H 392 A Where freight is averaged and the averaged 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 freight included in such wholesale cash price has to be deducted in order to arrive at the real wholesale cash price at the factory gate and no excise duty can be charged on it
392 A B 354 The new section 4 4 d i has made express provision for including the cost of packing in the determination of value for the purpose 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 delivered at the time of removal
The cost of primary packing that is to say the packing in which the article is contained and in which it is made marketable for the ordinary consumer must be regarded as falling within section 4 4 d i
There is secondary packing which consists of larger cartons in which a standard number of primary cartons in the sense mentioned earlier are 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 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  One must remember that while packing is necessary to make the excisable article marketable the statutory provision calls for strict construction because the levy is sought to be extended beyond the manufactured article itself
If seems to us that the degree of secondary packing which is necessary for putting the excisable article in the condition in which it is generally sold in the wholesale market at 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 from the wholesale cash price 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 assessee at the instance of a whole sale buyer which is not generally provided as a normal feature of the wholesale trade the cost of such packing shall be deducted from the wholesale cash price
393 F