B. P. JEEVAN REDDY, J.

Leave granted in SLPs (C) Nos. 10108 of 1980 and 4041 of 1981

2. Having enunciated the principles governing the interpretation of Section 4 of the Central Excises and Salt Act, 1944 as it stood before and after the Amendment Act XXII of 1973 in Union of India v. Bombay Tyre International Ltd., this Court (the Bench comprising P. N. Bhagwati, R. S. Pathak and A. N. Sen, JJ.) took up individual cases for disposal on 3-5-1984. The appeals and petitions were allowed under what are called "format orders" and the matters remitted to assessing authorities with a direction to quantify and redetermine the permissible deductions in accordance with the law enunciated by them in their opinion in Bombay Tyre International as clarified in Union of India v. Bombay Tyre International (P) Ltd. Certain other directions were also given with respect to the manner in which the assessing authorities were to proceed in the matter of determining the value to which it is not necessary to refer in this stage. The Assistant Collectors (Central Excise) accordingly passed orders allowing certain claims for deductions and rejecting certain others. In terms of the format orders, the assessing authorities forwarded the orders of assessment made by them to this Court along with the objections filed by the assessees in each case. The Revenue too filed certain objections. The matters were posted before a Bench of this Court comprising P. N. Bhagwati, C.J. and V. Khalid, J. for finally determining and deciding several issues arising between the parties. By their judgment dated 20-12-1986, the Bench disposed of the appeals (Asstt. CCE v. Madras Rubber Factory Ltd.). Contending that the said judgment is not in accord with the judgment in Bombay Tyre International the Revenue filed review petitions, which came to be allowed by a Bench comprising R. S. Pathak, C.J. and L. M. Sharma, J. on 1-5-1989. By this order, the judgment and order dated 20-12-1986 was recalled and the appeals restored in their original number. It was directed that the appeal be listed again for fresh consideration. It is pursuant to the order dated 1-5-1989 that these appeals have now come up before us for final disposalSection 4 as it stood before the Amendment Act XXII of 1973 and as it stands now

3. Prior to the Amendment Act XXII of 1973, which came into force with effect from 1-10-1975, Section 4 read thus

"4. Determination of value for the purposes of duty. - Where under this Act, any article is chargeable with duty at a rate dependent on the value of the article, such value 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 under 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." *

4. This section was practically a reproduction of Section 30 of the Sea Customs Act, 1878 which was the subject-matter of two decisions of the Privy Council in Vacuum Oil Co. v. Secretary of State of India in Council and Ford Motor Co. of India Ltd. v. Secretary of State for India in Council. Section 4 itself was the subject-matter of two decisions of this Court in A. K. Roy v. Voltas Ltd. and Atic Industries Ltd. v. H. H. Dewa, Asstt. CCE. The Government of India felt that the operation of Section 4 (old) presented certain practical difficulties some of which, according to it, were highlighted in the decision of this Court in Voltas Ltd. With a view to overcome the said difficulties in the working of the section, it felt it necessary to suitably revise the provisions contained in Section 4. Accordingly, it introduced a Bill in Parliament seeking to substitute the existing Section 4 altogether. The Statement of Objects and Reasons appended to the Bill (which later became the Amendment Act XXII of 1973) stated inter alia

"In order to overcome the various difficulties experienced in the working of the section it is proposed to suitably revise the valuation provision contained in Section 4 of the Act, providing, as far as practicable, for assessment of excisable goods at the transaction value, except in areas where there may be scope for manipulation (such as sales to or through related persons) and making specific stipulations with respect to situations frequently encountered in the sphere of valuation." *

Section 4, as substituted by the said Amendment Act, reads thus

"4. Valuation of excisable goods for purposes of charging of duty of excise. - (1) Where under this Act, the duty of excise is chargeable on any excisable goods with reference to value, such value shall, subject to the other provisions of this section, be deemed to be -

(a) the normal price thereof, that is to say, the price at which such goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and place of removal, where the buyer is not a related person and the price is the sole consideration for the sale

Provided that -

(i) where, in accordance with the normal practice of the wholesale trade in such goods, such goods are sold by the assessee at different prices to different classes of buyers (not being related persons) each such price shall, subject to the existence of the other circumstances specified in clause (a), be deemed to be the normal price of such goods in relation to each such class of buyers;

(ii) where such goods are sold by the assessee in the course of wholesale trade for delivery at the time and place of removal at a price fixed under any law for the time being in force or at a price, being the maximum, fixed under any such law, then, notwithstanding anything contained in clause (iii) of this proviso, the price or the maximum price, as the case may be, so fixed, shall, in relation to the goods so sold, be deemed to be the normal price thereof;(iii) where the assessee so arranges that the goods are generally not sold by him in the course of wholesale trade except to or through a related person, the normal price of the goods sold by the assessee to or through such related person shall be deemed to be the price at which they are ordinarily sold by the related person in the course of wholesale trade at the time of removal, to dealers (not being related persons) or where such goods are not sold to such dealers, to dealers (being related persons) who sell such goods in retail;

(b) where the normal price of such goods is not ascertainable for the reason, that such goods are not sold or for any other reason, the nearest ascertainable equivalent thereof determined in such manner as may be prescribed

(2) Where, in relation to any excisable goods the price thereof for delivery at the place of removal is not known and the value thereof is determined with reference to the price for delivery at a place other than the place of removal, the cost of transportation from the place of removal to the place of delivery shall be excluded from such price

(3) The provisions of this section shall not apply in respect of any excisable goods for which a tariff value has been fixed under sub-section (2) of Section 3

(4) For the purpose of this section, -

(a) assessee means the person who is liable to pay the duty of excise under this Act and includes his agent;

(b) place of removal means -

(i) a factory or any other place or premises of production or manufacture of the excisable goods; or

(ii) a warehouse or any other place or premises wherein the excisable goods have been permitted to be deposited without payment of duty, from where such goods are removed;

(c) related person means a person who is so associated with the assessee that they have interest, directed or indirectly, in the business of each other and includes a holding company, a subsidiary company, a relative and a distributor of the assessee, and any sub-distributor of such distributorExplanation. - In this clause holding company, subsidiary company and relative have the same meanings as in the Companies Act, 1956 (1 of 1956);

(d) value, in relation to any excisable goods, -

(i) where the goods are delivered at the time of removal in a packed condition, includes the cost of such packing except the cost of the packing which is of a durable nature and is returnable by the buyer to the assessee

Explanation. - In this sub-clause, packing means the wrapper, container, bobbin, pirn, spool, reel or warp beam or any other thing in which or on which the excisable goods are wrapped, contained or wound;

(ii) does not include the amount of the duty of excise, sales tax and other taxes, if any, payable on such goods and, subject to such rules as may be made, the trade discount (such discount not being refundable on any account whatsoever) allowed in accordance with the normal practice of the wholesale trade at the time of removal in respect of such goods sold or contracted for sale;

(e) wholesale trade means sales to dealers, industrial consumers, Government, local authorities and other buyers, who or which purchase their requirements otherwise than in retail."

[Explanation added by Finance Act, 1982 omitted as not necessary for the purposes of this case.]

A reading of Section 4 lends itself to the following analysis

Where the duty of excise is chargeable on excisable goods with reference to their value, the normal price at which such goods are sold shall be deemed to be the value of such goods subject to other provisions of Section 4

"Normal price" means the price at which such goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and place of removal. If, however, the buyer is a "related person" and the price is not the sole consideration for the sale, the price cannot be treated as the "normal price". In the case of sale to or through "related person", normal price shall be determined as provided in proviso (iii) to Section 4(1)It is, however, not necessary that there should be one uniform normal price for all the goods sold by an assessee. There may be cases where the goods are sold by the assessee at different prices to different classes of buyers (not being, of course, related persons). In such a case, the price charged to each class of buyers shall be deemed to be the normal price of such goods in relation to each such class of buyers, subject, of course, to the existence of other circumstances specified in clause (a)

Where, however, the goods are sold in the course of wholesale trade for delivery at the time and place of removal at a price fixed under any law in force or where the law has specified the maximum price, the price so fixed or the maximum price so specified, as the case may be, shall be deemed to be the normal price of such goods

Where, however, the assessee generally sells his goods in the course of wholesale trade only to or through a related person, the normal price shall be deemed to be the price at which such related person sells the said goods in the course of wholesale trade at the time of removal to the dealers (not being related persons). [Since this rule is not relevant for our purposes, we are not stating the rule fully.]

If the normal price of excisable goods is not ascertainable for the reason that the goods are not sold or for any other reason, the value of such excisable goods (i.e., the nearest ascertainable equivalent) shall be determined in the manner prescribed by rules (Valuation Rules)

Where the price of any excisable goods at the place of removal is not known and, therefore, the value of such goods is determined with reference to the price charged at a place other than the place of removal, the cost of transportation from the place of removal to the place of delivery shall be excluded from such priceThe provisions of Section 4 do not, however, apply in respect of any excisable goods for which tariff values are fixed under sub-section (2) of Section 3

"Place of removal" means (i) a factory or any other place or premises where the excisable goods are produced or manufactured; (ii) a warehouse or any other place or premises where any excisable goods have been permitted to be deposited without payment of duty according to rules and from where such goods are removed

Value includes the cost of packing where the goods are delivered at the time of removal in a packed condition. Value does not, however, include the cost of packing which is of a durable nature and is returnable by the buyer to the assessee. Packing shall be understood as defined in the explanation to Section 4(4)(d)(i)

Value does not include the amount of duty of excise, sales tax and other taxes, if any, payable on such goods

Value does not also include, subject to such rules as may be made, trade discount allowed in accordance with the normal practice of the wholesale trade at the time of removal of such goods. To qualify as a trade discount, the discount should not be refundable on any account whatsoever

"Wholesale trade" means sales to dealers, industrial consumers, Government, local authorities and other buyers who purchase their requirements otherwise than in retail

5. Inasmuch as it is agreed before us by all the parties - with which submission we are in agreement - that the law enunciated by this Court in Bombay Tyre International represents the correct interpretation of Section 4, both old and new, we do not think it necessary either to refer to the decisions of the Privy Council or of this Court referred to above. Indeed all the relevant decisions rendered till then have been considered in the said decision. We shall, therefore, proceed to ascertain the principles enunciated in the said decision

6. The main issue, referred to as "central issue", in that case was "whether the value of an article for the purposes of the excise levy must be determined by reference exclusively to the manufacturing cost and the manufacturing profit of the manufacturer or should be represented by the entire wholesale price charged by the manufacturer". This question arose in the context of the fact that "the wholesale price actually charged by the manufacturer consists of not merely his manufacturing cost and his manufacturing profit but includes, in addition, a whole range of expenses and an element of profit (conveniently referred to as post-manufacturing expenses and post-manufacturing profit) arising between the completion of the manufacturing process and the point of sale by the manufacturer". The contention of Shri N. A. Palkhivala, learned counsel for the assessees was that the duty of excise has three essential characteristics, viz., (i) it is a tax on manufacture or production and not on anything else (ii) uniformity of incidence is a basic characteristic of the duty of excise; and (iii) exclusion of post-manufacturing expenses and post-manufacturing profits is necessarily involved in the first principle and helps to achieve the second. On the other hand, the contention of Shri K. Parasaran, learned Solicitor General/Attorney General of India, who appeared for the Union of India, was that "the value of an excisable article for the purposes of the levy must be taken at the price charged by the manufacturer on a wholesale transaction, the computation being made strictly in terms of the express provisions of the statute... (and that) there is no warrant for confining the value of the assessees manufacturing cost plus manufacturing profit". According to him

"though the duty of excise is a levy on the manufacture of goods, it was open to Parliament to adopt any basis for determining the value of an excisable article, that the measure for assessing the levy need not correspond completely to the nature of the levy and (that) no fault can be found with the measure so long as it bears a nexus with the charge" *

7. In the course of their judgment, the learned Judges laid down the following principles

(a) In enacting new Section 4, Parliament did not intend to bring into existence a scheme of valuation different from that embodied in the old Section 4. The object and purpose remained the same as also the central principle at the heart of the scheme. The new Section 4 embodies a much more comprehensive and clearly enunciated scheme for the determination of the real have of an excisable article

(b) While the levy in our country has the status of a constitutional concept, the point of collection is located where the statute declares it will be. The measure adopted cannot be identified with the nature of the tax. The measure employed for assessing a tax must not be confused with the nature of the tax. While the levy of a tax is defined by its nature, the measure of the tax may be assessed by its own standard. While the measure of the levy may indicate the nature of tax, it does not necessarily determine it. Hence, the Legislature, while enacting a measure to serve as a standard for assessing the levy need not contour it along the lines which spell out the character of the levy itself

(c) The contention that the duty of excise can be and must be levied only on manufacturing cost and manufacturing profit is unacceptable.

"In both the old Section 4 and the new Section 4, the price charge by the manufacturer on a sale by him represents the measure. Price and sale are related concepts and price has a definite connotation. The value of the excisable article has to be computed with reference to the price charged by the manufacturer, the computation being made in accordance with the terms of Section 4." *

(d) The normal price mentioned in new Section 4(1)(a) is the price at which the goods are ordinarily sold by the assessee in the course of wholesale trade. It is the wholesale price charged by him. This is also the scheme underlying old Section 4(e) The value of excisable goods determined under new Section 4(1)(a) may vary according to certain circumstances, a fact evident from the three clauses in the proviso appended to clause (a) of sub-section (1)

(f) The phrase "that is to say" following the expression "normal price" in new Section 4(1)(a) makes it clear that normal price is the price at which such goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and place of removal where the buyer is not a related person and the price is the sole consideration for the sale

(g) The deductions specifically mentioned in Section 4 may not be exhaustive. The question "whether any further deductions can be claimed beyond those already mentioned in the statute will depend on the nature of those claims in the case of a particular assessee"

8. It would be appropriate to set out the purport of Section 4, both old and new, as summarised in the judgment : (SCC pp. 503-04, para 47)

"(i) The price at which the excisable goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and place of removal as defined in sub-section (4)(b) of Section 4 is the basis for determination of excisable value provided, of course, the buyer is not a related person within the meaning of sub-section (4)(c) of Section 4 and the price is the sole consideration for the sale. This proposition is subject to the terms of three provisos to sub-section (1)(a) of Section 4;

(ii) Where the price of excisable goods in the course of wholesale trade for delivery at the time and place of removal cannot be ascertained for the reason that such goods are not sold or for any other reason, the nearest ascertainable equivalent thereof determined in the manner prescribed by the Central Excises (Valuation) Rules, 1975 should be taken as representing the excisable value of the goods;(iii) Where wholesale price of any excisable goods for delivery at the place of removal is not known and the value thereof is determined with reference to the wholesale price for delivery at a place other than the place of removal, the cost of transportation from the place of removal to the place of delivery should be excluded from such price;

(iv) Of course, these principles cannot apply where the tariff value has been fixed in respect of any excisable goods under sub-section (2) of Section 3."

(While setting out the summary, we have omitted the paras relating to the meaning of the expression "related person", since it is not necessary for the purpose of the present appeals.)

9. The Court then took up the question whether any post-manufacturing expenses are deductible from the price while determining the value of an excisable article. Since this aspect is crucial to the issues arising herein, it is necessary to examine this portion of the judgment with great care. Pathak, J. observed, in the first instance, that while old Section 4 provided by its Explanation that in determining the price of any article under that section, no abatement or deduction would 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, the new Section 4 specifically provides for certain deductions. The learned Judge mentioned the deductions claimed by the assessees in those matters as

(1) Storage charges

(2) Freight or other transport charges, whether specific or equalised

(3) Outward handling charges, whether specific or equalised

(4) Interest on inventories (stocks carried by the manufacturer after clearance)

(5) Charges for other services after delivery to the buyer(6) Insurance after the goods have left the factory gate

(7) Packing charges

(8) Marketing and selling organisation expenses, including advertisement and publicity expenses."

The learned Judge then mentioned the "two broad bases" put forward by the learned counsel on the basis of which the said deductions were claimed, viz., (a) that in determining the value of an excisable article, all expenses must be excluded which do not enter into the formula of manufacturing cost plus manufacturing profit (an echo of the main contention of Shri Palkhivala, which was rejected by the Court) and (b) that the price at the factory gate and the price at the depot outside the factory gate are identical. The learned Judge then made the following observations which are of particular relevance to the issues arising herein : (SCC p. 506, para 50)

"Now, the price of an article is related to its value (using this term in a general sense), and into that value have poured several components, including those which have enriched its value and given to the article its marketability in the trade. Therefore, the expenses incurred on account of the several factors which have contributed to its value up to the date of sale, which apparently would be the date of delivery, are liable to be included. Consequently where the sale is effected at the factory gate, expenses incurred by the assessee up to the date of delivery on account of storage charges, outward handling charges, interest on inventories (stocks carried by the manufacturer after clearance), charges for other services after delivery to the buyer, namely after-sales service and marketing and selling organisation expenses including advertisement expenses cannot be deducted. It will be noted that advertisement expenses, marketing and selling organisation expenses and after-sales service promote the marketability of the article and enter into its value in the trade. Where the sale in the course of wholesale trade is effected by the assessee through its sales organisation at a place or places outside the factory gate, the expenses incurred by the assessee up to the date of delivery under the aforesaid heads cannot, on the same grounds, be deducted. But the assessee will be entitled to a deduction on account of the cost of transportation of the excisable article from the factory gate to the place or places where it is sold. The cost of transportation will include the cost of insurance on the freight for transportation of the goods from the factory gate to the place or places of delivery." *

(emphasis supplied)

The learned Judge added : (SCC p. 506, para 51)

"Where freight is averaged and the averaged freight is included in the wholesale cash price so that the wholesale cash price at any place or places outside the factory gate is the same as the wholesale cash price at the factory gate, the averaged freight included in such wholesale cash price has to be deducted in order to arrive at the real wholesale cash price at the factory gate and no excise duty can be charged on it." *

The learned Judge then took up the issue of packing. After referring to sub-clause (i) of clause (d) of sub-section (4) and the explanation appended to the said sub-clause, the learned Judge observed "the packing of which the cost is included is the packing of which the goods are wrapped, contained or wound when the goods are delivered at the time of removal. In other words, it is the packing in which it is ordinarily sold in the course of wholesale trade to the wholesale buyer". (emphasis added) The learned Judge referred to the fact that the degree of packing will vary from one class of articles to another and to the concept of primary and secondary packings and observed : (SCC pp. 507-08, para 52)

"We must remember that while packing is necessary to make the excisable article marketable, the statutory provision calls for stick construction because the levy is sought to be extended beyond the manufactured article itself. It seems to us that the degree of secondary packing which is necessary for putting the excisable article in the condition in which it is generally sold in the wholesale market at the factory gate is the degree of packing whose cost can be included in the value of the article for the purpose of the excise levy. To that extent, the cost of secondary packing cannot be deducted from the wholesale cash price of the excisable article at the factory gate." *

(emphasis supplied)The learned Judge appended a clarificatory note to the above statement to the effect "if any special secondary packing is provided by the assessee at the instance of a wholesale buyer which is not generally provided as a normal feature of the wholesale trade, the cost of such packing shall be deducted from the wholesale cash price". Towards the end, the learned Judge made it clear that the position explained by him in regard to the cost of packing under the Act is the same both before and after the amendment of Section 4

10. On November 14/15, 1983, the very same Bench made the following clarifications with respect to certain claims for deductions. It would be appropriate to set out the entire order [except paragraph (6) which contains a direction regarding posting the matters]

"1. Trade Discounts. - Discounts allowed in the Trade (by whatever name such discount is described) should be allowed to be deducted from the sale price having regard to the nature of the goods, if established under agreements or under terms of sale or by established practice, the allowance and the nature of the discount being known at or prior to the removal of the goods. Such Trade Discounts shall not be disallowed only because they are not payable at the time of each invoice or deducted from the invoice price

2. Taxes. - Additional Sales Tax, Surcharge on Sales Tax, and Turnover Tax should be allowed to be deducted from the sale price in order to arrive at the assessable value, and also octroi where payable/paid by the manufacturer. These taxes if proved to have been paid, should be allowed even if they are paid periodically to the relevant taxing authorities in accordance with the relevant provisions of taxing statutes/rules

3. It is clarified that the cost of insurance mentioned in the judgment as part of the cost of transportation which is to be included as a deduction is the transit transport insurance covering transportation of the goods from the factory gate to the place or places of delivery

4. Where a company has more than one factory located at different places and the prices at the depots is the same irrespective of the lack of identification of the goods from a particular factory of production, the deduction as set out in this judgment and as explained in this order shall be computed and allowed on the basis of such price

5. This order shall be by way of clarification of the judgment delivered on 7th October, 1983." (emphasis in the original)

11. Thereafter, individual appeals were taken up and disposed of under "minutes of the order", ("format orders") signed by counsel for both the sides. Pursuant to format orders, the Assistant Collectors of Excise concerned passed order after an elaborate enquiry and hearing. In terms of the format orders, the assessment orders along with the objections filed against them came up for hearing before a Bench comprising P. N. Bhagwati, C.J. and V. Khalid, J., as stated hereinafter. By their judgment and order dated 20-12-1986, the learned Judges dealt with each of the deductions claimed and recorded their opinion thereon. The said judgment, however, has been recalled by another Bench on 1-5-1989. The order dated 1-5-1989 directs that the cases be restored to their original number and be listed again for fresh consideration

12. We may mentioned at this juncture that though the objections filed by the State to the orders of assessment made by the Assistant Collectors were confined to two deductions only, viz., DAC/TAC/warranty discount and special secondary packing, the Revenue was allowed to raise objections with respect to other deductions (allowed by the Assistant Collectors) also before the Bench of P. N. Bhagwati, C.J. and V. Khalid, J. We too are of the opinion that this is a matter where we should not feel inhibited by such technicalities. Further because the review order states that the appeals be listed for fresh hearing and also because the aforesaid technical objection may not be available in all the matters now before us, we have permitted the learned counsel for the assessees and the Revenue to make their submissions on all the issues arising from the orders of the Assistant Collectors in the matters before us

13. Before we proceed further, it is appropriate to correct a certain phraseological inexactitude : the principles enunciated in Bombay Tyre International do establish that the expression "post-manufacturing expenses" is not only legally inaccurate but is also likely to lead to some confusion. The said expression is associated with and an extension of the concept of manufacturing cost and manufacturing profit espoused by the learned counsel for the assessees in the said case but rejected by the Court. The expression "post-removal expenses" may be a more apt expression but even this expression may not be quite a correct expression. As pointed out specifically in Bombay Tyre International, there are quite a few "charges for other services after delivery to the buyer, viz., after-sales service and marketing and selling organisation expenses including advertisement expenses" which though incurred after the removal of the goods from the place of removal, cannot yet be deducted from the price. Therefore, wherever the expression "post-removal expenses" occurs hereinafter, it must be understood only as a convenient expression rather than a precise expression with a definite connotation

14. It is obvious that the value of excisable goods for the purpose of sub-section (1) of Section 4 is ordinarily determined with reference to the normal price at which such goods are sold, i.e., under clause (a) of sub-section (1) of Section 4. Only where the goods are not sold and, therefore, the price of such goods is not ascertainable or in a situation where the normal price of such goods is not ascertainable for some other reason that clause (b) is attracted, whereunder the nearest ascertainable equivalent price is ascertained in accordance with the rules framed in that behalf. Clause (b) is in the nature of a residuary clause which should be resorted to where the normal price cannot be ascertained for the reasons mentioned therein. In other words, where the normal price is available or is ascertainable, resort to clause (b) is not permissiblePART - II

15. We may now proceed to deal with each of the deductions in issue in these matters keeping in mind the provisions of Section 4 and the principles enunciated by this Court in Bombay Tyre International. The first deduction which happens to be the principal claim made by the Madras Rubber Factory - and urged strongly by Shri F. S. Nariman - is the deduction of the expenses incurred by the assessee upon the maintenance of the depots from where the goods manufactured by it are delivered in the course of wholesale trade. It is explained that the Madras Rubber Factory sells all the tyres and other goods manufactured by it (except those sold to the Government) only through its depots. Only the sales to the Government are at the place of removal, i.e., at the gate. Except the sales to Government, there are no sales at the gate. The goods manufactured are first taken to several depots spread all over the country and sold from such depots in the course of wholesale trade. This is done both in the business interest of the assessee as also to provide convenient delivery points to the buyers. The value under Section 4(1), says the learned counsel, has to be determined with reference to the place of removal, i.e., at the gate. The price charged at the depots includes the charges incurred for transporting the goods from the place of removal to the depots concerned as also the expenses incurred in maintaining the depot. It also includes the insurance charges incurred for insuring the goods while in transit and also while the goods are stored at the depots. Storage charges and several other charges are also incurred at the depots. All these charge are incurred, says Shri Nariman, subsequent to the removal of goods, i.e., removal from the gate. Since they are all post-removal expenses, learned counsel says, they must necessarily be deducted from the price charged at the depot for ascertaining the price charged at the place of removal in the course of wholesale trade. Shri Nariman has an alternate, and a simpler, solution. He suggests that all the aforesaid exercise can be avoided if the department accepts the price at which the assessee sells its goods to the Government at the gate as the normal price of all the goods sold for the purpose of Section 4(1)(a). He submits that it is not the case of Revenue that the sales to the Government are not normal or genuine transactions. It is also not suggested, he says, that the price at which the goods are sold to the Government is not the normal price in the course of wholesale trade. In such a situation, the most convenient - convenient from the point of view of the Revenue as well as the assessee - course would be to treat the price at which the goods are sold to the Government as the normal price within the meaning of Section 4(1)(a). In fact, the learned counsel says, that should be the only method. However, if for some reason, the Revenue is not prepared to adopt this course then, he says, the Revenue has to deduct all the aforesaid expenses and not merely the transportation charges as specifically provided by sub-section (2) of Section 4. Shri Nariman relies upon the holding in Bombay Tyre International that deductions other than those specifically mentioned in Section 4 are permissible in law, depending no doubt upon the character of the deduction claimed. On the other hand, Shri Chandrasekharan, learned Additional Solicitor General, submits that sub-section (2) of Section 4 does specifically envisage and provide for the situation concerned herein. It provides expressly that where the price of any excisable goods is not known at the place of removal and the value of such goods is determined with reference to the price charged at the time of their delivery from a place other than the place of removal, the transportation charges incurred for transporting the goods from the place of removal to the place of such delivery shall be excluded. The learned Additional Solicitor General says that since the Act has provided only for one specific deduction, it is reasonable to presume that it does not permit any other deduction. Both counsel rely upon certain observations in Bombay Tyre International in support of their respective contentions which we may quote hereinbelow : Having set out the several deductions which were in issue before them, Pathak, J. proceeded to deal with them. Inasmuch as Shri Nariman says that the said observations have to be understood in the light of and in the context of certain preceding observations, we set out the relevant paragraph along with the preceding paragraph : (SCC pp. 505-06, paras 49-50)"At the outset, we must make it clear that the contentions in this regard on behalf of the assessees proceed on two broad bases. The first is that to determine the value of an excisable article, all expenses must be excluded which do not enter into the formula of manufacturing cost plus manufacturing profit. This follows from the principal plank of the assessees case that the value must be confined to the manufacturing cost, and the manufacturing profit. For, it is said, that if the deductions claimed are allowed, the price would be brought down to the conceptual value. All post-manufacturing expenses are claimed from that perspective and within that context. The other basis on which the claim proceeds, is that the price at the factory gate and the price at a depot outside the factory gate are identical

We shall now examine the claim. It is apparent that for the purpose of determining the value, broadly speaking both the old Section 4(a) and the new Section 4(1)(a) speak of the price for sale in the course of wholesale trade of an article for delivery at the time and place of removal, namely, the factory gate. Where the price contemplated under the old Section 4(a) or under the new Section 4(1)(a) is not ascertainable, the price is determined under the old section 4(b) or the new Section 4(1)(b). Now, the price of an article is related to its value (using this term in a general sense), and into that value have poured several components, including those which have enriched its value and given to the article its marketability in the trade. Therefore, the expenses incurred on account of the several factors which have contributed to its value up to the date of sale, which apparently would be the date of delivery, are liable to be included. Consequently where the sale is effected at the factory gate, expenses incurred by the assessee up to the date of delivery on account of storage charges, outward handling charges, interest on inventories (stocks carried by the manufacturer after clearance), charges for other services after delivery to the buyer, namely after-sales service and marketing and selling organisation expenses including advertisement expenses cannot be deducted. It will be noted that advertisement expenses, marketing and selling organisation expenses and after-sales service promote the marketability of the article and enter into its value in the trade. Where the sale in the course of wholesale trade is effected by the assessee through its sales organisation at a place or places outside the factory gate, the expenses incurred by the assessee up to the date of delivery under the aforesaid heads cannot, on the same grounds, be deducted. But the assessee will be entitled to a deduction on account of the cost of transportation of the excisable article from the factory gate to the place of places where it is sold. The cost of transportation will include the cost of insurance on the freight for transportation of the goods from the factory gate to the place or places of delivery." (emphasis added)We may also set out the para immediately succeeding the above paras : (SCC p. 506, para 51)

"Where freight is averaged and the averaged freight is included in the wholesale cash price so that the wholesale cash price at any place or places outside the factory gate is the same as the wholesale cash price at the factory gate, the averaged freight included in such wholesale cash price has to be deducted in order to arrive at the real wholesale cash price at the factory gate and no excise duty can be charged on it." *

16. The relevant para states two propositions relevant in this behalf, viz., (i) where the sale is effected at the factory gate, the several expenses mentioned including "charges for other services after delivery to the buyer, viz., after-sales service and marketing and selling organisation expenses cannot be deducted" from the price, and (ii) where the sale is effected though the assessees sales organisation at a place or places outside the factory gate, even there the aforesaid expenses cannot be deducted. The assessee, however, will be entitled in such a case to deduct the cost of transportation (including the cost of insurance on the freight) incurred for transporting the goods from the gate to the place of delivery

17. The contention of Shri Chandrasekharan is that in view of the aforesaid emphatic statement, the expenses claimed by the assessee on account of the maintenance of the depots cannot be allowed. Shri Nariman, however, contends that the said observations must be understood in the light of the two bases set out in the preceding paragraph and particularly the second of them which reads : "[T]he other basis on which the claim proceeds is that the price at the factory gate and the price at a depot outside the factory gate are identical." Learned counsel contends that only where the price at the factory gate and price at the depot outside the factory gate is identical that the statement aforesaid applies and not otherwise. We find it difficult to agree with this explanation or understanding, as it may be called. We may elaborate. If the selling price at the factory gate and at the depot (outside the factory gate) are identical, question of deducting the transportation charges from the price charged at the depots does not arise. If the price at the depot from the price charged at the depots does not arise. If the price at the depot (sic gate) is known, there is not occasion for going further and indulging in the exercise provided by sub-section (2) of Section 4. Only where the price at the gate (at the place of removal) is not known that one is put to the necessity of making the aforesaid deduction from the price charged at the depot; this deduction is made precisely for the purpose of ascertaining the price at the gate. It may also be noted that the first of the two bases (referred to in the first para in the above extract) is admittedly inapplicable, having been roundly rejected in Bombay Tyre International. Then how is it that the second basis alone is applicable. The very idea is a contradiction in terms. We, cannot, therefore, understand the aforesaid statement of law in Bombay Tyre International as premised on the basis urged by Shri Nariman. The reasoning of Shri Nariman does appear to be logical and attractive ex facie but if flies directly in the face of the clear holding in Bombay Tyre International and cannot, therefore, be accepted

18. It is brought to our notice that this claim was accepted by the Bench comprising Bhagwati, C.J. and Khalid, J. in their judgment dated 20-12-1986 in Asstt. CCE v. Madras Rubber Factory Ltd. - the judgment since reviewed and recalled. Para 17 of the judgment reads : (SCC pp. 763-64)

"The next head which was urged for our consideration relates to the cost of distribution incurred at the duty-paid sales depots. In the judgment in Union of India v. Duphar Interfran Ltd. we have held that the cost of distribution is not to be included in the assessable value in case the wholesale dealers take delivery of the goods from outside duty paid godown. The wholesale dealers having taken delivery of the goods manufactured by MRF Ltd. and there being a removal of the goods from the factory gate, the cost of distribution at duty-paid sales depots cannot be taken into account for the purpose of determining the assessable value of the goods." *

19. Apart from the fact that this judgment was recalled at the instance of Revenue on the ground that "prima facie.. in respect of certain items an inconsistency is present in the impugned judgment when regard is had to be law laid down by this Court in Union of India v. Bombay Tyre International" (as per the order in review petition), the above holding appears to be mainly influenced by what is said to have been decided in Union of India v. Duphar Interfran Ltd. The order in Duphar Interfran Ltd., however, does not appear to bear it out. The entire order comprises only one short paragraph which reads as follows

"The only question that arises in this appeal relates to the five per cent extra charge which is made by the respondent to the wholesale dealers in respect of packing and distribution costs. This charge of five per cent does not represent the cost of unit packing but merely represents the cost of additional packing if it is so desired by the wholesale dealers and moreover in such case the wholesale dealers take delivery of the goods manufactured by the respondent from the duty-paid warehouse situated outside the factory premises. Since these averments made by the respondent in the writ petition have not been controverted on behalf of the appellants, we must hold that 5 per cent extra charge cannot be taken into account by the authorities for the purpose of determining the assessable value of the goods for excise duty. The High Court was in the circumstances right in excluding 5 per cent extra charge from the assessable value and the appeal must, therefore, fail and be dismissed with no order as to costs." *

(emphasis added)

20. A reading of the order makes it clear that the extra five per cent charge, which was allowed, represented the cost of additional packing desired by the buyer. The further observation to the effect, "and moreover in such case the wholesale dealers take delivery of the goods manufactured by the respondent from the duty-paid warehouse situated outside the factory premises" does not mean that any portion of five per cent extra charge represented the expenses incurred on maintaining and running the depots outside the place of removal. The order appears to have turned more on the ground of absence of denial of assessees averments by the Revenue. In any event, it is not possible to read the said order as laying down a proposition contrary to the considered and specific holding in the decision in Bombay Tyre International. It is also not reasonable to read any inconsistency between both the orders, inasmuch as the Bench which made the order in Duphar Interfran Ltd. is the very same Bench which delivered the judgment in Bombay Tyre International. The learned Judge could not have certainly laid down a contrary proposition in Duphar Interfran Ltd. to the one specifically laid down in Bombay Tyre International. In this behalf, it is relevant to note that sub-section (2) of Section 4 which envisages a situation where the goods are not sold at the place of removal but are sold at a place other than the place of removal, provides for deduction of the cost of transportation from the place of removal to the place of delivery. It would be reasonable to presume that the only deduction permissible in such a situation is the one expressly provided by the sub-section and no other. So far as insurance charges on the freight transported from the place of removal to the selling points allowed in Bombay Tyre International are concerned, they were allowed evidently because they form an adjunct of the transportation charges and are incident thereto. We are also of the opinion that the holding in Bombay Tyre International that deductions other than those specifically mentioned in Section 4 can yet be conceived of may not be available to the assessee herein in view of the express enunciation of law in the very decision on the issue now in question. We may add here that where the freight is averaged and the average freight is included in the wholesale cash price so that the wholesale cash price at any place or places outside the factory gate is the same as the wholesale cash price at the factory gate, the averaged freight included in such wholesale cash price has to be deducted in order to arrive at the real wholesale cash price at the factory gate and no excise duty can be charged on such averaged freight, as clarified in Bombay Tyre International (paragraph quoted supra)

21. We agree that it is for each assessee to decide where to sell his goods. He can choose to sell his goods at the gate, i.e., at the place of removal or he may choose to sell his goods through his selling organisation as in the case of Madras Rubber Factory. Where the goods are sold in the course of wholesale trade through depots outside the place of removal the assessee does no doubt incur expenses not only for transporting the goods from the place of removal to the depots but also on maintenance and running of depots but these expenses, according to Bombay Tyre International are on the same par as after-sale service charges and advertisement charges and hence cannot be deducted. Where, however, the freight charges are equalised in the manner indicated in the preceding paragraph, such charges can be deducted from the normal price; it is obvious that such deduction will be common to the price at the gate and at the depots outside the gate - because of the equalisation, the price will equally be uniform at the gate as well as at the depots. This aspect will become clearer once we deal with the permissibility of the deductions claimed

22. With respect to the alternative argument of Shri Nariman, we must say that no direction can be given to the authorities to adopt the price at which the assessee sells its goods to the Government as the price in respect of its total sales. Firstly, by virtue of proviso (i) to Section 4(1)(a), the Government would be a class by itself and the price charged to it would be relevant only to the goods sold to it. So far as depot sales are concerned, they are to a different class or classes of buyers and in respect of the goods sold to them, the price charged to each of such class of buyers would be the normal price. The price charged to one class of buyers cannot, therefore, be directed to be adopted as the price in respect of all the classes of buyers. Since the position under the old Section 4 and new Section 4 is held to be the same, this holding holds goods for both periods

23. For the above reasons, we are unable to give effect to the submission of Shri Nariman. We hold that in cases where the goods are sold in the course of wholesale trade at place or places outside the place of removal, i.e., at depots, as in the case of Madras rubber Factory, the expenses incurred in maintaining and running the said depots cannot be deducted from the price but the cost of transportation along with the cost of insurance on freight can be deducted as held in Bombay Tyre International. This holding does not, of course, prevent the assessees from representing their case to the Government if they are so advised in this behalf and it is for the Government to consider the same in the light of all relevant circumstances

PART - III

24. We may now take up the issue relating to packing charges. Sub-clause (i) of clause (d) of sub-section (4) of Section 4 says that "value in relating to any excisable goods, where the goods are delivered at the time of removal in a packed condition, includes the cost of such packing except the cost of the packing which is of a durable nature and is returnable by the buyer to the assessee". The Explanation to the sub-clause defines what does packing mean in the said sub-clause. The provision in the sub-clause is a plain one and does not admit of any ambiguity. What it says is that where the goods are delivered in a packed condition, at the time of removal, the cost of such packing shall be included and that only where such packing is of a durable nature and is returnable by the buyer to the assessee, should the cost of such packing be not included in the value of the goods. The concept of primary and secondary packing has, however, been urged by the assessee and recognised to some extent in the decisions of this Court including Bombay Tyre International. While it may not be possible for us to wish away the said distinction, we cannot but remind ourselves that this is a refinement not borne out by the express language of the enactment and must, therefore, be resorted to with case and circumspection. Be that as it may, we shall now turn to the law on the subject as enunciated in Bombay Tyre International

25. After referring to the sub-clause and the explanation aforesaid, the Pathak, J. stated that the cost of packing contemplated by the said sub-clause as included in the value of the goods packed ins the cost of "packing in which it is ordinarily sold in the course of wholesale trade to the wholesale buyer". The learned Judge recognised that the degree of packing will vary from one class of excisable goods to another and observed that while there is no controversy about what may be called the "primary packing" (examples of which were given by him), serious dispute has arisen with respect to the cost of secondary packing. Observing that secondary packing may be of different grades, the learned Judge posed the questions "Is all the packing, no matter to what degree, in which the wholesale dealer takes delivery of the goods to be considered for including the cost thereof in the value or does the law require a line to be drawn somewhere " and answered them in the following words : (SCC pp. 507-08, para 520

"We must remembers that while packing is necessary to make the excisable article marketable, the statutory provision calls for strict construction because the levy is sought to be extended beyond the manufactured article itself. It seems to us that the degree of secondary packing which is necessary for putting the excisable article in the condition in which it is generally sold in the wholesaled market at the factory gate is the degree of packing whose cost can be included in the value of the article for the purpose of the excise levy. To that extent, the cost of secondary packing cannot be deducted from the wholesale cash price of the excisable article at the factory gate." *

(emphasis added)

26. The learned Judge added that if in any case special secondary packing is provided by the assessee at the instance of the wholesale buyer, which is not generally provided as a normal feature of the wholesale trade, the cost of such packing shall be deducted from the wholesale cash price. The basic test evolved by the learned Judge is the one which we have underlined/emphasised in the preceding paragraph. The test, to repeat, is : that packing in which it is ordinarily sold in the course of wholesale trade to the wholesale buyer, which test was elaborated to mean that degree of secondary packing which is necessary for putting the excisable article in the condition in which it is generally sold in the wholesale market at the factory gate. It is the cost of such packing that has to be included in the value of the excisable goods unless the packing is of a durable nature and is returnable by the buyer to the assessee. This holding in Bombay Tyre International has been uniformly accepted and applied in the subsequent decisions of this Court though there has been some divergence in emphasis in some of them, to which it is necessary to refer in view of the contentions urged by Shri Harish Salve, learned counsel for the assessee in one of the appeals

27. The decision of this Court in Union of India v. Godfrey Philips India Ltd. was heard by the very same Bench of three learned Judges that decided Bombay Tyre International. All the three learned Judges uniformly reiterated the principles and the test evolved in Bombay Tyre International but arrived at divergent conclusions (the majority comprising Pathak and Sen, JJ. taking one view and Bhagwati, C.J., the other) on the basis of differing perceptions as to the factual situation in that case. The relevant facts as set out in the opinion of Bhagwati, C.J., are : the respondent-assessee was engaged in the manufacture of cigarettes. The cigarettes were packed initially in paper/cardboard packets of ten and twenty. These packets were packed together in paper/cardboard cartons/outers. These cartons/outers were then placed in corrugated fiberboard containers. It is these corrugated fiberboard containers (CFCs) filled with cartons/outers containing the packets of cigarettes of ten and twenty which were delivered by the assessee to the wholesale dealers at their factory gate. So far as the cost of initial packing is concerned, there was no dispute. Similarly, there was no dispute with respect to the cost of paper/cardboard cartons/outers. The dispute, however, centred round the cost of CFCs. Bhagwati, C.J., referred to the holding in Bombay Tyre International, to the provisions of Section 4(4)(d)(i) and the explanation thereto and opined : (SCC p. 379, para 4)

"It is apparent from the wide language of the Explanation that every kind of container in which it can be said that the excisable goods are contained would be packing within the meaning of the Explanation and this would necessarily include a fortiori corrugated fiberboard containers in which the cigarettes are contained.... corrugated fiberboard containers in which the cigarettes are contained fall within the definition of packing in the Explanation and if they form part of the packing in which the goods are packed with delivered at the time of removal, it is difficult to resist the conclusion that under Section 4(4)(d)(i) read with the Explanation, the cost of such corrugated fiberboard containers would be liable to be included in the value of the cigarettes." *

The learned Chief Justice then evolved the test of "necessity or essentiality of such secondary packing" for sale of the excisable goods at the factory gate in the course of wholesale trade and held that the fact that the CFCs are used in order to protect the goods against damage during the course of transportation is no ground to exclude their cost. The learned Chief Justice observed : (SCC p. 380, para 5)

"The question is not for what purpose a particular kind of packing is done. The test is whether a particular kind of packing is done in order to put the goods in the condition in which they are generally sold in the wholesale market at the factory gate and if they are generally sold in the wholesale market at the factory gate in a certain packed condition, whatever may be the reason for such packing, the cost of such packing would be includible in the value of the goods for assessment to excise duty." *

The learned Chief Justice next considered the question of promissory estoppel and on that ground held in favour of the assessee for a particular specified period. In respect of other periods, he held against the assessee

28. In his separate opinion, Pathak, J. reiterated the holding in Bombay Tyre International that inasmuch as the definition of the expression value in Section 4(4)(d)(i) has been extended to include the cost of packing and because packing itself is not the subject of the levy of excise duty, the extension must be strictly construed. The learned Judge then posed the question, "is the packing in corrugated fiberboard containers necessary for putting the cigarettes in the condition in which they are generally sold in the wholesale market at the factory gate " and answered it in the negative. The learned Judge observed : (SCC p. 390, para 18)

"The corrugated fiberboard containers are employed only for the purpose of avoiding damage or injury during transit. It is perfectly conceivable that the wholesale dealer who takes delivery may have his depot a very short distance only from the factory gate or may have such transport arrangements available that damage or injury to the cigarettes can be avoided. The corrugated fiberboard containers are not necessary for selling the cigarettes in the wholesale market at the factory gate." *

29. It is thus clear that the learned Judge held the cost of CFCs not includible in the wholesale cash price in view of his finding - factual finding - that the CFCs were not necessary for delivering the excisable goods at the gate. The approach of A. N. Sen, J. is similar to the one adopted by Pathak, J., viz., the test of necessity of such packing. The learned Judge observed : (SCC p. 392, par 24)

"Cartons of cigarettes are usually further packed in corrugated fiberboard containers for facilitating transport in the course of delivery to buyers in the wholesale trade where there is any possibility of the cartons becoming otherwise damaged in course of transit. Naturally in such cases.