Mathew, J.

1. Voltas Ltd., the respondent here, filed a writ petition before the High Court of Bombay, challenging the validity of the appellate order passed by the 1st appellant on May 2, 1967, in respect of the liability of the respondent to pay excise duty for the year 1963 and the orders of the Assistant Collector of Central Excise relating to the liability of the respondent to pay excise duty for the years 1962, 1964, 1965 and 1966 as also the notices demanding the assessed amount of Rupees 27,57,177.19. The High Court allowed the petition. This appeal, by certificate is against that order.

2. Voltas Ltd. is a company registered under the Companies Act. It carries on, among others, the business of manufacturing air conditioners, water coolers and component parts thereof. It organises the sales of these articles from its head office at Bombay as also from its branch offices at Calcutta, Delhi Madras, Bangalore, Cochin and Lucknow. From these offices it effects direct sales to consumers at list prices and the sales so effected came to about 90 to 95 per cent of its production of these articles in the factory in question during the relevant period. Apart from these sales, it also sells the articles to wholesale dealers from different parts of the country in pursuance of agreements entered into with them. The agreements with the wholesale dealers for the relevant years contained terms and conditions similar to those mentioned in Exhibit A annexed to the writ petition. The agreements provided, among other things, that the dealers should not sell the articles sold to them except in accordance with the list prices fixed by the respondent, that the respondent would sell them the articles at the list prices less 22 per cent discount, that the dealers will not be entitled to any discount on the prices of accessories mentioned in the price schedule and that the dealers should give service to the units sold in their territory.

3. Excise duty on the basis of ad velorem value was imposed on air conditioners, water coolers on air conditioners, water coolers and parts of water coolers from March 1, 1961. The respondents case was that the list price after deducting the discount of 22 per cent allowed to the wholesale dealers would constitute the "wholesale cash price" for ascertaining the real value of the articles. This case was accepted by the excise authorities and assessments were made upto the end of 1962 on that basis.

4. In April, 1964, the Superintendent of Central Excise intimated the respondent that excise duty would be assessed and levied not on the footing of the wholesale cash price but on the basis of the retail price and, by his three orders dated September 5, 1964 and one dated September 10, 1964, he assessed the respondent to excise duty in respect of the sales on the footing of list prices for sale to consumers for the period from January 1, 1963 to December 31, 1963, and a notice of demand dated October 8, 1964, was served on the respondent calling upon it to pay the above sum. The respondent filed an appeal against the orders but that was dismissed by the 1st appellant by his order dated May 2, 1967 and this was the main order that was challenged in the writ petition.

5. The question that was canvassed before the High Court was 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 Sec. 4 or whether it was liable to be charged on the basis of the price payable by the wholesale dealers, after deducting the 22 per cent discount, under clause (a) of Sec. 4 of the Central Excises and Salt Act, 1944 (hereinafter referred to as the Act)

6. The High Court held that the price for which the articles were sold to the wholesale dealers less the discount allowed to them under the agreements represented the "wholesale cash price" and that excise duty was chargeable under Section 4 (a) of the Act.

7. Section 4 of the Act provides :

"4. 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 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 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."

8. The appellants contended that the agreements with the wholesale dealers conferred certain extra-commercial advantages upon them, and so, the sales to them were not sales to independent purchasers but to favoured ones, and, therefore, the price charged would not represent the "wholesale cash price" as mentioned in Section 4 (a) of the Act. They argued that Section 4 (a), visualizes a wholesale market at the place of manufacture where articles of like kind and quality are sold or could be sold and that it also postulates a market where any wholesale purchaser can purchase the articles, and, as no articles of a like kind and quality were sold, at or near the place of manufacture, and as the wholesale sales were confined to the favoured buyers, there was no wholesale market at the place of manufacture. It was further argued that "articles of a like kind and quality" is a phrase which suggests goods other than those under assessment and that one must disregard the price fetched by the sale of the goods themselves.

9. We do not think that for a wholesale market to exist, it is necessary that there should be a market in the physical sense of the term where articles of a like kind or quality are or could be sold or that the articles should be sold to co-called independent buyers.

10. Even if it is assumed that the latter part of Section 4 (a) proceeds on the assumption that the former part will apply only if there is a wholesale market at the place of manufacture for articles of a like kind and quality, the question is what exactly is the concept of wholesale market in the context. A wholesale market does not always mean that there should be an actual place where articles are sold and bought on a wholesale basis. These words can also mean the potentiality of the articles being sold on a wholesale basis. So, even if there was no market in the physical sense of the term at or near the place of manufacture where the articles of a like kind and quality are or could be sold, that would not in any way affect the existence of market in the proper sense of the term provided the articles themselves could be sold wholesale to traders, even though the articles are sold to them on the basis of agreements which confer certain commercial advantages upon them. In other words, the sales to the whole sale dealers did not cease to be wholesale sales merely because the wholesale dealers had entered into agreement with the respondent under which certain commercial benefits were conferred upon them in consideration of their undertaking to do service to the articles sold, or because of the fact that no other person could purchase the articles wholesale from the respondent. We also think that the application of cl. (a) of Section 4 of the Act does not depend upon any hypothesis to the effect that at the time and place of sale, any further articles of like and quality should have been sold. If there is an actual price for the goods themselves at the time and place of sale and if that is a wholesale cash price, the clause is not inapplicable for want of sale of other goods of a like kind and quality.

11. In Ford Motor Company of India Limited v. Secretary of State for India in Council, 65 Ind App 32 = (AIR 1938 PC 15 [LQ/PC/1937/113] ), the appellants before the Privy Council, who imported Ford Motor Vehicles from Canada to India, where they had a monopoly of the supply of those vehicles, sold them only to authorised dealers or distributors, each of whom was sole agent for a retail seller of the vehicles in a particular district. The appellants obtained from the distributors information as to their future requirements and placed consolidated orders accordingly with the manufacturers in Canada. The retail price charged by the distributors to the public was that stated in a price list issued by the appellants and current at the time of the arrival of 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 distributors had to pay that price before obtaining delivery, which was given "free on rail". On arrival in India the vehicles were not completely assembled, and were so delivered to the distributors, an agreed allowance against the price being made by the appellants. On the question whether Section 30 (a) or 30 (b) of the Sea Customs Act, 1878 applied for the purpose of finding out the real value of goods for levy of customs duty, the Privy Council held that the price charged by the appellants to the distributors excluding the assembling allowance was the "wholesale cash price, less trade discount" for which the vehicles were sold "at the time and place of importation" within the meaning of Section 30 (a) of that Act, the terms of which are more or less similar to those of Section 4 (a) of the Act. This case is an authority for the proposition that mere existence of the agreements between the respondent and the wholesale dealers under which certain obligations were undertaken by them like service to the articles, would not render the price any the less the "wholesale cash price". To put it in other words, even if the articles in question were sold only to wholesale dealers on the basis of agreements and not to independent persons, that would not make the price for the sales anything other than the "wholesale cash price". The argument that what was relevant to determine the "wholesale cash price" under clause (a) of Section 30 of the Sea Customs Act, 1878, was the price of goods of a like kind and quality was negatived by the Privy Council by saying that goods under assessment may, under clause (a) be considered as members of their own class even though at the time and place of importation there are no other members and that the price obtained for them may correctly represent the price obtainable for goods of a like kind and quality at the time and place of importation.

12. Counsel for the appellants submitted that the preponderance of authority in the various High Courts is in favour of the view that in order that sales might be wholesale sales, the purchasers must be independent persons.

13. In National Tobacco Co. of India Ltd. v. Collector of Central Excise, AIR 1961 Cal 477 [LQ/CalHC/1960/43] a learned Single Judge of that Court held that the word "wholesale market" must mean a place where articles are habitually sold to any person who wishes to make a purchase and that, merely because a factory manufacturers the articles at a particular place and sells them there to its stockiest or dealers would not, by itself, convert it into a wholesale market and the question whether there is a "wholesale market" at that location would depend upon a variety of questions, namely, whether goods were really being sold wholesale and whether any person wishing to purchase the goods could do so at the location. The Court also said that, in order that the price may be the "wholesale cash price" it is necessary that the transaction should be between a manufacturer and an independent purchaser. In other words, the Court was of the view that if the transaction was between a manufacturer and a favoured purchaser, the price paid by him would not be the wholesale cash price within the meaning of Section 4 (a) of the Act.

14. In the Union of India v. Vengunta Suryaprakasa Rao, AIR 1967 Andh Pra 281, the Court said that the sale to wholesale distributors with whom the company in question had entered into agreements for sale of the articles stipulating for certain commercial advantage would not constitute the price of those sales "wholesale cash price" as mentioned in Section 4 (a). The Court further said that since the manufacturer was not free to sell the article to others by virtue of the agreement and, as in fact, no independent sales were proved to have been made to anyone other than the authorised distributors, the sales were not sales in the wholesale market. The Court referred to the decision of the Privy Council in AIR 1938 PC 15 [LQ/PC/1937/113] , but did not seem to have appreciated the real ratio of the case.

15. In Amco Batteries (P) Ltd., Bangalore v. Asstt. Collector, Central Excise, Bangalore, AIR 1963 Mys 216, the Court said that wholesale price means the price which a wholesale dealer, and not the retail dealer, charges for his goods when he sells them in wholesale units and what constitutes wholesale unit will have to be determined with reference to the practice of the trade at the place where the goods are sold. A wholesale market, according to the Court, is a place where goods in question or goods of a like kind and quality, are sold, or, are capable of being sold to independent buyers meaning thereby, anyone who intends to effect such purchase upon payment of proper price without restriction.

16. In Collector of Central Excise v. Shanker Lal Agarwala, AIR 1968 Cal 154 [LQ/CalHC/1967/107] , the Court followed its earlier decision already referred to and said that the "wholesale cash price" means the price which a wholesale dealer and not a retail dealer charges for his goods when he sells them in wholesale units in a wholesale market. The Court also said that the words wholesale market mean a place where the articles in question are habitually sold to anybody who wishes to make a purchase at wholesale price and the mere fact that a factory manufactures articles at a particular place and sells them there to stockiest or dealers will not by itself convert the place of sale into a wholesale market.

17. In Frizair Corporation v. Collector of Central Excise, (1969) 2 Andh WR 57, the Court held that a sale to a favoured buyer cannot be regarded as a sale in a wholesale market and that in the light of the language of clause (a) to Section 4 of the Act a sale by the manufacturer at the factory, by itself, would not be sufficient to constitute the price of the sale the "wholesale cash price".

18. We do not think that these decisions in so far as they hold that the price of sales to wholesale dealers would not represent the "wholesale cash price" for the purpose of Section 4 (a) of the Act merely, because the manufacturer has entered into agreements with them stipulating for commercial advantages, are correct. If a manufacturer were to enter into agreements with dealers for wholesale sales of the articles manufactured on certain terms and conditions, it would not follow from that alone that the price for those sales would not be the "wholesale cash price" for the purpose of Section 4 (a) of the Act if the agreements were made at arms length and in the usual course of business.

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 cash price" In Vacuum Oil Co. v. Secretary of State for India in Council, 59 Ind App 258 = (AIR 1932 PC 168 [LQ/PC/1932/27] ), 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 [LQ/SC/1962/337] ) ) 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. We think the High Court was right in its contention.

24. We dismiss the appeal but in the circumstances make no order as to costs.

25. Appeal dismissed.