JUDGMENT
1. This is a petition by a Company incorporated under the [ACT] challenging the issuance of a trade notice, Annexure G to thepetition issued by the Collector of Central Excise, Baroda on 25-6- 197[SECTION]under which he directed the petitioner, the manufacturers of resinesinter alia to declare the assessable value for paying Central Excise Duty"equal to the value charged by the brand-name owners to the wholesalemarket".
2. The short facts are that the five per cent equity share capital of thepetitioner company is owned by one Ciba-Geigy of India Ltd., formelyknown as Ciba of India Ltd. On or about 2[SECTION]-3-71, the agreement AnnexureA, was entered into by the petitioner company with the said companyCiba-Geigy of India Limited under which the petitioners agreed to sell tothe said buyers certain Urea formaldehyde resins and certain Melamineformaldehyde resins in accordance with the programme drawn by the sellerand the buyer and the petitioners had agreed to supply and sell the sameto the said buyers. Thereafter on or about 7-12-71, an agreement wasentered into between the petitioners on one hand, one Swiss Company onthe other and the aforesaid Ciba-Geigy of India Limited on the thirdunder which the petitioners were authorised to affix on the resinssupplied by them to the said buyer company certain trade marks of whichthe said Swiss Company were the registered propreitors in India and ofwhich the said buyers were registered or licenced users in India. Thesaid agreement is Annexure B to the petitions. The department thenissued the trade notice, Annexure G, calling upon the petitioners, themanufacturers, to get the name plate of the customers "registered andapproved" by the Collector, to declare the assessable value for payingcentral excise duty "equal to the value charged by the brand-name ownersto the wholesale market" and to undertake to make good the difference, ifany, in duty resulting, from any change in price already effected by thecustomers but not known to the licenses at the time of clearance. Afurther direction, being direction No.3 is also there in Annexure G, butit being meant for the customers or brand-name owners' under whose ordersthe goods are manufactured need not detain us because the said customercompany nemely, the Ciba-Geigy of India Limited, is not before us makingany grievance about the said direction.
3. The grievance in the contention of the petitioners is that as per [SECTION] and [SECTION] of the Central Excises and Salt Act, 19[SECTION][SECTION] (the sectionbeing what they were prior to their being recast as per the Act of 1975),the value to be determined is to be wholesale cash price for which anarticle of the like kind and quality is sold or is capable of being soldat the time of the removal of the article chargeable with duty from thefactory or any other premises of manufacture or production for deliveryat a place of manufacature or production, or if a wholesale market doesnot exist for such article at such place, at the nearest place where suchmarket exists. Mr. [ENTITY], the learned advocate appearing for thepetitioners contended that by the impugned trade notice, an attemp wasmade by the department to fix the value for the purpose of central exciseduty on a new standard different from the one laid down in the abovementioned [SECTION] and [SECTION] of the Act and See [SECTION] in particular. In otherwords, Mr. [ENTITY] urged, there was an attempt to levy central excise duty not as per the real sale value, but according to the sale value enhancedby the value charged by the brand name owners to the wholesale market. Direction No. 2 in the impugned trade notice Annexure G was contrary tothe law as interpreted by the Supreme Court in the case of [PRECEDENT] Ltd. v. H.H. Dave 16 G.L.R. P. [SECTION]53=AIR SC 1960=1978 E.L.T. (J[SECTION][SECTION][SECTION]) in that case decided on 1[SECTION]-2-1975, the Supreme Court has reiteratedits decision in [PRECEDENT] and laid down the law on the point in very clearand lucid language in the following terms :-
"The only relevant price fro assessment of value of the goods for thepurpose of excise under [SECTION] of the Central Excises and Salt Act,19[SECTION][SECTION] would be the wholesale cash price which the manufacturer receivesfrom sale to the first wholesale dealer, that is, when the goods firstenter the stream of trade. Once the goods have entered the stream oftrade and are on their onward journey to the customer, whether a long, ashort, or a long course depending on the nature of the goods and theconditions of the trade, excise is not concerned with what happenssubsequently to the goods. It is the first immediate contact between themanufacturer and the trade that is made decisive for determining thewholesale cash price which is to be the measure of the value of the goodsfor the purpose of excise. The second or subsequent price even though onwholesar basis, is not material. If excises were levied on the basis onsecond or sulesequent wholesale parice it would load the price with apost-manufacturing element, namely, selling cost and selling profit ofthe wholesale dealer. Thing would be plainly to the true nature ofexcise. Secondly, this would alsat violate the concept of the factorygate sale which is the basis of deteromination of value of the goods forthe purpose of excise. There can therefore, no doubt that where amanufacturer sells the goods manufactured, by him in wholesale to awholesale dealer at arms length and in the usual course of business, thewholesale cash price charged by him to the wholesale dealer less tradediscount would represent the value of the goods for the purpose, cashprice for which the goods are sold at the factory gate within the meaningof the Act." (Emphasis is supplied by us).
The above quotation would make it clear that if the contract between theseller and the purchaser is not an underhand dealing entered into withthe avowed object of defeating the levy of excise duty, the price fixedby the parties alone will govern the field. We make it, however, clearthat in the case of hand, if the department has got any material withthem to brand the contract in question as the one not at arms length inthe ordinary course of business; their powersto remedy the evil remainunaffected. This, however, would not extend to permitting them to put anarbitrary valuation of the goods on the basis of the value charged by thebrand-name owners to the wholesale market. If this is allowed to stand,it would mean that the basis for paying central excise duty is the pricewhich in the words of the Supreme Court in the above-quoted case would besecond or subsequent price and which has been termed to be immaterial. The Supreme Court has very clearly stated in the above-quoted case thatif the excise were levied on the basis of the second or subsequentwholesale price, it would load the price with a post-manufacturtingelement. The attempt by issuing the direction No.2 in the impugned tradenotice, Annexure G, is the very attempt which has been pulled down by theSupreme Court in the above quoted case. We have, therefore, nohesitation that the latter part of the Direction No. 2 namely, "equal tothe value charged by the brand- name owners to the wholesale market" asput in blanket terms is ultra vires the authority of the Collector ofCentral Excise, who otherwise under [SECTION] [SECTION] of theCentral Excise Rules is entitled to issue supplemental directions in theform of a trade noctice and above power were fairly and frankly concededeven by Mr, [ENTITY] for the petitioners.
[SECTION]. It is to be recalled here that the Atic Industries's case (Supra) wasa case of contract between the manufacturer and the seller commanding 50percent of the holding equity shares of the company. In the case on handthe buyer company is commanding only 5 per cent of the equity shares andthere is all the more reason for us to place reliance on the saidjudgment of the Supreme Court.
5. Mr. [ENTITY], however, in this connection invited our attention tounreported judgment of the Division Bench of this Court in the SpecialCivil Application No. 858 of 197[SECTION] decided on 8-9-76-1977 [CASE NUMBER]). He has taken us through the relevant portion of the judgment, whichfollows the above-mentioned Atic Industries's case implicitly as it wasduty bound to do so. We do not find anything in that judgment of theDivision Bench which would support the contention of Mr. [ENTITY] thatthe above quoted portion of the direction No.2 in Annexure G should besustained.
6. With respect of Direction No. 1 in Annexure G, Mr. [ENTITY] has statedthat the real impact of the said Direction No. 1 is not to call upon themanufacturer to get the name plate of the customers registered orapproved by the Collector and ob behalf of the siad Collector, he made astatement that by this Direction No. 1 what was intended was to collectthe information of the customers who claim to be entitled to the rightsof the trade name. If this is the scope, then no exception could betaken on behalf of the petitioners and in view of this limitedinterpretation accepted by Mr. [ENTITY] for the Collector Mr. [ENTITY] doesnot continue his protest against that clause. Clause 3 is confined tothe customers and we have already stated that the petitioner have norrievance to be made in that contention. Clause [SECTION] in ex facie theextention of clause 2 which we are inclined to strike down in its latterpart and abviously it shall have to fall through along with it.
7. We, however, made it clear that if the department thinks that thisalleged contracts Annexure A & B are only a comouflage to screen themanufacturer of the goods in question by the buyer, it will be open tothe department to have recourse to law and it will be perfectly withintheir statutory powers to take such an action as deemed fit. Equally itwill be open to the administration to enquire and find out the realvaluer of the goods for the purpose of duty in strict compliance with [SECTION] of the Act as interpreted by the Supreme Court in [PRECEDENT]'s case (supra).
8. The result that the petition is allowed in part to the extentindicated in the judgments. Rule is made absolute only to that extent.