Case: A.K. Roy &amp; Another Vs. Voltas Limited

the less the "wholesale cash price" for the purpose of Section 4 (a), even if these sales were made pursuant to agreements stipulating for certain commercial advantages, provided the agreements were entered into at arms length and in the ordinary course of business.20. The next question is: what exactly is the meaning of the term the "wholesale cash price"? In Vacuum Oil Co. v. Secretary of State for India in Council, 59 Ind App 258 = (AIR 1932 PC 168 ), it was held that the term means the price paid by retail traders on wholesale purchase. The essence of the idea is that the purchase must be a wholesale purchase and not a retail one. In other words, the sale must be wholesale and not a retail one in order that the price realised may be termed the "wholesale cash price". In that case the appellants before the Privy Council imported at Bombay, very large quantities of lubricating oil of a particular manufacture and mark. They sold it direct to numerous, customers, never to dealers. The price they charged was the same whether a large or small quantity was bought, except that if a consumer contracted to buy from them all his requirements for a year, he was entitled to a discount from 21/2 to 15 per cent according to the quantity bought in the year. No other lubricating oil of a like kind and quality was sold in Bombay. On the question whether the appellant was bound to pay customs duty on the basis of clause (a) or clause (b) of Section 30 of the Sea Customs Act, 1878, the Privy Council held that since the sales were to customers direct, the real value of the goods cannot be ascertained under clause (a) of Section 30 and that cl. (b) of Section 30 was applicable. Their Lordships said that in determining the price which is to represent the real value of the goods to be taxed, "the price must be conservative in every respect and free in particular from any loading for any post importation charges incurred in relation to the goods". "The price is to be a price for goods, as they are both at the time, and place of importation. It is to be a cash price, that is to say a price free from any augmentation for credit or other advantage allowed to a buyer it is to be a net price, that is to say it is a price less trade discount ". Their Lordships, therefore, held that the words the wholesale price were used in the section in contradistinction to a retail price, and that not only on the ground that such is a well-recognised meaning of the words but because their association with the words trade discount indicates that sales to the trade are those in contemplation, and alsod because only by attaching that meaning to the word is the wholesale price relieved of the loading representing post-importation expenses which, as a matter of business, must always be charged to the consumer, and which are eliminated.21. Excise is a tax on the production and manufacture of goods (see Union of India v. Delhi Cloth and General Mills, (1963) Supp 1 SCR 586 = (AIR 1963 SC 791 ) ) Sec. 4 of the Act therefore provides that the real value should be found after deducting the selling cost and selling profits and that the real value can include only the manufacturing cost and the manufacturing profit. The section makes it clear that excise is levied only on the amount representing the manufacturing cost plus the manufacturing profit and excludes post-manufacturing cost and the profit arising from post-manufacturing operation, namely selling profit. The section postulates that the wholesale price should be taken on the basis of cash payment thus eliminating the interest involved in wholesale price which gives credit to the wholesale buyer for a period of time and that the price has to be fixed for delivery at the factory gate thereby eliminating freight, octroi and other charges involved in the transport of the articles. As already stated it is not necessary for attracting the operation of Section 4 (a) that there should be a large number of wholesale sales. The quantum of goods sold by a manufacturer on wholesale basis is entirely irrelevant. The mere fact that such sales may be few or scanty does not alter the the true position.22. The appellant contended that 22 per cent discount allowed under the agreements with the wholesale dealers was not trade discount, on the ground that there was no evidence to show that the discount allowed was trade discount within the meaning of the Explanation to Section 4. There was no contention by the appellants before the High Court that the discount allowed to the wholesale dealers was not trade discount. The whole argument before the High Court proceeded on the basis that direct sales by the respondent to consumers constituted the major portion of the sales and that the sales to the wholesale dealers only represented a minor portion and, therefore, the price charged for the sales to wholesale dealers would not represent the wholesale cash price of the articles sold. No data was placed before the High Court by the appellant to show that the 22% discount did not represent "trade discount for the purpose of the Explanation. A "trade discount" is a percentage deduction from the regular list or catalogue price of goods. As there was no case for the appellants that there was any secret arrangement between the wholesale dealers and the respondent in respect of the sales to them or that the price of the articles was under-stated in the agreements or that any extra-commercial advantages to the dealers were taken into account in fixing the price, we do not think that we should go into the question whether the discount allowed to the wholesale dealers was trade discount or not for the purpose of the Explanation.23

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]19. There can be no doubt that the "wholesale cash price" has to be ascertained only on the basis of transactions at arms length. If there is a special or favoured buyer to whom a specially low price is charged because of extra-commercial considerations, e.g., because he is relative of the manufacturer, the price charged for those sales would not be the "wholesale cash price" for levying excise under Section 4 (a) of the Act. A sole distributor might or might not be a favoured buyer according as terms of the agreement with him are fair and reasonable and were arrived at on purely commercial basis. Once wholesale dealings at arms length are established, the determination of the "wholesale cash price" for the purpose of Section 4 (a) of the Act may not depend upon the number of such wholesale dealings. The fact that the appellant sold 90 to 95 per cent of the articles manufactured to consumers direct would not make the price of the wholesale sales of the rest of the articles any the less the "wholesale cash price" for the purpose of Section 4 (a), even if these sales were made pursuant to agreements stipulating for certain commercial advantages, provided the agreements were entered into at arms length and in the ordinary course of business.20.The next question is: what exactly is the meaning of the term the "wholesale cashprice"? In Vacuum Oil Co. v. Secretary of State for India in Council, 59 Ind App 258 = (AIR 1932 PC 168  ), it was held that the term means the price paid by retail traders on wholesale purchase. The essence of the idea is that the purchase must be a wholesale purchase and not a retail one. In other words, the sale must be wholesale and not a retail one in order that the price realised may be termed the "wholesale cash price". In that case the appellants before the Privy Council imported at Bombay, very large quantities of lubricating oil of a particular manufacture and mark. They sold it direct to numerous, customers, never to dealers. The price they charged was the same whether a large or small quantity was bought, except that if a consumer contracted to buy from them all his requirements for a year, he was entitled to a discount from 21/2 to 15 per cent according to the quantity bought in the year. No other lubricating oil of a like kind and quality was sold in Bombay. On the question whether the appellant was bound to pay customs duty on the basis of clause (a) or clause (b) of Section 30 of the Sea Customs Act, 1878, the Privy Council held that since the sales were to customers direct, the real value of the goods cannot be ascertained under clause (a) of Section 30 and that cl. (b) of Section 30 was applicable. Their Lordships said that in determining the price which is to represent the real value of the goods to be taxed, "the price must be conservative in every respect and free in particular from any loading for any post importation charges incurred in relation to the goods". "The price is to be a price for goods, as they are both at the time, and place of importation. It is to be a cash price, that is to say a price free from any augmentation for credit or other advantage allowed to a buyer it is to be a net price, that is to say it is a price less trade discount ". Their Lordships, therefore, held that the words the wholesale price were used in the section in contradistinction to a retail price, and that not only on the ground that such is a well-recognised meaning of the words but because their association with the words trade discount indicates that sales to the trade are those in contemplation, and alsod because only by attaching that meaning to the word is the wholesale price relieved of the loading representing post-importation expenses which, as a matter of business, must always be charged to the consumer, and which are eliminated.21. Excise is a tax on the production and manufacture of goods (see Union of India v. Delhi Cloth and General Mills, (1963) Supp 1 SCR 586 = (AIR 1963 SC 791  ) ) Sec. 4 of the Act therefore provides that the real value should be found after deducting the selling cost and selling profits and that the real value can include only the manufacturing cost and the manufacturing profit. The section makes it clear that excise is levied only on the amount representing the manufacturing cost plus the manufacturing profit and excludes post-manufacturing cost and the profit arising from post-manufacturing operation, namely selling profit. The section postulates that the wholesale price should be taken on the basis of cash payment thus eliminating the interest involved in wholesale price which gives credit to the wholesale buyer for a period of time and that the price has to be fixed for delivery at the factory gate thereby eliminating freight, octroi and other charges involved in the transport of the articles. As already stated it is not necessary for attracting the operation of Section 4 (a) that there should be a large number of wholesale sales. The quantum of goods sold by a manufacturer on wholesale basis is entirely irrelevant. The mere fact that such sales may be few or scanty does not alter the the true position.22. The appellant contended that 22 per cent discount allowed under the agreements with the wholesale dealers was not trade discount, on the ground that there was no evidence to show that the discount allowed was trade discount within the meaning of the Explanation to Section 4. There was no contention by the appellants before the High Court that the discount allowed to the wholesale dealers was not trade discount. The whole argument before the High Court proceeded on the basis that direct sales by the respondent to consumers constituted the major portion of the sales and that the sales to the wholesale dealers only represented a minor portion and, therefore, the price charged for the sales to wholesale dealers would not represent the wholesale cash price of the articles sold. No data was placed before the High Court by the appellant to show that the 22% discount did not represent "trade discount for the purpose of the Explanation. A "trade discount" is a percentage deduction from the regular list or catalogue price of goods. As there was no case for the appellants that there was any secret arrangement between the wholesale dealers and the respondent in respect of the sales to them or that the price of the articles was under-stated in the agreements or that any extra-commercial advantages to the dealers were taken into account in fixing the price, we do not think that we should go into the question whether the discount allowed to the wholesale dealers was trade discount or not for the purpose of the Explanation.