PETITIONER: <ORG>. Vs. RESPONDENT: <NAME>, ASSTT. COLLECTOR OF CENTRAL EXCISE AND ORS. DATE OF JUDGMENT14/02/1975 BENCH: BHAGWATI, P.N. BENCH: BHAGWATI, P.N. GUPTA, A.C. UNTWALIA, N.L. CITATION: 1975 AIR 960 1975 SCR (3) 563 1975 SCC (1) 499 CITATOR INFO : E 1984 SC 420 (24,26,34,44,45) R 1989 SC 516 (3,34) D 1990 SC1676 (7) RF 1992 SC2055 (6,8) ACT: <ORG> and Salt Act 1944--s. 3 (1) and 4(a)--Ad valorem assessment--How made. HEADNOTE: The appellant, which was a manufacturer of dye-stuffs, sold its product to, two wholesale buyers at a uniform selling price described as "the basic selling price" less trade discount of 18%. The wholesalers in turn sold the product to large consumers such as textile mills and distributors. One wholesaler sold the dye-stuff to the distributors Pat a higher price but allowed 10% discount while the other sold at a lower price and allowed 2-1/2% discount. The price charged by both however was so adjusted that the net selling price charged to the distributors was almost the same. The <ORG> duty chargeable under s. 3(1) of the <ORG> and Salt Act , 1944 was ad valorem. Section 4 provided-as to how the value of an article chargeable with duty at a rate depending on its value shall be determined for the purpose of assessment of <ORG> duty. Before the <ORG> authorities the appellants claimed that, for the purpose of assessing the <ORG> duty the value of the dye-stuffs should be taken to be the price at which the appellants sold the same to the two wholesale buyers less trade discount allowed to these wholesale buyers. The Superintendent of <ORG> rejected this contention and took, for the purpose of assessment, the price at which the wholesalers sold the dye-stuffs to the distributors. He did not, however, allow any deduction in respect of the discount given by the wholesalers to the distributors since it was not uniform. On appeal the Assistant Collector of <ORG> confirmed the assessing authority's order. On further appeal, the Collector of <ORG> held that in determining the assessable value, the lower trade discount of 21% allowed by one of the wholesalers to the distributors only should be deducted. The appellant's revision application was rejected by <ORG> on the ground that since the dye-stuffs manufactured by the appellant were not available to an independent buyer in open market conditions at price at which these were sold by them to the wholesalers these prices could not be adopted as the basis of (id valorem assessment under s. 4 of the Act. It was observed that these dyestuffs were available to any independent buyer in open market conditions at the distributors' prices, that is, at the prizes charged by the wholesalers to the distributors and,, therefore, these prices should form the basis of assessment after allowing the discount. Dissatisfied with the decision of <ORG> the appellant filed a petition under art. 226 of the Constitution. <ORG> held that where the entire production was sold by a manufacturer to one or more favoured distributors there was no wholesale market in the sense of open market at the site of the factory where an independent buyer could purchase the goods in wholesale and the assessable value must therefore be taken to be the price at which favoured distributors sell the goods in wholesale and if not in wholesale, then, in retail. <ORG> accordingly upheld the view of the <ORG>' Government. Allowing the appeal, HELD : (1)(a) The assessable value of the dye-stuffs manufactured by the appellants must be taken to be the price at which they were sold by the appellants to the two wholesale dealers less 18% trade discount and not the price charged by the wholesale dealers to the distributors. [573F- G] 564 (b) Where a manufacturer sells the goods manufactured by him in wholesale to a wholesale dealer at arm's length and in the usual course of business, the wholesale cash price charged by him to the wholesale dealer less trade discount would represent the value of the goods for the purpose of assessment of <ORG>. That would be the wholesale cash price for which, the goods are sold at the factory gate within the meaning of s. 4(a) . The price received by the wholesale dealer who purchases the goods from the manufacturer and in his turn sells the same in wholesale to other dealers would be irrelevant to the determination of the value of the goods and the goods would not be chargeable to <ORG> on that basis. [573E-F] (c) The value of the goods for the purpose of <ORG> must take into account only the manufacturing cost and the manufacturing profit and it must not be loaded with post- manufacturing cost or profit arising from post-manufacturing ,operation. [572F] (d) Once the goods have entered the stream of trade and are on their onward journey to the consumer, whether along a short or a long course depending on the nature of the goods and the conditions of trade, <ORG> is not concerned with what happens subsequently to the goods. [573B- <CITATION> .,  2 S.C.R. 1088, followed. JUDGMENT:

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1868 of 1970. From the Judgment and Order dated the 30th March, 1970 of <ORG> in S.C.A. No. 1219 of 1966. <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, and <NAME>, for the appellant. <NAME> and <NAME>, for the Respondents. The Judgment of the Court was delivered by <NAME>, J.-This appeal, on, certificate of fitness obtained under Article 133 (1) (a) of the Constitution, is directed against a judgment of <ORG> dismissing Special Civil Application No. 1279 of 1966 preferred by the appellants challenging the assessments to excise duty of certain dye-stuffs manufactured by them. The facts giving rise to the appeal are few and may be briefly stated as follows.

The-appellants carry on business of manufacturing dye-stuffs in a factory situate in a small township called <ORG> in Bulsar District in the State of Gujarat. The dye-stuffs manufactured by the, appellants were, throughout the period relevant to this appeal, sold by them in wholesale units to two wholesale buyers, namely, <ORG> (hereinafter referred to as <ORG>) and <ORG> (hereinafter referred to as <ORG>) under respective agreements entered into by them with <ORG> and <ORG>. Seventy per cent of the dye-stuffs manufactured by the appellants were sold to <ORG>, while the remaining 30% to <ORG>. The price charged by the appellants to <ORG> and <ORG> was a uniform price described as "the basic selling price" less trade discount of 18%. <ORG> and <ORG>, in their turn, resold the dye-stuffs purchased by them from the appellants to two categories of buyers. One was the category of textile mills and other large consumers, while the other was the category of distributors. The sales by <ORG> and <ORG> to the textile mills and other large consumers were at the basic selling price without any discount, but so far as the distributors were concerned, the sales to them by <ORG> and <ORG> were at a higher price, though with trade discount. <ORG> charged a higher price but allowed 10% trade discount, while <ORG> charged a slightly lower price and allowed two and a half per cent trade discount. The prices were, how- ever, so adjusted that the net selling prices charged by <ORG> and <ORG> to :the, distributors were almost the same. The distributors, in their turn, resold the dye-stuffs purchased by them from <ORG> and <ORG> to the small consumers at a slightly higher price referred to as "small consumers price". No discount was given by the distributors to the small consumers.

The position which, therefore, obtained during the relevant period was that the appellants sold the dye stuffs manufactured by them in wholesale units, 701% to <ORG> and 30% to <ORG>, at the basic selling price, less trade discount of 18%: <ORG> and <ORG> in their turn resold a part of the dye stuffs in retail units to the textile mills and large consumers at the basic selling price and the balance in wholesale units to the distributors at higher selling prices with 10% trade discount in case of <ORG> and 2-1/2% trade discount in case of <ORG>, the net selling prices charged by both of them, however, being the same; and the distributors, in their turn, resold the dye stuffs to small consumers in retail units at the small consumers price. It may be pointed out that though <ORG> initially charged a lower selling price and gave a trade discount of 2-1/2%, it fell incline with <ORG> and adopted the same selling price as <ORG> with trade discount of 10% from and after 1st May, 1963. There was no excise duty on dye-stuffs prior to 1st March, 1961, but with effect from that date excise duty was imposed for the first time on dye-stuffs, including those manufactured by the appellants. The excise duty chargeable under the relevant entry in the first Schedule read with section 3 , sub-section (1) of the Central Excise and Salt Act , 1944 was ad valorem, and it was, therefore, necessary to determine the value of the dye-staffs manufactured by the appellants for the purpose of assessing the excise duty payable on them. Section 4 of the Act provided how the value of an article chargeable with duty at a rate depending on its value shall be determined for the purpose of assessment of excise duty. It said :

"Determination of value for the purpose 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 whole sale 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, 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 sold or is capable of being sold by the manufacturer or producer, or his agent, at the time of the removal of 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 amount of duty payable at the time of the removal of the article chargeable with duty from the factory or other premises aforesaid."

The question arose as to how the value of the dye stuffs manufactured by the appellants should be determined on a proper application of the rule aid down in section 4 . The appellants contended before <ORG> that for the purpose of assessing the excise duty, the value of the dye stuffs manufactured by the appellants should be taken to be the price at which the appellants sold the same in whole- sale units to <ORG> and <ORG>, less a uniform trade discount of 18% which the appellants at the relevant time gave to these two wholesale buyers. This contention was not accepted by the Superintendent of <ORG> who was the original assessing authority. He took the view that the value of the dye stuffs for ,the purpose of assessment of excise duty should be taken to be the price at which <ORG> and <ORG> sold the dye stuffs to the distributors and. no deduction should be allowed in respect of the discount given by them to the distributors since it was not uniform, being 10% in case of <ORG> and 2-1/2% in case of <ORG>. The appellants appealed against the assessment to the Assistant Collector of <ORG>, but the appeal was unsuccessful and the assessment was confirmed. That led to the filling of a further appeal to the Collector of <ORG>. This appeal resulted in some gain, little though it was, as the Collector of <ORG> held that in determining the, assessable value, trade discount of 21% which was given by <ORG> to the distributors should be allowed to be deducted from the price charged by <ORG> to the distributors. This was, however, plainly illogical. If the price charged by <ORG> was taken as a basis, trade discount of 10% should have been allowed as that was the discount given by <ORG> to the distributors. Trade discount of 21% given by <ORG> on the lower price charged by it to the distributors could not be deducted from the price charged by <ORG> to the distributors which was fixed at a higher figure because of the larger trade discount of 10% given by it to the distributors. The assessable value determined by the Collector of <ORG> was a strange hybrid. The appellants preferred a revision application to the, <ORG> against the order of the Collector of <ORG>. The, <ORG> in revision rejected the main contention of the, appellants that the value of- the dye stuffs should be arrived at the price at watch the same were sold by the appellant to <ORG> and <ORG> less 18% trade discount allowed to them. The reason for rejecting this contention was that since dye stuffs manufactured by the appellants were not "available to an independent buyer in open market conditions at prices at which these are sold by them to the Sole Distributors, M/s <ORG> Ltd. and <ORG>, these prices cannot be adopted as the basis of ad-valorem assessment" under section 4 of the Act. The <ORG>, however, observed that these dye stuffs were "available to any independent buyer in open market conditions at the sole distributors, prices' that is, at the price charged by <ORG> and <ORG> to the distributors and, therefore, these prices should form the basis of assessment after allowing discount of 10% on the prices charged by <ORG> from the beginning and 2-1/2% on the prices charged by <ORG> upto 30th April, 1963 and 10% thereafter and on this basis directed refund of the excise duty collected by <ORG>.

The appellants were obviously not satisfied with this rather trivial and insignificant success and since their main plea was negatived by <ORG>, they filed a petition in <ORG> under Art. 226 of the Constitution challenging the, validity of the various orders made by the Excise authorities culminating in the order of <ORG> and seeking a writ directing <ORG> "to refund excess duty amounting to Rs. 1,26,229.80 illegally recovered from the petitioners and to forbear from recovering duty from the petitioners in respect. of the said products otherwise than on the basis of the prices charged by the petitioners to the said wholesale buyers viz. <ORG> and <ORG>." The Division Bench which heard the petition took the view, following certain decisions of the Calcutta, Mysore, Andhra Pradesh and Bombay <ORG>, that where the entire production is sold by a manufacturer to one or more favoured distributors, there is no wholesale market in the sense of open market at the site of the factory where an independent buyer can purchase the goods in wholesale and in such a case the price at which the goods are sold by the manufacturer to the favoured distributors cannot be taken to be the assessable value of the goods but the assessable value must be taken to be the price at which the favoured distributors, in their turn, sell the goods in wholesale and if not in wholesale, then in retail. The Division Bench accordingly held that the price charged by the appellants to <ORG> and <ORG> less 18% trade discount could not be adopted for determining the assessable value of the dye stuffs since <ORG> and <ORG> were favoured distributors and not independent buyers and <ORG> was right in taking the price charged by <ORG> less 10% trade discount and the price charged by <ORG> less 2-1/2% trade discount as the assessable value because "that was the wholesale cash price at which the independent buyers could get these goods in the nearest wholesale market at the relevant time." The appellants being agerieved by the decision of <ORG> preferred the present appeal after obtaining certificate of fitness from <ORG>.

5--470SupCI/75 It would be seen from the judgment of the, <ORG> that the only ground on which the <ORG> negatived the contention of the, applicants that the price charged by the appellants to <ORG> and <ORG> less 18% trade discount should be taken as the assessable value was that <ORG> and <ORG> were favoured distributors and apart from them, no independent buyer could purchase the dye stuffs in wholesale market at or near the place of manufacture so as to attract the appli- cability of the first Part of section 4 (.a). This is ground of course, at one time, looked highly plausible, supported as it was by decisions of several <ORG>s. But now, after the recent decision of this <ORG> in <NAME> v. <ORG>) it stands completely decimated. The facts of that case are a little interesting and requires to be noticed in order to understand the true ratio of the decision.

The respondent in that case carried on inter alia business of manufacturing air-conditioners, water-coolers and their component parts. It effected direct sales to consumers at list prices and the sales so effected came to about 90% to 95% of its production during the relevant period. It also sold its articles amounting to 5% to 10% of its production to wholesale dealers from different parts of the country in pursuance of agreements entered into with them. The agreements provided among other things that the dealers should not sell the articles sold to them except in accordance with the list prices fixed by the respondent and the respondent would sell the articles to them at the list prices less 22% discount. The dealers were also required under the agreements to give service to the units sold in their terdtory. Excise duty on the basis of ad-valorem value was imposed on air-conditioners, water-coolers and parts of water-coolers from March 1, 1961. The respondent claimed, in accordance with section 4(a) , that the list prices after deducting the discount of 22% allowed to the wholesale dealers should be taken to be the wholesale cash price, for ascertaining the real value of the articles. This claim was resisted by <ORG> and the respondent was therefore constrained to file a writ petition in <ORG>. <ORG> allowed the petition holding that the list prices at which the articles were sold to' the wholesale dealers, less 22% discount allowed to them under the agreements, represented 'the wholesale cash price' and excise duty was accordingly chargeable under section 4(a) . <ORG> thereupon preferred an appeal by certificate to this Court. The same argument was advanced before this Court on behalf of <ORG> which has found favour with <ORG> in the present case. <ORG> contended that the agreements with, the whole-sale dealers conferred certain extra-commercial advantages upon them, and so, the sales to them were not sales to independent purchasers but to favoured ones, and, therefore, the price charged would not represent the "wholesale cash price" as mentioned in s. 4(a) of the Act. They argued that s. 4(a) visualizes a wholesale market at the place of manufacture where articles of like (1)  2 S.C.R. 1088.

<NAME>

kind and quality are sold or could be sold and that it also postulates a market where any wholesale purchaser can purchase the articles, and, as no articles of a like kind and quality were sold, at or near the place of manufacture, and as the wholesale sales were confined to the favoured buyers, there was no wholesale market at the place of manufacture. It was further argued that "articles of a like kind and quality" is a phrase which suggests goods other than those under assessment and that one must disregard the price fetched by the sale of the goods themselves. speaking on behalf of the <ORG>, explained the true scope and meaning of section 4(a) and its applicability in a situation of this kind in the following words "We do not think that for a wholesale market to exist, it is necessary that there should be a market in the physical sense of the term where articles of a like kind or quality are or could be sold or that the articles should be sold to so-called independent buyers.

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

The learned Judge then referred to the decision of <ORG> in <CITATION> in Council(1) and pointed out that :

"This case is an authority for the proposition that mere existence of the agreements between the respondent and the wholesale dealers under which certain obligations were undertaken by them like service to the articles, would not render the price any the less the 'wholesale cash price. TO put it in other words, event if the articles in question were sold only to wholesale dealers on the basis of agreements and not to independent persons, that would not make the price for the safes anything other than the 'wholesale cash price. The argument that what was relevant to determine the 'wholesale cash price, under cl. (a) of s. 30 of the Sea Customs Act, 1878, was the price of goods of a like kind and quality was negatived by <ORG> by saying that goods under assessment may, under el. (a) be con- sidered as members of their own class even though at the time and place of importation there are no other members and that the price obtained for them may correctly represent the price obtainable for goods of a like kind and quality at the time and place of importation."

Then, with reference to the decisions of the various <ORG>, which had taken a different view, the learned Judge observed : "We do not think that these decisions, in so far as they hold that the price of sales to wholesale dealers would not represent the wholesale cash price for the purpose of s. 4(a) of the Act merely because the man*, facturers had entered into agreements with them stipulating for commercial advantages, are correct", and proceeded to add :

"If a manufacturer were to enter into agreements with dealers for wholesale sales of the articles manufactured on certain terms and conditions, it would not follow from that alone that the price for those sales would not be the 'wholesale cash price, for the purpose of s. 4(a) of the Act if the agreements were made at arms length and in the usual course of business.

There can be no doubt that the 'wholesale cash price' has to be ascertained only on the basis of transactions at arms length. If there is a special or favoured buyer to whom a specially low price is charged because of extra- commercial considerations, e.g. because he is relative of the manufacturer, the price charged for those sales would not be the 'wholesale cash price, for levying excise under section 4(a) of the Act. A sole distributor might or might not be a favoured buyer according as terms of the agreement with him are fair and reasonable and were arrived at on purely commercial basis. Once wholesale dealings at arms length are established, the determination of the whole-

(1) 65 I.A.32.

sale cash price for the purpose of s. 4(a) of the Act may, not depend upon the number of such wholesale dealing. The fact that the respondent sold 90 to 95 per cent of the articles manufactured to consumers direct would not make the, price of the wholesale sales of the rest of the articles any the less the 'wholesale cash, price' for the purpose of S. 4(a) , even if these sales were made pursuant to agreements stipulating for certain commercial advantages, provided the agreements were entered into at arms length and in the ordinary course of business."

it is not necessary for attracting the operations of s. 4(a) that there should be a large number of wholesale sales. The quantum of goods sold by a manufacturer on wholesale basis is entirely irrelevant. The mere fact that such sales may be few or scanty does not alter the true position."

On this view, it was held that the respondent was liable to be charged with excise duty on the basis of the price payable by the wholesale dealers, after deducting 22% discount, under section 4 (a).

This decision provides a complete refutation of the view taken by <ORG> in the present case. In fact, the present case is much stronger than the <NAME> case (supra). In the <NAME> case (supra), 90 to 95 per cent of the production was sold by the manufacturer in retail and only a small percentage, namely 5 to 10 per cent was sold in wholesale and yet the price charged by the manufacturer to the wholesale dealers less trade discount of 22% was taken as 'the wholesale cash price' for assessment of value under s. 4(a). Here, on the contrary, no retail sales at all were effected by the appellants and the entire production was sold in wholesale to <ORG> and <ORG> under agreements entered into with them. Moreover, it was not in dispute between the parties that the agreements entered into by the appellants with <ORG> and <ORG> were made at arms length and in the usual course of business. It was not the case of <ORG> at any time that specially low prices were charged by the appellants to <ORG> and <ORG> because of extra commercial considerations or that the agreements were anything but fair and reasonable or arrived at on purely commercial basis. The wholesale dealings between the appellants and <ORG> and <ORG> were purely commercial dcalings at arms length and the price charged by the appellants for sales in wholesale made to <ORG> and <ORG> less trade discount of 18% was, therefore, clearly 'wholesale cash price' within the meaning of s. 4(a) and it did not make any difference that the wholesale dealings of the appellants were confined exclusively to <ORG> and <ORG> and apart from these two, no independent buyers could purchase the 'dye stuffs in wholesale from the at) appellants.

<ORG>, robbed of what they thought was a strong argument prior to the decision in <NAME> case (supra), then tried to fall back on a subsidiary argument in an attempt to save, the assessments. They contended that all that S. 4(a) provides is that the value of the article sought to be charged to excise duty shall be deemed to be the wholesale cash price for which the article is sold or is capable of being sold and it does not say which wholesale cash price shall be taken to be the value of the article-that charged by the manufacturer to the wholesale dealer or that charged by the wholesale dealer who having purchased the article from the manufacturer sells it in wholesale to another dealer. The latter price, they pointed out, would equally be the wholesale cash price within the meaning of s. 4 (a) as it would be the price at which the article is sold or in any event capable of being sold in the wholesale market and there is no reason why it should not be taken to be the value of the article for the purpose of assessment under s. 4(a) . The contention, therefore, was that the price charged by <ORG> and <ORG> to the dealers less trade discount allowed to them should be taken to be the assessable value of the dye stuffs and not the price charged by the appellants to <ORG> and <ORG> less trade discount of 18%. This contention is without force and must be rejected. It violates two basic principles underlying imposition of excise duty. In the first place, as pointed out by <NAME>, J., in <NAME>' case (supra), "excise is a tax on the production and manufacture of goods- Section 4 of the Act therefore provides that the real value should be found after deducting the selling cost and selling profit and that the real value can include only the manufacturing cost and the manufacturing profit. The section makes it clear that excise is levied only on the amount representing the manufacturing cost plus the manufacturing profit and excludes post-manufacturing cost and the profit arising from pos manufacturing operation, namely, selling profit." The value of the goods for the purpose of excise must take, into account only the manufacturing cost and the manufacturing profit and it must not be, loaded with post-manufacturing cost or profit arising from post-manufacturing operation. The price charged by the manufacturer for sale of the goods in wholesale would, therefore, represent the real value of the goods for the purpose of assessment of excise duty. If the price charged by the wholesale dealer who purchases the goods from the manufacturer and sells them in wholesale to another dealer were taken as the value of the goods, it would include not only the manufacturing cost and the manufacturing profit of the manufacturer but also the wholesale dealer's selling cost and selling profit and that would be wholly incompatible with the, nature of excise. It may be noted that wholesale market in a particular type of goods may be in several tiers and the goods may reach the consumer after a series of wholesale transactions. In fact the more common and less expensive the goods, there would be greater possibility of more than one tier of wholesale transactions. For instance, in a textile trade, a manufacturer may sell his entire production to a single wholesale dealer and the latter may in his turn sell the goods purchased by him from the manufacturer to different wholesale dealers at 'State level, and they may in their turn sell the goods to wholesale dealers at the district level and from the wholesale dealers at the district level the goods may pass by sale, to Wholesale dealers at the city level and then, ultimately from the wholesale dealers at the city level, the goods may reach the consumers. The only relevant price for assessment of value of the goods for the Purpose of excise In such a case would be the wholesale cash price which the manufacturer receives from sale to the first wholesale dealer, that is, when the goods first enter the stream of trade. Once the goods have entered the stream of trade and are on their onward journey to the consumer, whether along a short or a long course depending on the nature of the goods and the conditions of the trade, excise is not concerned with what happens subsequently to the goods. It is the first immediate contact between the manufacturer and the trade that is made decisive for determining the wholesale cash price which is to be, the measure of the value of the goods for the purpose of excise. The second or subsequent price, even though on wholesale basis, is not material. If excise were levied on the basis of second or subsequent wholesale price,, it would load the price with a postman- factoring element, namely,. selling cost and selling profit of the wholesale dealer. That would be plainly contrary to the true, nature of excise as explained in the <NAME>' case (supra). Secondly, this would also violate the concept of the factory gate sale which is the basis of determination of value of the goods for the purpose of excise. There can, therefore, be no doubt that where a manufacturer sells the needs manufactured by him in wholesale to a wholesale dealer at arms length and in the usual course of business, the wholesale cash price charged by him to the wholesale dealer less trade discount would represent the value of the, goods for the purpose of assessment of excise. That would be the wholesale cash price for which the goods are sold at the factory gate within the meaning of s. 4(a) . The price received by the wholesale dealer who purchases the goods from the manufacturer and in his turn sells the same in wholesale to other dealers would be irrelevant to the determination of the value and the goods would not be chargeable to excise on that basis. The conclusion is, therefore, inescapable that the assessable value of the dye stuffs manufactured by the appellants must be taken to be the price at which they were sold by the appellants to <ORG> and <ORG> less 18% trade discount, and not the price charged by <ORG> and <ORG> to their dealers.

We, therefore, allow the appeal, reverse the judgment of , <ORG> and quash and set aside the Assessments to excise duty made by <ORG> on the dye stuffs manufactured by the appellants. We direct the respondents to refund to the appellants forthwith the amount collected in excess of the correct duty of excise leviable in accordance with the principle laid down in this judgment. The respondents will pay to the appellants costs in this <ORG> as well as in <ORG>.

P.B.R. Appeal allowed.


IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 6864 OF 2009 (Arising out of S.L.P.(C) NO.14302 of 2008) <NAME> & Anr. ... Appellants Vs. State of Haryana & Anr. ... Respondents J U D G M E N T

<NAME>, J.

1. Leave granted.

2. The appellants herein are residents of Narwana, District <NAME>, in the State of Haryana and claim to be the owners of land measuring 34 Kanals 2 Marlas situated at <NAME> Patiala Road near the Railway Crossing, Narwana, adjoining the New Grain Market at Narwana. Subsequent to the acquisition of certain lands in the said area in 1995, the State of Haryana issued another Notification dated 23rd November, 2005, bearing No.12/8/05-PH 1, under Section 4 read with Section 17(2)(c) of the Land Acquisition Act, 1894 (hereinafter referred to as the " L.A. Act "), for construction of a Sewage Treatment Plant. In the said Notification, it was indicated that the land was required on an urgent basis within the meaning of Sub-Section (4) of Section 17 of the L.A. Act, thereby excluding the application of Section 5-A of the said Act. According to appellants while invoking the emergent provisions under Section 17 of the aforesaid Act, no reason was indicated to exclude the operation of Section 5-A of the Act. The said Notification under Section 4 was followed by another Notification dated 2nd January, 2006 under Section 6 of the L.A. Act. In the said Notification it also was made clear that the Land Acquisition Collector-cum- District Revenue Officer, <NAME>, Haryana proposed to take possession of the land in question as the land was to be acquired urgently.

3. Aggrieved by the decision of <ORG> to acquire the land for construction of the Sewage Treatment Plant, <ORG>, filed a suit against the State of Haryana to restrain the defendant therein, including the State of Haryana from constructing the Sewage Treatment Plant in front of the school and on 15th February, 2006, an interim order was passed in the suit restraining the defendants from constructing the said Plant as the same was likely to be a health-hazard for the inhabitants of the locality. In yet another civil suit filed by one Jagroop against the State of Haryana, the Additional Civil Judge, <ORG>, Narwana, restrained the defendants by its order dated 12th April, 2006 from constructing the Sewage Treatment Plant.

4. Having been denied the opportunity of filing an objection under Section 5-A of the L.A. Act, the appellants also filed a writ petition in <ORG> challenging the two Notifications under Sections 4 and 6 of the L.A. Act on several grounds. One of the grounds taken was that the lands in question could not be used for the installation of a Sewage Treatment Plant owing to its close proximity to the residential colony, the New Grain Market and a school in the adjoining plots. Furthermore, an earlier Notification issued under Sections 4 and 6 of the L.A. Act in the year 1995 had also been challenged in Civil Writ Petition No.1222 of 1997 before <ORG>, wherein an order of status quo was passed on 28th January, 1997. It has been submitted that the said writ petition is still pending disposal in the said <ORG>. In the subsequent writ petition out of which this appeal arises, the appellants herein, inter alia, prayed for quashing of the two Notifications dated 23rd November, 2005 and 2nd January, 2006 issued under Section 4 read with Clause (c) of Sub-Section (2) of Section 17 and Section 6 of the L.A. Act, 1894 on the ground that the same were arbitrary and contrary to the provisions of the Act. A prayer was also made for a writ in the nature of Mandamus to direct the respondents in the writ petition not to dispossess the appellants herein from the land in question.

5. The writ petition was taken up for hearing on 14th February, 2008. Negating the contention of the appellants/writ petitioners that they had been wrongly deprived of their right to file an objection to the proposed acquisition of their lands under Section 5-A of the L.A. Act, <ORG> came to the conclusion that the provisions of Section 4 read with Section 17 had been religiously observed and followed by the Notification under  Section 6 , pursuant to which Award was announced on 23rd May, 2006.

6. While dismissing the writ petition, <ORG> sought to distinguish the decision of this Court in <CITATION> [], which had been cited on behalf of the writ petitioners/appellants herein in support of their contention that the right given to a land owner or person interested in the land was not an empty formality but a substantive right which could not be taken away, except for good and valid reason within the limitations prescribed under Section 17(4) of the L.A. Act, 1894. In the said decision, this Court had pointed out that mere existence of an urgency or unforeseen emergency was not sufficient in itself to dispense with the provisions of Section 5-A of the aforesaid Act. The said right could be dispensed with only after the appropriate Government forms an opinion that along with the existence of urgency under Section 17(1) or unforeseen emergency under Section 17(2) , there was also a need to dispense with the provisions of Section 5-A .

7. The Special Leave Petition (now Civil Appeal) has been filed by the appellants questioning the dismissal of their writ petition.

8. Appearing in support of the appeal, learned Senior Advocate Mr. <NAME>, submitted that the present acquisition proceeding was the second phase of acquisition of land purportedly for the purpose of setting up a Sewage Treatment Plant (STP). He submitted that similar Notifications under Sections 4 and 6 of the L.A. Act, 1894 had been published in 1995-96 for acquisition of land, measuring 42 acres, 2 kanals, 8.75 marlas, belonging to the appellants and adjoining the lands now sought to be acquired under the Notification dated 23rd November, 2005 issued under Section 4  read with Sections 17(2)(c) and 17(4) of the aforesaid Act, for the selfsame purpose.

9. As will be evident from the aforesaid Notification, the provisions of Section 5-A were dispensed with. Thereafter, on 2nd January, 2006, a Notification under Section 6 of the Act was issued indicating the intention of the Respondent No.2 to take possession of the land immediately. The said Notification was followed by a Notification under Section 9 dated 5th May, 2006 mentioning that the Award of the acquisition would be pronounced on 23rd May, 2006. Mr. <NAME> submitted that in view of the said Notification under Section 9 of the above Act, the appellants were advised to file a suit before the Civil Judge (<ORG>), <NAME>, to restrain the respondents from constructing a STP as the same would be a health hazard for the inhabitants of the locality. Such suit was filed on 15th February, 2006. Subsequently, another suit for the same reliefs was filed by one Jagroop on 12th April, 2006, before the learned Additional District Judge (<ORG>), <NAME>, who was pleased to restrain the respondents from constructing the STP. In addition to the above, the appellants filed Writ Petition CWP No.8332 of 2006 before <ORG>, praying for quashing of the Notification dated 23rd November, 2005 and for restraining the respondents from dispossessing the writ petitioners. It is out of the final disposal of the said writ petition that the present appeal has arisen.

10. Initially, <ORG> directed the parties to maintain status quo with regard to the writ petitioners' lands. Subsequently, as indicated hereinabove, the writ petition was dismissed on 14th April, 2008.

11. Mr. <NAME> submitted that no urgency of such compelling nature had been disclosed by the respondents that warranted the invoking of Section 17(4) of the L.A. Act, 1894. On the other hand, by denying the appellants the opportunity of filing objections under Section 5-A of the L.A. Act, 1894, the respondents had tried to play down the fact that the STP was being constructed next to a school and grain market which would prove to be a health- hazard, not only for the students of the school, but for the inhabitants of the area in general.

12. In addition, Mr. <NAME> also submitted that in the plan which had been prepared by <ORG>, it had been shown that the lands to be acquired were to be used for residential and commercial purposes and another plot had been earmarked for the Sewage Treatment Plant. The change of user and the setting up of a STP would severely prejudice the local inhabitants.

13. In support of his submissions that certain parameters have to be followed by the acquiring authorities for the purpose of invoking the provisions of Section 17(4) of the L.A. Act, Mr. <NAME> firstly referred to the decision of this <ORG> in <CITATION> [), wherein while dealing with a similar situation, this <ORG> observed as follows :-

"16. Section 17 confers extraordinary powers on the authorities under which it can dispense with the normal procedure laid down under Section 5-A of the Act in exceptional case of urgency. Such powers cannot be lightly resorted to except in case of real urgency enabling the <ORG> to take immediate possession of the land proposed to be acquired for public purpose. A public purpose, however laudable it may be, by itself is not sufficient to take aid of Section 17 to use this extraordinary power as use of such power deprives a landowner of his right in relation to immovable property to file objections for the proposed acquisition and it also dispenses with the inquiry under Section 5-A of the Act. The authority must have subjective satisfaction of the need for invoking urgency clause under Section 17 keeping in mind the nature of the public purpose, real urgency that the situation demands and the time factor i.e. whether taking possession of the property can wait for a minimum period within which the objections could be received from the landowners and the inquiry under Section 5-A of the Act could be completed. In other words, if power under Section 17 is not exercised, the very purpose for which the land is being acquired urgently would be frustrated or defeated. Normally urgency to acquire a land for public purpose does not arise suddenly or overnight but sometimes such urgency may arise unexpectedly, exceptionally or extraordinarily depending on situations such as due to earthquake, flood or some specific time-bound project where the delay is likely to render the purpose nugatory or infructuous. A citizen's property can be acquired in accordance with law but in the absence of real and genuine urgency, it may not be appropriate to deprive an aggrieved party of a fair and just opportunity of putting forth its objections for due consideration of the acquiring authority. While applying the urgency clause, the <ORG> should indeed act with due care and responsibility.

Invoking urgency clause cannot be a substitute or support for the laxity, lethargy or lack of care on the part of the <ORG> administration."

Referring to two other decisions of this Court in (1) <CITATION> []; and (2) <CITATION> . [], this Court also observed that it was fundamental that compulsory taking of a man's property is a serious matter and the smaller the man the more serious the matter. In fact, in <NAME> case (supra), this Court went one step further in observing that according to the decision in <NAME> case (supra), enquiry under Section 5-A is not merely statutory, but also has a flavour of fundamental rights under Articles 14 and 19 of the Constitution.

14. Various other decisions in the same vein were cited by Mr. <NAME> which only go to reiterate the propositions laid down in the above-mentioned cases.

15. It was lastly submitted by Mr. <NAME> that in the Written Statement filed on behalf of the respondents herein before <ORG> in the Writ Petition filed by the appellants, nothing has been disclosed with regard to urgency which prompted the said respondents to take recourse to the provisions of Section 17(4) of the L.A. Act, 1894. On the other hand, in paragraph 6 of the said Written Statement it has been sought to be mentioned that if the appellants herein had any grievance with regard to the impugned Notification under Section 4 , it was the duty of the appellants to have filed objections. It was further stated that having failed to file objections, the appellants had waived their right since the respondents had never denied the appellants their right to file objections. Mr. <NAME> submitted that such a stand clearly reveals the non-application of mind by the concerned authorities since invocation of Section 17(4) of the L.A. Act prevented the appellants from filing objections. Mr. <NAME> submitted that the respondents ought not to have dealt with the matter in such a perfunctory manner since the appellants had no other forum to vindicate their grievances relating to the compulsory acquisition of their lands.

16. Appearing for the State of Haryana, Mr. <NAME>, learned Advocate, denied the allegations of malafides made on behalf of the appellants and contended that it was, in fact, the appellants who were guilty of having suppressed the extremely relevant fact that they had filed a Civil Suit in respect of the self-same cause of action in <ORG> (<ORG>), Narwana, in which they had prayed for a decree of permanent injunction to restrain the respondents herein from constructing the STP in any direction near the school run by the appellants in the name and style of `Chaudhary Devi Lal Memorial Public School, Uklana Road, Narwana. Mr. <NAME> submitted that although the Written Statement filed on behalf of the Respondent Nos.1 and 2 had been amended, the same was not placed on the record and only the unamended Written Statement was filed. Mr. <NAME> then contented that, in fact, the Written Statement had never been amended, but an Additional Written Statement had been filed on account of amendment effected to the writ petition. From paragraph 6 of the Additional Written Statement, Mr. <NAME> pointed out that not one but three STPs were planned at different locations at Narwana for which three different sites had been acquired. The STP forming the subject matter of the present appeal is, in effect, only one of them. The decision to set up such a STP was the result of accumulation of sewage water which had the ultimate effect of polluting the ground water. It was submitted that the site in question for the construction of the STP had been selected after a thorough survey of the area in which the land in question was found to be most suitable. Mr. <NAME> urged that the decision to set up STPs in Narwana was in response to a public demand for the laying down of a Sewage Treatment Plant since the local inhabitants were facing great difficulty in dealing with the accumulation of sewage water. It was submitted that the interests of a few as represented by the appellants, would have to give way to the larger public interest to benefit the entire population of the area.

17. It was also submitted by Mr. <NAME> that the suit in question had been withdrawn after objections had been taken by the respondents, but no liberty had been asked for or taken for commencing a fresh proceeding on the same cause of action. Mr. <NAME> also questioned the locus standi of the school to file a suit in respect of the land belonging to the appellants.

18. In conclusion, Mr. <NAME> referred to the decision of this Court in <ORG>, SCC 48], which dealt with the question of delay in challenging the notice issued under the Land Acquisition Act , 1894. In the said decision, this Court held that long after the Award had been passed in the <ORG> proceedings and compensation had been made over to <ORG>, a writ petition challenging the notices issued under Sections 4 and 6 of the <ORG> Act was not maintainable. Mr. <NAME> urged that in the facts and circumstances of the case, no interference was called for with the decision of <ORG>.

19. From the submissions advanced on behalf of the parties and the materials on record, two points emerge for decision in the instant appeal. The first point to be considered is whether the provisions of Section 17(4) of the L.A. Act, 1894, had been validly invoked by the respondents for the purpose of acquiring the lands in question for the Sewage Treatment Plant. The other point which is linked with the first point is whether the choice of site for setting up the STP would prove to be hazardous for the inhabitants of Narwana.

20. If an opportunity had been given to file objections to the proposed acquisition, the second question would have been resolved while deciding the objections under Section 5-A of the L.A. Act, 1894. Unfortunately, the provisions of Section 17(4) were invoked in relation to a project which could have serious consequences to the health of the general public of the area. Although, it has been urged on behalf of the respondents that the decision to set up the three Sewage Treatment Plants at Narwana was in response to a public demand to install sewage drains and the present site had been chosen to be the most suitable for a STP, it has not been denied that the proposed STP is to be situated in the vicinity of a school and grain market which are both hubs of community activities.

21. In the present case, we are not concerned with technicalities but the likelihood of a health- hazard to the inhabitants of the area if the STP was set up in the acquired site. The stand taken by the respondent that the appellants could have filed objections to the proposed acquisition is difficult to appreciate since the right to file such objections had, in fact, been taken away by invoking the provisions of Section 17(4) of the L.A. Act. Such a stand taken on behalf of the respondent authorities only serve to strengthen the case of the appellants that an opportunity should have been given to them to file objections to the proposed acquisition. As indicated hereinabove in the various cases cited by Mr. <NAME> and, in particular, the decision in <NAME> case (supra), in which reference has been made to the observations made by this <ORG> in <NAME> case (supra), it has been emphasized that a right under Section 5-A is not merely statutory but also has the flavour of fundamental rights under Articles 14 and 19 of the Constitution. Such observations had been made in reference to an observation made in the earlier decision in <NAME> case (supra) and keeping in mind the fact that right to property was no longer a fundamental right, an observation was made that even if the right to property was no longer a fundamental right, the observations relating to Article 14 would continue to apply in full force with regard to Section 5-A of the L.A. Act.

22. The observations made both in <NAME> case (supra) and in <NAME> case (supra) assign a great deal of importance to the right of a citizen to file objections under Section 5-A of the L.A. Act when his lands are being taken over under the provisions of the said Act. That in the said decisions, such right was elevated to the status of a fundamental right, is in itself sufficient to indicate that great care had to be taken by the authorities before resorting to Section 17(4) of the L.A. Act . and that they had to satisfy themselves that there was an urgency of such nature as indicated in Section 17(2) of the Act, which could brook no delay whatsoever.

23. Since Section 5-A of the L.A. Act had been dispensed with, the stage under Section 9 was arrived at within six months from the date of the notice issued under Section 4 and 17(2)(c) of the L.A. Act. While such notice was issued on 23rd November, 2005, the Award under Section 11 was made on 23rd May, 2006. During this period, the appellants filed a suit, and, thereafter, withdrew the same and filed a writ petition in an attempt to protect their constitutional right to the property. It cannot, therefore, be said that there was either any negligence or lapse or delay on the part of the appellants.

24. The only other aspect of the matter which requires consideration is whether the lands in question have already been utilized for the Sewage Treatment Plant. From the averments made and photographs which were brought to our notice, it appears that the site is still lying unutilized. In such circumstances, we consider it only proper that the appellants should get an opportunity to file their objections to the proposed acquisition under Section 5-A of the L.A. Act and the respondents would be at liberty to take consequential steps after disposal of the same.

25. We, accordingly, dispose of the appeal by directing that notwithstanding the invocation of Section 17(2)(c) of the L.A. Act in its application to the States of Punjab and Haryana, the appellants will be at liberty to file objections under Section 5-A of the L.A. Act within a month from the date before the concerned authority, who will, thereafter, dispose of the same upon giving the objectors, if any, an opportunity of hearing and placing their respective cases.

26. The learned Advocate for the appellants is directed to communicate this order to the L.A.

Collector-cum-District Revenue Officer, <NAME>, Haryana, within a week from date.

27. There will be no order as to costs.

(ALTAMAS KABIR) ...................................................J.

(CYRIAC JOSEPH) New Delhi Dated : 07.10.2009