1972 (12) TMI 37 - SC - Central Excise

Excise duty valuation and wholesale cash price determination for ad valorem liability based on arm's-length wholesale transactions

Excise duty valuation focuses on whether ad valorem duty should be based on retail prices or on wholesale cash price determined from arm's-length ... Liability to pay excise duty - Excise duty on the basis of ad valorem value - Scope of term of 'wholesale market' and 'wholesale cash price' - Whether the respondent was liable to be charged with excise duty on the basis of the price of retail sales made by it directly to the consumers from its head office and branch offices under clause (b) of s. 4 - HELD THAT:- 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 buyers 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 salts would not be the 'wholesale cash price' for levying excise under s. 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 s. 4 (a) of the Act may not depend upon the number of such wholesale dealings. The fact that the appellant sold 90 to 95 of the articles manufactured to consumer direct would not make the price of the wholesale sales of the rest of the articles and the less the 'wholesale cash price' for the purpose of s. 4 (a) even if these sales were made pursuant to agreement stipulating for certain commercial advantages, provided the agreements were entered into at arms length and in the ordinary course of business. The price is to be of 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 contra-distinction to a 'retail price', and that not only on the ground that such is a well recognised meaning of the words but because their association with the words 'trade discount' indicates that sales to the trade are those in contemplation, and also because only by attaching that meaning to the word is the 'wholesale price' relieved of the loading representing post-importation expenses which, as a matter of business, must always be charged to the consumer, and which are eliminated. As stated it is not necessary for attracting the operation of s. 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. There are facts that such sales may be few or scanty does not alter the true position. There was no contention by the appellants before the High Court that the discount allowed to the wholesale dealers was not 'trade discount'. The wholesale argument before the High Court proceeded on the basis of 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 sale to wholesale dealers would not present for the sale 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 per cent discount did not represent '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 arrangements between the wholesale dealers and the respondent in respect of the sales to them or that the price of the articles was understated 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. We think the High Court was right in its conclusion. Issues Involved:1. Validity of the appellate order regarding excise duty liability.2. Determination of the 'wholesale cash price' under Section 4(a) of the Central Excises and Salt Act, 1944.3. Applicability of retail price for excise duty assessment.4. Interpretation of 'wholesale market' and 'wholesale cash price'.5. Validity of trade discounts as part of the 'wholesale cash price'.Detailed Analysis:1. Validity of the appellate order regarding excise duty liability:Voltas Ltd. challenged the appellate order dated May 2, 1967, and the Assistant Collector of Central Excise's orders regarding excise duty for the years 1962, 1964, 1965, and 1966, along with the demand notices for Rs. 27,57,177.19. The High Court allowed the petition, and this appeal was filed against that order.2. Determination of the 'wholesale cash price' under Section 4(a) of the Central Excises and Salt Act, 1944:The main issue was whether excise duty should be based on the retail price or the price payable by wholesale dealers after deducting a 22% discount. The High Court held that the price for which the articles were sold to wholesale dealers, less the discount, represented the 'wholesale cash price' under Section 4(a) of the Act.3. Applicability of retail price for excise duty assessment:The Superintendent of Central Excise had intimated that excise duty would be assessed based on the retail price rather than the 'wholesale cash price'. This assessment was challenged, and the High Court ruled in favor of using the wholesale price after discount for excise duty calculation.4. Interpretation of 'wholesale market' and 'wholesale cash price':The appellants argued that the agreements with wholesale dealers conferred extra-commercial advantages, making these sales not representative of the 'wholesale cash price'. They contended that a wholesale market required sales to independent purchasers and not just favored ones. However, the judgment clarified that a wholesale market does not necessitate a physical market or sales to independent buyers. It emphasized that the potentiality of wholesale sales suffices, and agreements with wholesale dealers do not negate the wholesale nature of sales if made at arm's length and in the usual course of business.5. Validity of trade discounts as part of the 'wholesale cash price':The appellants contended that the 22% discount allowed was not a trade discount. However, no evidence was presented to the High Court to support this claim. The High Court and the judgment both concluded that the discount represented a trade discount, as there was no indication of secret arrangements or extra-commercial advantages affecting the price.Conclusion:The High Court's decision was upheld, confirming that the price to wholesale dealers, less the 22% discount, constituted the 'wholesale cash price' for excise duty purposes under Section 4(a) of the Central Excises and Salt Act, 1944. The appeal was dismissed, with no order as to costs.