Case: M/S.Alembic Glass Inds. Ltd Vs. Commissioner Of Cent.Excise

whom he had purchased and, notwithstanding the fact that the wholesale dealer might ultimately have the parts replaced by it reimbursed from the manufacturer, the service facilities were provided by the wholesaler with a view to earn goodwill and attract customers. The advertising of a product by the wholesaler was one of the well-known methods by which the wholesaler attracted customers and if, as a result of increasing its business, the demand for the product of the manufacturer also increased, the advertising by the manufacturer could not be said to be for and on behalf of the manufacturer. 3. In Union of India v. Mahindra and Mahindra Ltd. [(1989) 43 ELT 611 (Cal)] the High Court at Bombay emphasised the relationship between the parties, being of buyer and seller on principal-to-principal basis. The Court observed that the manufacturer and its distributor had a mutual interest in maximising the sale of the products. 4. The provisions in the contract between them relating to advertising and the like were in furtherance of this desire on the part of both the manufacturer and its distributor and in no way affected the real nature of the transaction which appeared to be of sale on principal-to-principal basis. 5. It seems to us clear that the advertisement which the dealer was required to make at its own cost benefited in equal degree the appellant and the dealer and that for this reason the cost of such advertisement was borne half and half by the appellant and the dealer. Making a deduction out of the trade discount on this account was, therefore, uncalled for. 6. As to the after-sales service that the dealer was required under the agreement to provide, it did of course enhance in the eyes of intending purchasers the value of the appellants product, but such enhancement of value enured not only for the benefit of the appellant; it also enured for the benefit of the dealer for, by reason thereof, the dealer got to sell more and earn a larger profit. The guarantee attached to the appellants products specified that they could be repaired during the guarantee period by the appellants dealers anywhere in the country. Thus, though one dealer might have to repair goods sold by another dealer and incur costs in that regard, he also had the benefit of having the goods he sold reparable throughout the country. The provision as to after-sales service, therefore, benefited not only the appellant; it was a provision of mutual benefit to the appellant and the dealer." 11. In that case it was noted that advertisement which the purchaser was required to make at its own cost benefited in equal degree the assessee and the purchaser and for that reason the cost of such advertisement was borne equally and making a deduction out of the trade discount was held to be uncalled for. It was pointed out that while adjudicating the matters such as this, the Excise Authorities would do well to keep in mind the legitimate business considerations. It is to be further noted that there is no material to show that there is no arrangement for reimbursement. The factual position shows that the transaction was on a principal to principal basis. The findings of this Court in A.K. Roy and Anr. v. Voltas Limited (1973 (3) SCC 503 ) also throw considerable light on the controversy. "20. 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 special 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 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. 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). 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. 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 true position." 12. That being so, there

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

Explanation:
1[ds]In that case it was noted that advertisement which the purchaser was required to make at its own cost benefited in equal degree the assessee and the purchaser and for that reason the cost of such advertisement was borne equally and making a deduction out of the trade discount was held to be uncalled for. It was pointed out that while adjudicating the matters such as this, the Excise Authorities would do well to keep in mind the legitimate business considerations. It is to be further noted that there is no material to show that there is no arrangement for reimbursement. The factual position shows that the transaction was on a principal to principal basis. The findings of this Court in A.K. Roy and Anr. v. Voltas Limited (1973 (3) SCC 503 ) also throw considerable light on the controversy21. 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). 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. 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 true position."