Mahindra And Mahindra Limited vs Union Of India (Uoi) And Ors.
2002 Latest Caselaw 978 Bom

JUDGMENT

H.L. Gokhale, J.

1. This Writ Petition, under Article 226 of the Constitution of India, seeks to challenge the legality and validity of two Show Cause Notices (1) Notice dated 12th July 1985 along with its annexure dated 21st May 1986 and (2) Notice dated 4th February 1986, both issued by the Superintendent of Central Excise for short payment of excise duty under Section 11A of the Central Excises and Salt Act, 1944 (for short, "the said Act").

2. The petitioners herein are a Public Limited Company and they manufacture agricultural tractors (falling under Tariff Item No. 34-11) and required engines (Tariff Item No. 29) and certain components (Tariff Item No. 68) for the same at their factory situated at Kandivali, Mumbai. The petitioners have sales depots at Bombay and at Daman, Ludhiana and Lucknow etc. They have been filing classification list and price list periodically under the procedure of self ~ removal of excisable goods which is under the control and supervision of Inspectors of Excise at the factory level who in turn are under the control of the Superintendent of Excise. Accordingly, the petitioners have been paying the excise duty on the goods removed at the factory gate regularly. The above-referred Notices principally claimed that the petitioners had been selling their tractors from the depots at much higher prices containing amounts beyond reasonable expenditure on account of transportation, insurance etc. The duty paid on these tractors was however only on the price at the factory level resulting into short payment of excise duty. The Notices call upon the petitioners to show cause to the Assistant Collector of Central Excise as to why the differential amounts should not be recovered under Section 11A of the said Act. Appeal against the decision of the Assistant Collector lies to the Collector of Central Excise.

3. The Superintendent of Central Excise, who issued the Notices, is joined as respondent No. 4 to the petition. The Assistant Collector is respondent No. 3. The Collector of Central Excise is respondent No. 2 and the Union of India is respondent No. 1. Mr. Setalvad, Senior Counsel with Mr. Shroff have appeared for the petitioners. Mr. Sethna, Senior Counsel with Mr. Chaudhari have appeared for the respondents to defend the Notices.

4. At the time when this petition was filed, the Writ Petitions concerning the orders under the said Act used to be assigned to a Single Judge under the High Court (Original Side) Rules. This petition came up for admission before a learned Single Judge on 10th December 1986. The learned Single Judge observed that the Notices were issued a year before, a reply had been filed and if there were some irregularities the same can be pointed out to the concerned authority. He, therefore, rejected the petition. The petition was, however, admitted by a Division bench in Appeal. While passing its order on 12th December 1986, the Division Bench observed that the first Show Cause Notice was, prima facie, unsustainable as the amount which was proposed to be demanded was not stated and the notice was clumsily worded and difficult to understand. At that time the Appeal Court had observed that in case the respondents were agreeable not to implement the final order in adjudication, the petitioners would be relegated to that forum and may challenge the final order in writ provided the respondents did not raise objection of alternative remedy. The respondents declined to accede and hence, the petition was admitted. Subsequently, the High Court (Original Side) Rules have been amended and these petitions are now assignable to a Division Bench and that is how the present petition has reached for final hearing before this Bench.

5. Before we refer to the relevant statutory provisions and the submissions made by the Counsel on both sides, it will be desirable to refer to the two Show Cause Notices. The first Show Cause Notice dated 12th July 1985 covered the period from 1982 to 1985, but did not contain any quantification of duty as noted by the Appeal Court. The Show Cause Notice principally alleged as follows :--

"(i) that the petitioners sold that duty-paid stocks from their sales depots at the higher price;

 (ii)     that the sales depots were related persons and that therefore the price at which the goods were sold from the depots should be considered as the assessable value; 
 

 (iii)    that though the retail price included excise duty, freight and dealer's margin, excise duty had been paid at the factory gate without including the aforesaid amounts and that this was incorrect in view of Rule 6(a) of Central Excise (Valuation) Rules, 1975;
 

(iv) that the petitioners had not included in the assessable value (1) after sales-service charges (2) dealer's margin, (3) marketing and selling expenses and (4) excess freight; 
 

 (v)     that the petitioners had concealed the invoice value."
 

The Notice  alleged  that there  was  an  under-assessment due  to  incorrect application of Section 4 of the said Act for the above-referred reasons and, therefore, called upon the petitioners to show cause under Section 11A of the said Act. The Notice stated that the amount of demand will be notified subsequently. 
 

6. The petitioners filed a detailed Reply to this Notice on 30th September 1985 and submitted that firstly the differential amount had not been quantified in the Notice. It was pointed out that the petitioners had been regularly filing their monthly returns and maintaining the production registers. They had been filing classification list and price list which were checked thoroughly by the officers of the respondents right from the production stage. It was then submitted that it was incorrect to refer to their stock depots as persons related to the petitioners. It was specifically submitted that these depots are not different bodies nor have they any separate existence. They are part and parcel of the petitioners Organization itself. With respect to the reliance placed on the above Rule 6(a), it was submitted that the said Rule applies only in those cases where the value is not ascertainable under the main definition of the term "normal price" in Section 4(1)(a) of the said Act. It was submitted that the wholesale sales are on principal to principal basis and all the services like marketing, selling, servicing etc. thereafter are not done by the petitioners but by the dealers. It was denied that there was suppression of any information pertaining to sale invoices and since the Department did not seek review of the approved price list, there was no justification in attempting to revoke the already approved assessable value. There was further correspondence between the parties thereafter also with respect to this Show Cause Notice.

7. The second Show Cause Notice dated 4th February 1986 covered the period 1st August 1985 to 31st October 1985 and it demanded an amount of Rs. 20,00,754.40. This Notice also contained grounds similar to the first Notice. The petitioners replied to this Show Cause Notice by their letter dated 25th March 1986. Prior to the filing of this reply, the petitioners, by their letter dated 24th February 1986, had asked for the work-sheets showing as to how the assessable value had been worked out. They followed up this letter by their reminder of 9th March 1986. The Department, however, by letter dated 14th March 1986, replied that there was nothing in the custody of the respondents other than whatever was already supplied which was necessary for the petitioners to defend their case. Thereafter, the above-referred reply dated 25th March 1986 was filed which was also on the same lines as the earlier reply.

8. Thereafter, the petitioners were served on 21st May 1986 with the annexure to the Show Cause Notice dated 12th August 1985 served earlier. The annexure stated that the difference in the prices at Daman and Ludhiana when compared to those at Bombay was on much higher side upto Rs. 5,000/- per tractor and it contained the amount beyond the reasonable expenditure on account of transportation, insurance etc. This annexure accepted that a few tractors i.e. about 20% were sold at the factory gate at Kandivali but it was alleged that the same was done only to show that the prices are ascertainable at factory gate under Section 4(1)(a) of the said Act. It was alleged that this was with an ulterior motive to reduce the duty liability. It was contended in the annexure that if the sales are on principal to principal basis, it appeared that the dealers were paying to the petitioners an excess amount although the dealers were themselves rendering after sale service and spending for advertisement etc. it was, therefore, submitted that the claimed expenses on account of advertising, marketing, after sale services etc. ought to be added to the assessable value apart from post manufacturing expenses incurred by their sales organization. It was claimed that there was a short payment to the tune of Rs. 3,59,45,487.40. It was also threatened as to why a penal action under the said Act should not be initiated apart from the recovery under Section 11A. Detailed charts supporting the claim were also enclosed along with this annexure. It is at this stage that the petition was filed challenging the two Notices and as stated earlier, the petition was admitted in Appeal and the actions based on the Notices were stayed.

9. Now, what is to be noted is that we are concerned in this matter with the statutory provisions as they existed prior to the amendment brought into effect from 28th September 1996. Under the Act, as it then stood, the main relevant provision was Section 4 thereof, which provided for valuation of excisable goods for purposes of charging the duty of excise. Under Section 4(1) the value is deemed to be the price at which the goods are ordinarily sold at the time and place of removal to a buyer in the course of wholesale trade where the buyer is not a related person and the price is the sole consideration for the sale. Place of removal was defined under Section 4(4)(b) to mean a factory or any other place of production and included a warehouse where the excisable goods were permitted to be deposited without payment of duty. Under the provision, as it then stood, it did not include a depot where excisable goods are to be sold after their clearance from the factory. Besides, after the amendment of 1996 it became permissible to have different prices at different places of removal and such price was deemed to be the normal price. This position was not there in the Act as it earlier stood. Thus, in short, the assessable value was earlier defined to mean in effect the sale price in the course of wholesale trade at the factory level less excise duty, sales tax and the trade discount. The sale in retail was wholly irrelevant and once sales were effected in the course of wholesale trade, the price received in respect of such sales determined the assessable value.

10. The relevant Section 4, as it then stood, read as follows:--

"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 assesee 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 taw, 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 subsection (2) of Section 3.

(4) For the purposes 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, directly 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 distributor. 
 

 Explanation--In this clause "holding company", "subsidiary company" and "relative" have the same meanings as in the Companies Act, 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 costs of such packing except the cost of the packing which is of a durable nature and is returnable by the buyer to the assesee. 
 

 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; 

 

 Explanation--For the purposes of this sub-clause, the amount of the duty of excise payable on any excisable goods shall be the sum total of- 
   

 (a)     the effective duty of excise payable on such goods under this Act; and  
 

 (b)     the aggregate of the effective duties of excise payable under other Central Acts, if any, providing for the levy of duties of excise on such goods.  
 

 and the effective duty of excise on such goods under each Act referred to
in Clause (a) or Clause (b) shall be,-- 
   

 (i)     in a case where a notification or order providing for any exemption (not being an exemption for giving credit with respect to, [or reduction of duty of excise under such Act on such goods equal to, any duty of excise under such Act, or the additional duty under Section 3 of the Customs Tariff Act, 1975 (51 of 1975), already paid] on the raw material or component parts used in the production or manufacture of such goods) from the duty of excise under such Act is for the time being in force, the duty of excise computed with reference to the rate specified in such Act, in respect of such goods as reduced so as to give full and complete effect to such exemption; and  
 

 (ii)    in any other case, the duty of excise with reference to the rate specified in such Act in respect of such goods,  
 

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

11. As stated above, by the amendment inserted by Finance Act, 1996 (33/96), the possibility of there being different prices at different places of removal came to be added by inserting Section (ia) after Section 4(1)(a)(i). This added Section (ia) reads as follows :-- 
  "(ia) where the price at which such goods are ordinarily sold by the assessee is different for different places of removal, each such price shall, subject to the existence of other circumstances specified in Clause (a), be deemed to be the normal price of such goods in relation to each such place of removal." 
 

 The depots came to be added in the definition of place of removal by adding Sub-clause (iii) after Section 4(4)(b)(ii). The added Sub-clause (iii) reads as follows :-- 
  "(iii) a depot, premises of a consignment agent or any other place or premises from where the excisable goods are to be sold after their clearance from the factory and" 
 

 Then concept of time of removal came to be added by adding Sub-clause (ba) after Sub-clause (b) in Section 4(4). This Sub-clause (ba) reads as follows :-- 
  "(ba) "time of removal", in respect of goods removed from the place of removal referred to in Sub-clause (iii) of Clause (b), shall be deemed to be the time at which such goods are cleared from the factory;" 

 

12. The main question, therefore, which is required to be decided in this petition, is as to whether the Department was justified in demanding excise duty on the basis of the higher price, at which the tractors were sold by the petitioners from their depots, whether on wholesale basis or retail under the law as it stood at that point of time. Now, as noted earlier, under the statutory provisions as they stood at the time when the impugned Notices were given, the assessable value was deemed under Section 4(1) to be the normal price at which goods were ordinarily sold at the time and place of removal. The place of removal was defined to mean a factory or any other premises of production, the only other exception being a warehouse wherein excisable goods were permitted to be deposited without payment of duty. Thus, assessable value was equated with the normal price, at which the goods are ordinarily sold by the assessee to a buyer at arm's length in the course of wholesale trade at the place of removal. The sales in retail were wholly irrelevant in determining the value. The proviso (i) to Section 4(1)(a) made another exception where goods were sold by the assessee at different prices to different classes of buyers. Then in that case, subject to the existence of other circumstances specified in Section 4(1)(a), each such price was deemed to be the normal price of the goods in relation to each such class of buyers. In the present case, we are admittedly not concerned with a situation falling under proviso (i) to Section 4(1)(d). Sub-section (2) of Section 4 made another exception i.e. where in relation to any excisable goods the price at the place of removal is not known and the value is determined with reference to the price at the place of delivery then the cost of transportation was to be excluded from such a price. In the instant case, it is an admitted position that 20% of the tractors were sold at the factory gate at Kandivali, Mumbai after paying the excise duty. Thus, as far as the 20% of the tractors sold at Kandivali were concerned, clearly the price and the assessable value were ascertainable. It was the submission of Mr. Setalvad, learned Counsel for the petitioners that once the ex-factory price was available, that forms the basis of the assessable value. The price at which the tractors were sold at the depot was totally irrelevant as also the question as to what were the transportation charges or as to whether the petitioners were charging anything in excess thereof.

13. Mr. Setalvad, learned Counsel for the petitioners, relies upon a judgment of the Apex Court in the case of Indian Oxygen Ltd. v. Collector of C.E., in support of his submissions. That was a case where the Appellant-Company before the Apex Court manufactured Compressed Oxygen and Dissolved Acetylene gases and sold them through cylinders from its factory at Visakhapatnam and depots at various places such as Vijayawada, Rajamundary etc. It was the case of the Appellant that ex-factory price was ascertainable. Yet, it was given a Show Cause Notice in respect of its price list on the ground that the prices charged at their depots were higher than those at the factory. It was contended by the Department that the Company was claiming additional charges on account of (i) delivery and collection charges, (ii) cylinder deposit and (iii) rentals and these should form part of the assessable value. The Appellant had carried the matter to the Tribunal. The Tribunal noted that the price at the factory gate was ascertainable and assessment should, therefore, be made in terms of that price.

However, with respect to the goods sold at depots, it also observed that the Appellant had not come forward to offer concrete evidence of actual freight charges etc. it, therefore, directed that if ex-factory prices were not ascertainable and the goods were assessed ex-depot, then it would be for the manufacturer to claim on the basis of actual evidence and remanded the matter to the Assistant Collector to re-fix the assessable value. It was the order of the tribunal which was challenged in Appeal before the Apex Court.

14. The Apex Court in that matter noted that once the ex-factory price was available, the cost of transportation etc. became irrelevant under the Excise Act. It further noted that we are concerned with a tax on manufacture and not with a tax on profit. Delivery and collection charges had nothing to do with the manufacture. The Court observed in paragraph 5 of this judgment as follows :--

"....... It is necessary to reiterate the principle upon which the assessable-value will have to be determined in this case. The cost of transportation from factory at Visakhapatnam and the depot at Vijayawada cannot be included normally in computation of the value. The value has to be computed under Section 4(1)(a) read with Section 4(4)(d)(i) of the Act, where the wholesale price is ascertainable at the factory gate, the question of transportation charges becomes entirely irrelevant. The cost of transportation from the factory gate to the place for delivery and transit expenses were not to be added to the wholesale price at factory gate for purposes of duty under the Act. In this case the price of the goods at the factory gate Visakhapatnam is known. It is clear from Section 4 that the delivery and collection charges have nothing to do with the manufacture as they are for delivery of the filled cylinders and collection of the empty cylinders. These charges have to be excluded from the asses sable-value. Insofar as the loading charges incurred for loading the goods within the factory are concerned, they are to be included in the assessable-value, irrespective of who has paid for the same but the loading expenses incurred outside the factory gate are excludible. Duty of excise is a tax on the manufacture, not a tax on the profits made by a dealer on transportation."

The Apex Court finally held at the end of Para-8 of the report that in this case there was a clear finding that there was an ex-factory price which was ascertainable and further held as follows :--

"If once that is the position that should be the basis upon which the value is to be determined, the other expenses, costs or charges must be excluded".

The Court, therefore, directed the Assistant Collector to re-fix the assessable value by modifying the judgment of the Tribunal accordingly. Mr. Setalvad submitted that in the present case also ex-factory price was available and the ratio of this judgment will squarely apply.

15. Mr. Sethna, learned Counsel appearing for the respondents, on the other hand, submitted that in this case the petitioners had misrepresented the factory gate price. He submitted that once it is shown that at the Depots the petitioners were charging a sum of Rs. 3,950/- to Rs. 5,000/- in excess over the alleged factory gate price, it cannot be said that ex-factory price was ascertainable. He relied upon charts annexed to the Show Cause Notice in that behalf. He, therefore, submitted that the respondents were right in holding that correct ex-factory price was not ascertainable and, therefore, the ratio in the case of Indian Oxygen Ltd. (supra) will not apply to the present case. Now, as far as the aforesaid submission of Mr. Sethna is concerned, even as per the Show Cause Notices issued by the respondents, it is an admitted position that 20% of the sales were from the factory that is at the place of removal and it is accepted that the petitioners paid excise duty on them at the ex-factory price. Now, it is laid down by the Apex Court in the case of A.K. Roy v. Voltas Ltd. reported in (1977) E.L.T. J 177, 182-3 (SC) that even a small percentage of sales would fix the wholesale price and that the retail price cannot be considered. In the instant case, once 20% of the sales were effected at the factory gate at a determined price, it cannot be said that the price at the factory gate could not be ascertained.

16. Mr. Sethna then submitted that the valuation of the tractors was liable to be done as per the earlier judgment of the Apex Court in the case of Union of India and Ors. v. Bombay Tyre International Ltd. reported in 1983 Mh.LJ. 539 (SC) = 1983 E.L.T. 1896 (SC) = 1984 (1) SCR 347. That was a case where the Apex Court laid down the circumstances wherein post manufacturing expenses are to be deducted while arriving at the assessable value. In fact, that very judgment was pressed into service before the Apex Court in the case of Indian Oxygen Ltd. (supra). Based on the observations in the case of Bombay Tyres (Supra) at pages 391-392 of the Report, it was submitted that the expenses incurred on account of the several factors which have contributed to its value upto the date of sale, which apparently would be the date of delivery, are liable to be included in the assessable value. In Bombay Tyre's case (supra), the Apex Court had further added that where the sale in the course of wholesale trade is effected by the assessee through its sales organization at a place or places outside the factory gate, the expenses incurred by the assessee on the cost of transportation including cost of insurance on the freight for transportation would be permissible deductions. The Apex Court after having noted the observations in the case of Bombay Tyre International Ltd. (supra) observed in the case of Indian Oxygen (supra) that if there was a finding that there was no real ex-factory price, then the aforesaid observations from the Bombay Tyres case would have required serious examination. In the case of Indian Oxygen Ltd. (supra), it was also submitted that there was a doubt as to what was the real ex-factory price. However, the Apex Court observed that there was a clear finding of the Tribunal that an ex-factory price was ascertainable. In the present case also, the classification list and the price list were regularly being filed by the petitioners. It is much later i.e. in the year 1986 that the question was sought to be raised for the excise duty paid right from 1982-1985 on a regular basis. The petitioners have pointed out that even as per the Show Cause Notices 20% of the tractors were sold at the factory gate and the ex-factory price was available. They have also pointed out that a larger number of tractors were sold in places like the Union territory of Daman because over there the sales-tax was much less. However, the fact also remains that a good number of tractors to the tune of 20% were sold at the factory gate and, therefore, it is not possible to accept the submission of the respondents that the factory gate price was not ascertainable. Once the factory gate price is ascertainable, in our view, the dicta of the Apex Court in the case of Indian Oxygen Ltd. (supra) will squarely apply.

17. Mr. Setalvad further pointed out that the same was the view in fact taken by another Division bench (Coram : N.D. Vyas v. S. S. Nijjar, JJ.) in the case of the petitioners themselves in Writ Petition No. 4412 of 1988 decided on 2nd September 1996 in the case of Mahindra and Mahindra Ltd. v. The Union of India and Ors. That was a case concerning the factory of the petitioners situated at Nasik and it was contended that an excise amount was being collected from depots at Silvassa (in the Union territory of Dadra and Nagar Haveli) and at Hosur to the tune of Rs. 3,000/-. In that matter also a Show Cause Notice was issued on a similar footing. The petitioners had pointed out that the ex-factory price was ascertainable at the factory gate and the Division Bench accepted the submission that when the normal price was ascertainable at the factory gate, the stock had been transferred to the depot subject to certain additional expenses. That cannot amount to wrong pricing or non-availability of correct value at the factory gate. In that matter also the respondents had tried to contend that the depots were related persons whereas the petitioners had pointed out that they were in fact parts of the petitioners organization and the sales from the depots to the areas were effected on the basis of principal to principal. The Division Bench observed on page 23 of the unreported judgment as follows :--

"The stand taken by the Department appears to be totally unjustified. To us it appears that in fact the Department has sought to fix a higher price for the deliveries which took place from depots treating them as separate entities".

18. Mr. Setalvad pressed these conclusions into service in the present case also. He submitted that the depots were part of the petitioners Organization and from them the tractors were sold to the dealers either on a retail or wholesale basis. That was on the basis of the Dealers Agreement. The dealers Agreement amongst others provided that the dealers will provide after sales service and incur their own advertising expenses. They will also provide adequate and satisfactory service for the products. To ensure that, the Company, as provided in Clause 11(b), requires the dealers at the time of purchase of products, to pay additional amount as cost of the dealers for service obligations during the warranty period. That amount is to be repaid to the dealers on satisfactory performance. Mr. Setalvad further submitted that the petitioners had fixed the maximum retail price (MRP), beyond which the dealers could not sell the tractors. The factory also had the Net Dealer Price (NDP), at which the tractors were sold to wholesale dealers at the factory gate. The petitioners declared the NDP as the assessable value and the same had been approved for years together. The difference between the NDP and the MRP was the dealers margin. The relevant clause of the dealers Agreement viz. Clause 11(b) in that behalf provided as follows :--

"(b) The Dealers margin i.e. the difference between the Retail price and the Net Dealers Price represents the sum total of (i) the cost of financing the purchase and stocking of the products, (ii) the cost of selling the products, (iii) the cost of meeting the service obligations to the customer, and (iv) profit to the Dealers. The Company may depending on the needs of the Dealers territory, require that the Dealers at the time of purchase of the products (covered by the Second Schedule) from the Company, pay additional amount, as determined by the Company, as the cost of the Dealers for the service obligations during the warranty period. That will be repaid to the Dealers on receipt of the satisfactory documentation that the obligation with regard to service has been met."

19. Mr. Sethna submitted that these clauses, in fact, were a key evidence regarding under valuation in connivance with the dealer. He submitted that in fact it were the dealers only who provided after sales service and gave the necessary advertisement. Therefore, in that event, there was no reason to charge any such extra amount. He, therefore, submitted that this extra amount had to be made a part of the price and the assessable value. Now, as far as after sales services are concerned, in the case of Philips India Ltd. v. Collector of Central Excise , the Apex Court has held that the after sales services that a dealer is required to provide under such Agreement, enhanced the value of the product for the purchaser but such enhancement enured not only for the benefit of the manufacturer but also enured for the benefit of the dealer. The guarantee specified that the goods could be repaired by the Appellant's dealers during the guarantee period anywhere in the country- Thus one dealer may have to repair goods sold by another but had the advantage of goods sold by him being repaired by the dealers. Similarly advertisement by the dealer benefited the dealer also apart from benefiting the manufacturer. The Apex Court ruled out deduction of trade discount on this count accordingly. It cannot, therefore, be added to the assessable value. It is also relevant to note that while deciding the Phillips case, the Apex Court approved two judgments, one of Madras High Court in the case of Standard Electrical Appliances Tuticorin v. Superintendent of Central Excise Tirunelveli reported in (1987) 23 E.L.T. 302 (D.B.) and Anr. of Bombay High Court in the case of Union of India v. Mahindra & Mahindra Ltd. reported in (1989) 43 E.L.T. 611 (D.B.).

20. Thus, it is clear that whereas the petitioners had added the dealers margin and appropriate transportation charges to the Net Dealer Price while selling the products from the out-station depots, the price of the tractors sold at the factory gate was clearly ascertainable and available. These additions were, therefore, irrelevant for the purposes of determining the excise duty. Since the duty on excise is a tax on manufacture and not a tax on profit, these extra charges could not be included in the assessable value. As far as the grievance that the depots could be considered as related persons is concerned, as stated by the petitioners themselves they are part of the organization of the petitioners and, therefore, there is no question of considering them as related persons. Section 4(1)(a) of the said Act speaks of a situation where the buyer is not a related person. Here, the depots are not the buyers. The buyers are the dealers from the depots. As asserted by the petitioners, the depots are more than the related persons and part of their own organizations, which is also the view taken by the Division Bench in the earlier judgment (supra).

21. In the circumstances, under the law, as it then stood, there could be only one normal price and one assessable value, exception being where the sale is effected for different prices to different classes of buyers under the first proviso to Section 4(1)(a) as it then stood. However, that is not the case here. It is now after the addition of Sub-section (1)(a) that it is possible to have different prices at different places of removal. Similarly, it is now after the addition of Sub-section (iii) that a depot has been specifically included in the places of removal from where the excisable goods are to be sold after the clearance from the factory. This position has been brought about to overcome the difficulties which existed in the absence thereof. However, under the law, as it stood prior to these amendments, once the price at the factory gate was ascertainable, which it was in the present case, it could not be said that the petitioners were indulging into any under-voicing or were evading the excise duty when they were selling their products at a higher price through their depots. The additions over the factory gate price while selling the products through the depots would be irrelevant for the purposes of determining the excise duty. The two Show Cause Notices are, therefore, bad in law and are required to be interfered with and set aside. It was mildly submitted by Mr. Sethna that the petitioners had an alternative remedy to challenge the Notices before the CEGAT. In fact, that was the option which was offered by the Division Bench, which admitted this petition in Appeal, but the respondents had declined it at that stage. That being the position, the respondents cannot be now permitted to raise this submission. The petition is, therefore, allowed and the two Show Cause Notices with their Annexures are quashed and set aside. However, in the facts of the present case, there will be no order as to costs.

22. Authenticated copy of this judgment be made available.