JUDGMENT <NAME>, Kt., C.J.

1. This is an appeal from the judgment of Mr. Justice <NAME> dated June 20, 1944. The action is by a purchaser of certain goods against the vendors, who are the appellants in this <ORG>, for damages for breach of contract. The breach which is now admitted was the failure of the appellants to deliver thirty-six bales of cloth, the balance of forty-one bales, the subject-matter of the contract, before the expiry of the month of February, 1943.

2. The only question in dispute is the date on which damages are to be assessed which becomes very material by virtue of the somewhat violent fluctuations in the market prices. Four different dates have been suggested, and the difference in the quantum of damages is substantial. The first date is February 28, 1943, resulting in damages of approximately Rs. 7,000; the second date is May 5, 1943, resulting in damages of approximately Rs. 19,000; the third date is June 19, 1943, resulting in damages of approximately Rs. 14,000; and the last date is July 28, 1943, resulting in damages of approximately Rs. 1,400.

3. It is common ground that unless the date of the performance of the contract, was in some way or other extended, the time of the breach must be on February 28, 1943. Mr. <NAME> on behalf of the appellants contends that the relevant date is July 28, alternatively that it is March 1. Mr. <NAME> for the respondent-purchaser claims that the date is May 5, and the learned Judge in the <ORG> below has decided in favour of June 19, 1943. The answer to this problem is to be found by determining what is the construction to be put upon certain correspondence which passed between the legal advisers of the parties after the purchase and up to July 28 having regard to two sections of the Indian Contract Act , that is to say, Sections 55 and 63 . Section 55 , so far as material, is as follows:

When a party to a contract promises to do a certain thing at or before a specified time, or certain things at or before specified times, and fails to do any such thing at or before the specified time, the contract, or so much of it as has not been performed, becomes voidable at the option of the promisee, if the intention of the parties was that time should be of the essence of the contract.

Section 63 is in these terms:

Every promisee may dispense with or remit, wholly, or in part, the performance of the promise made to him, or may extend the time for such performance, or may accept instead of it any satisfaction which he thinks fit.

So that the question is : did the respondent purchaser extend the time for the performance of the contract?

4. We have in this Court been referred to certain authorities which can be conveniently examined before considering what took place in this case. In the order of date the first authority is <CITATION> (1912) I.L.R. 37 Mad. 412. That was a case of a breach of contract for the delivery of certain goods by a specified date, and at p. 413 Sir <NAME>, the Chief Justice, says this:

I am unable to agree with the Subordinate Judge that the plaintiffs are entitled to damages on this footing. The Judge refers to Section 63 of the Contract Act which empowers a promisee to extend the time for the performance of the promise. Of course it would have been open to the parties to extend the time by agreement, but there is no evidence of any consent by the defendant to any extension of the time and this is not a case in which it can be said that silence gives consent. In my opinion, it is clear that Section 63 does not entitle a promisee, for his own purposes and without the consent of the promisor to extend the time for performance which had been agreed to by the parties to the contract. The view of the learned Subordinate Judge was that at the time the suit was instituted the contract of May the 12th was a subsisting contract. In support of this view Mr. <NAME> relied strongly on the terms of Section 55 of the Contract Act. He contended that under that section the contract was voidable at the option of the promisee that is the plaintiffs, and as they had not avoided the contract, they were entitled to treat it as a subsisting contract at the date of the institution of the suit.

Now, in my opinion, Section 55 entitles a party to a contract, where time (as in this case) is of the essence of the contract, to say if he is sued upon the contract : 'Time is of the essence of this contract, you have failed to comply with the stipulation as to time, I repudiate the contract' It does not enable the promisee to say : 'I elect1 to keep alive this broken contract in the hopes that I may hereafter recover heavier damages for the breach of the contract than I should be entitled to recover at the time of the breach of the contract' Mr. <NAME> contended that the only way by which a promisor who had broken his stipulation as to time could protect himself if the promisee did not avoid the contract would be to give notice that the contract was at; an end. It seems altogether unreasonable to place any such obligation on a promisee when ex-concensus the contract has been broken with reference to a matter which goes to the root of the contract.

5. Then comes the case in the <CITATION> . (1921) 24 Bom. L.R. 687 P.C. Lord Dunedin delivering the judgment of the Board says this (p. 690):

Now apart from the terms of the Indian Contract Act , the law is as laid down in <NAME> v. <NAME> and <ORG> (1875) L.R. 10 Ex. 195 Baron <NAME> in that case said:

The second question is one of law, and is a most important one-it arises over and over again every day in the ordinary transactions of mankind. It is this : There is a contract for the Sale of goods to be delivered, say, in January or upon a day of January. On the day before the delivery is to take place the vendor meets the vendee and says : 'It is not convenient for me to deliver the goods...upon the day named, and I will be obliged if you will agree that the goods shall be delivered at a later period,' and the vendee assents; or the vendee goes to the vendor, and says : 'It is not convenient for me to receive the goods in January, or upon the day named, and will you agree that the delivery shall be postponed', and the vendor assents; the latter is the present case, and the contention on the part of the defendants is that this puts an end to the contract, and that the defendants are not bound to deliver upon the later day. In my opinion, the contention is not well-founded...It is impossible to distinguish the case of the application...coming from the vendors and one coming from the vendee.

That opinion was affirmed in <ORG>. The effect of Section 55 of the Indian Contract Act above quoted is, where the party having the option elects not to avoid, to put agreement after the original date on the same footing as an agreement, as put by Baron, <NAME>, just before the original date.

Be it observed that what is said is that s, 55 of the Indian Contract Act is to put an agreement after the original date on the same footing as the agreement mentioned in the quotation in Baron <NAME>'s judgment. But it must be an agreement. Mere forbearance from suing or giving a formal notice is not enough.

6. Then comes the case of <CITATION> (1942) 45 Bom. L.R. 405. The head-note in that case is as follows:

A party to a contract may, at the request of the other party, forbear from insisting upon delivery at the contract time and allow time to be extended without binding himself to do so, or may expressly contract for an extension of time, and claim damages for non-performance at the extended time.

In his judgment at p. 413 Mr. Justice <NAME> says this:

It is well established that a party to a contract may at the request of the other party forbear from insisting upon delivery at the contract time and may allow time to be extended, without binding himself to do so, or may expressly contract for an extension of time, and that he may claim damages for non-performance at the extended time.

7. With great respect to the learned Judge, in my opinion, the first of those propositions, namely, that the other party may forbear from insisting upon delivery at the contract time and may allow time to be extended without binding himself to do so, is not in accordance either with the <ORG> decision or with the decision of <ORG> in <CITATION> , to which I have already referred, if it means that damages for non-performance are to be claimed as at the extended time. Certain English cases were also referred to. But I would prefer not to rely on any of them, as in England there is no such statutory provision of Sections 55 and 63 of the Indian Contract Act and the position in England is complicated by the introduction of the Statute of Frauds.

8. After February 28, 1943, there appears to have been no communication between the parties until April 3, 1943. On that day the legal adviser of the purchaser wrote a letter to the vendors of which the material passage is as follows:

As you cannot expect my clients to wait indefinitely like this I am instructed to call upon you to arrange to deliver the same and in that respect to forward your invoice when my clients will pay the requisite amount in cash against delivery or in the alternative to let. me know as to the reason of so much undue delay and as to when you expect to deliver the same and what efforts, if any, you have made in that behalf to obtain delivery from your vendors and the reason, if any, they have assigned for such delay. Awaiting your reply by return and thanking you.

Now the vendors did not immediately reply, and on April 10, 1943, the legal adviser of the purchaser again wrote a letter of reminder to the vendors; and on April 17, 1943, comes the reply from the vendors' solicitors in which they state as follows:

Your clients are also well aware of the fact that our clients have not received the goods from Messrs. <NAME>. No sooner our clients receive the goods from Messrs. <NAME> our clients will deliver the same to your client. It was because they did not receive the goods from Messrs. <NAME> that they did not send you a reply to your letter of the 3rd instant. We may assure your clients through you that no sooner our clients receive the goods from Messrs. <NAME> they will at once deliver the said goods to your client.

Pausing there, it is to be observed that that is not an answer to the demand of the purchaser. They asked, in the first place, for immediate delivery; or, in the alternative, to let me (that is, the purchasers' legal adviser) know as to the reason for the undue delay and as to when you expect to deliver the goods and as to what efforts, if any, you have made in that behalf to obtain delivery.

Accordingly on April 21, 1943, the purchaser's legal adviser wrote this:

I am instructed to inquire of your clients through you as to the reason for such undue delay for delivery to Messrs. <NAME> and as to whether your clients had made any inquiries and attempts for obtaining delivery thereof.

The reply of the vendors' solicitors dated April 28, 1943, is as follows:

Our clients have been writing to Messrs. <NAME> but have not received the goods. No sooner they receive the goods from Messrs. <NAME>, our clients would deliver the same to your clients.

To this the purchaser's legal adviser replied on May 1, 1943:

I am now instructed to finally call upon your clients to give delivery within two days from the receipt hereof by you or in the alternative to definitely state as to when they expect to deliver the same as my clients are otherwise not willing to wait indefinitely like this for ever. Failing receipt of your reply within two days from receipt hereof by you as stated here above my clients will proceed further with the matter as may be advised for the costs and consequences whereof your clients will have to thank themselves.

Now be it noted the date May 5, as one of the critical dates, is arrived at from the letter which is dated May 1 and which gave two days' time and which in fact took two days to deliver ; thus the date of May 5 is fixed. On May 6, 1943, the vendors' solicitors replied:

We have already written to you and repeat that our clients have to deliver the goods to your clients as and when they receive the same from Messrs. <NAME>. They have not received the goods. Our clients are carrying on correspondence with them.

On May 10, 1943, the purchaser's legal adviser sent a reply as follows:

It is really surprising that your clients should not reply to the point of the reason of so much delay or what efforts if any they have made so far to obtain delivery from their vendors, Messrs. <NAME>. In this connection my clients note that your clients are now carrying on correspondence with their vendor. I am instructed to request your clients through you to give me inspection of their contract of purchase from the said Messrs. <NAME> as also the correspondence exchanged between the parties.

That letter was followed up by another letter from the legal advisers of the purchaser dated May 25, 1943:

We are now instructed to finally call upon your clients, through you, to carry out the requisition contained therein and thereby prove their bona fides within 24 hours from receipt hereof by you failing which our client will be compelled to proceed further with the matter as may be advised holding them liable for all the costs and consequences, which please convey to yours.

The vendors' solicitors replied on May 26, 1943, that there was nothing in that letter to be mentioned to their clients. On May 29, 1943, the legal advisers of the purchaser again wrote:

We shall therefore thank you to kindly do the needful without further loss of time and in that respect we fix Monday the 31st instant at 5 p.m. at your office when you are requested to produce the same for our inspection.

On June 16, 1943, the purchaser's legal advisers again wrote as follows:

We are instructed to finally call upon you to give us inspection within two days from receipt hereof by you, failing which our clients shall consider their position and proceed further in the matter as best advised; holding your clients liable for all the costs and consequences.

Again, it is to be observed that it is this letter which fixes the date June 19, 1943, which the learned Judge in the Court below has, held to be the relevant date. The letter is dated June 16. It gives two days and apparently another one day for its delivery.

9. Then comes the final letter of the purchaser's legal advisers dated July 28, 1943, giving the fourth and final date. In that letter the purchaser's legal advisers wrote:

In view of the attitude adopted by your clients and their having committed breach of the contract, our clients, as already intimated to yours, have fixed their damages on the then prevailing market rate of Rs. 38-6-0 per piece. Your clients are accordingly liable to pay to our clients the sum of Rs. 19,237-8-0, being the damages sustained by our clients, based on the difference between the contract price and the then prevailing market rate, viz. Rs. 38-6-0.

The then prevailing market rate is taken as on May 5, 1943, which apparently was not only the time fixed by the letter of May 1, 1943, but was the time when the market appears to have been at or near its highest.

10. In my judgment, reading the correspondence as a whole, it at no stage passed from the melting pot of negotiations to crystallize as an agreement to extend the time for the performance of the contract. The attitude of the purchaser throughout the correspondence was : "Satisfy us that you are doing your best to obtain the goods from your suppliers and we will then consider fixing a new date for delivery of the goods to us." On the other hand the attitude of the vendors throughout the correspondence was to avoid the purchaser's demand and to simply say : "You know that we cannot effect delivery from our suppliers and until we do so we cannot deliver the goods to you." There was never in my judgment any consensus ad idem, no agreement, express or implied, to extend the time either to any particular date or to the happening of some future event. Mere forbearance in my opinion to institute proceedings or to give notice of rescision cannot be an extension of the time for the performance of a contract within the meaning of Section 63 of the Contract Act. The learned Judge in the Court below does not appear to have had the advantage of having the matter argued before him in the way it has been argued in this Court. In his judgment the learned Judge says this:

In my opinion, the correspondence only shows that the plaintiffs were willing to consider the situation if in fact the defendants had protested that their vendors had not given delivery of the goods. As no satisfaction on this point was offered no question of the plaintiffs considering the delay in delivery by the defendants remained. The effect of the letter of June 16, 1943, in my opinion, is that the plaintiffs conveyed to the defendants that although, till then, they were willing to consider the position, if correspondence was shown, if no correspondence was shown within two days after the receipt of that letter the plaintiffs would consider that a default had been committed on the part of the defendants. In my opinion, it was not necessary thereafter to give express notice that the defendants had committed a breach. The previous correspondence had already disclosed that the plaintiffs had not accepted the plea that the plaintiffs were bound to wait till delivery was given by the defendants' vendors. They only showed a businesslike desire to consider the situation if the defendants proved their bona fides. When that was not proved, in spite of reasonable opportunities being given, the plaintiffs were entitled to consider the contract as broken by the defendants. In law one-sided demand for disclosure or inspection of documents cannot extend time. The only reason why I think the breach should be considered to have taken place on June 19 is that in the correspondence till June 16 the contract appears to be treated as alive and subsisting. The peremptory tone of the letter of June 16 shows that they were not willing to wait any longer after June 19. Therefore, in my opinion, the contract was kept alive till June 19, and when the defendants' attorneys failed to give inspection of the contract and correspondence as called for by the plaintiffs, the defendants committed a breach of the contract. Damages will be assessed on that basis.

With great respect to the learned Judge, the correspondence, as it seems to me, discloses negotiations and negotiations implemented by threats contained in some of the letters to the effect that if a new date satisfactory to the purchaser was not soon fixed, proceedings would ensue. In my opinion there was never any agreement to extend the time for the performance of the contract and there is no suggestion that in this case any question of estoppel could arise. This results in the correct date for assessment of the damages being February 28, 1943. Mr. <NAME> on behalf of the appellants says that as on that date the damages were a sum of Rs. 7,000 and his clients are prepared to submit to a decree for that amount. Mr. <NAME>'s clients want time to consider the matter and accordingly we refer the question as to the amount of damages to the Commissioner with this direction that if the damages are quantified at Rs. 7,000 or less, Mr. <NAME>'s clients will pay the costs of the reference; if more than Rs. 7,000, then the appellants will pay the costs of the reference.

11. As regards costs, as in the <ORG> below the breach of the contract was contested, the costs in the <ORG> below must, in our opinion, be paid by the appellants. As to the costs of this appeal, both parties have partly failed and partly succeeded; and on balance the appellants have succeeded more than they have failed. In our opinion, a fair order as to costs would be that the respondent should pay half the costs of this appeal to the appellants.

12. There will be no order as to costs of the cross-objections.

13. Interest on the sum decreed will run from the date of the suit.

Chagla, J.

14. I agree.

15. Under the contract between the parties the defendants had to deliver to the plaintiff forty-one bales of Edsu Cloth No. 4488 by the end of February, 1943. The defendants did deliver to the plaintiff five bales of the contract goods on February 27, 1943, but failed to deliver the balance of thirty-six bales and thereby committed a breach of the contract. Now unless the plaintiff can show that something transpired after February 28, 1943, it is clear that the date of breach would be February 28, 1943, and damages must be assessed as of that date.

16. Under Section 55 of the Indian Contract Act, the promisee is given the option to avoid the contract where the promisor fails to perform the contract at the time fixed in the contract. It is open to the promisee not to exercise the option or to exercise the option at any time, but it is clear to my mind that the promisee cannot by the mere fact of not exercising the option change or alter the date of performance fixed under the contract itself. Under Section 63 of the Indian Contract Act, the promisee may make certain concessions to the promisor which are advantageous to the promisor, and one of them is that he may extend the time for such performance. But it is clear again that such an extension of time cannot be a unilateral extension on the part of the promisee. It is only at the request of the promisor that the promisee may agree to extend the time of performance and thereby bring about an agreement for extension of time. Therefore it is only as a result of the operation of Section 63 of the Indian Contract Act that the time for the performance of the contract can be extended and that time can only be extended by an agreement arrived at between the promisor and the promisee.

17. Now I agree with the learned Chief Justice that on a perusal of the correspondence it is perfectly patent that the parties were never ad idem and no agreement was arrived at between them as to the extension of time. As a matter of fact, Mr. <NAME> for the respondent concedes that there was no agreement for extension of time; but what he urges is that his client forbore from insisting upon delivery at the contract time at the request of the appellants and the result of that forbearance was that although there was no agreement to extend time, the time was extended so long as that forbearance continued. It is a proposition difficult to accept that under the Indian law and under Section 63 of the Indian Contract Act time for the performance of a contract can be extended otherwise than by an agreement.

18. Mr. <NAME> has relied on a decision of Mr. Justice <NAME> in <CITATION> . (1942) 45 Bom L.R. 405. The learned Judge in that case held that a party to a contract may, at the request of the other party, for bear from insisting upon delivery at the contract time and allow time to be extended without binding himself to do so, or may expressly contract for an extension of time, and claim damages for non-performance at the extended time. I can well understand the decision if it only means that at the request of the promisor the promisee agrees to extend the time. Then it is nothing more than an agreement to extend time. But the learned Judge expresses his opinion that time can be extended even though the promisee may not bind himself to do so. With great respect to the learned Judge, I cannot accept that part of the statement of the law. The learned Judge's judgment is based on English decisions to which he has referred in his judgment. <ORG> has repeatedly warned Courts in India not to import doctrines of common law when construing the plain sections of the Contract Act and the danger of relying on principles of common law is all the greater in this case when one remembers that Section 63 of the Indian Contract Act constitutes a wide departure from the principles of the English common law. The English cases relied on by Mr. Justice <NAME> are based on the principles of the English common law which principles are further complicated by the fact that in England an oral agreement to extend time is kept out by the Statute of Frauds and therefore, with respect to the learned Judges in England, one often finds that the Judges there have to strain the letter of the law in order to do equity and hold that a particular arrangement arrived at between the parties was not an oral agreement in order that it should not be kept out by reason of the provisions of the Statute of Frauds.

19. In this case, in my opinion, there is not even a basis of facts to support the argument of Mr. <NAME>, because at no time did the defendants request the plaintiff to forbear from exercising his rights and asking for delivery under the contract; on, the contrary, their whole attitude has been that they were only bound to deliver the goods as and when they received them from their vendors. Therefore really throughout the correspondence they were asserting their right not to be bound to give delivery of the contract goods until they had received them from their vendors. Assuming that there was a request by the defendants to the plaintiff to forbear, I do not find in the correspondence at any stage or at any time any compliance with that request. Assuming this was a request to forbear, what the defendants wanted was a forbearance till they received the goods from their vendors, and the emphatic and categorical answer given by the plaintiff was that he wanted the goods to be delivered within a short time. Therefore it seems to me impossible to hold that having turned down the request of the defendants to forbear, it was open to the plaintiff by his unilateral act to extend time for performance and come to Court and say : I have now repudiated the contract and I shall fix the time according to my choice.

20. Mr. <NAME> has argued that if there is one thing that the correspondence showed is that both the parties considered the contract alive and subsisting. If by that expression is meant that the plaintiff had not exercised his option under Section 55 of the Indian Contract Act to put an end to the contract Mr. <NAME> is right; but the mere fact that the contract was not put an end to did not entail the further consequence that the time for the performance of the contract was automatically extended.

21. There were two further cases cited at the bar to which I should like to refer. One is the judgment of Mr. Justice <NAME>, which is a very instructive case, <CITATION> (1916) 24 Bom. L.R. 142. In that case the time for performance was October-November 1913. After the time elapsed, nothing further happened; and in July, 1914, the plaintiffs wrote to the defendants to arrange to take immediate delivery of the balance of ninety-two bales and delivery was taken; and Mr. Justice <NAME> held that the original contract had come to an end at the end of November, 1913, and these deliveries were referable to separate transactions and not to the original contract.

22. Mr. <NAME> has also relied on the judgment of Mr. Justice <NAME>, as he then was, in <CITATION> . Before the learned Judge the question did arise as to whether the time for the performance of the contract had been extended. Originally it was February 28, 1921, and Mr. Justice <NAME> held that there was an extension of time. Now if one looks at the judgment of the learned Judge, it is clear that he held as a fact that the representatives of the defendant and of the plaintiffs met several times and that the plaintiffs at the request of the defendant agreed to withhold delivery (see p. 1179). So there was a proposal and a definite acceptance; and on that the learned Judge came to the conclusion that there was an agreement to extend time.

23. Unfortunately in this case the learned Judge below has proceeded in his judgment on the assumption that it was common ground between the parties that there was an agreement to extend time, and the only question that remained for the learned Judge's determination was the date up to which the time for performance of the contract had been extended. Mr. <NAME> at one stage did strenuously argue that it was not open to Mr. <NAME> to contend that there was no agreement to extend time. But a specific issue as to the agreement was raised before the learned Judge which is issue No. 1 : Whether the time for delivery of contract goods was extended; and if so, to what date? Unfortunately the learned Judge has not recorded his finding on that issue. But it is impossible to contend that in the face of this state of the record it is not open to Mr. <NAME> before this Court to urge that there was no agreement to extend time.

24. I should like to say a word about the decision relied on by Mr. <NAME> in <CITATION> with regard to the giving of interest 'on the damages awarded from the date of the filing of the suit. In that case a bench of our <ORG> consisting of Sir <NAME>, Chief Justice, and Mr. Justice <NAME> took the view that if the claim in the suit was one for damages, the plaintiffs were not entitled to interest before judgment. Mr. <NAME> has drawn our attention to the judgment of Mr. Justice <NAME> in <CITATION> (at p. 1187), where he takes the contrary view and where he relies on an unreported judgment also of the <ORG> of Appeal. I really think that the matter is clear beyond any doubt because under Section 34 of the Civil Procedure Code it is entirely a matter for the <ORG>'s discretion whether to award interest from the date of the filing of the suit where the decree is for the payment of money. With great respect, I cannot understand why Sir <NAME>, the learned Chief Justice, took the view that the <ORG> could not award interest from the date of the filing of the suit. It is all a matter of discretion whether under the circumstances of each particular case interest should be awarded or not.

25. I, therefore, agree with the learned Chief Justice that we must hold in this case that there was no agreement to extend time, that the date of the breach was February 28, 1943, that damages should be assessed as of that date, and that in this particular case the plaintiff is entitled to interest on damages from the date of the filing of the suit.

<NAME>, <NAME>

26. I should like to add that I entirely agree with what has been said by my learned brother with regard to the awarding of interest.


PETITIONER: A. K. ROY & ANR. Vs. RESPONDENT: VOLTAS LIMITED DATE OF JUDGMENT01/12/1972 BENCH: <NAME>, KUTTYIL KURIEN BENCH: <NAME>, KUTTYIL KURIEN GROVER, A.N. MUKHERJEA, B.K. CITATION: 1973 AIR 225 1973 SCR (2)1089 1973 SCC (3) 503 CITATOR INFO : F 1975 SC 960 (6,10,11,12) RF 1984 SC 420 (6,23,24, ETC.) RF 1988 SC1154 (5) RF 1989 SC 516 (34) RF 1989 SC1555 (11) R 1989 SC1733 (3) E&D 1990 SC1676 (7) R 1992 SC1324 (16) R 1992 SC2005 (6,8) ACT: Central Excises & Salt Act 1944, S. 4(a) -Bulk of sales to consumers direct-Some goods sold also to wholesalers at 22 per cent trade discount-Duty whether to be levied on 'wholesale cash price' or on list price of sale to consumers-Wholesale market, what is-Ingrediehts of section- Components of 'wholesale cash price'. HEADNOTE: The respondent was a limited company and carried on, among. others, the business of manufacturing air-conditioners, water coolers and component parts thereof. Most of its sales-to the extent of 90 to 95 per centwere made by it directly to consumers at list prices. It, however, also sold the articles 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, that the respondent would sell them the articles at the list prices less 22 per cent discount, that the dealers will not be entitled to any discount on the prices of accessories mentioned in the price schedule and that the dealers should give service to the units sold in their territory. Excise duty on the basis of ad valorem value was imposed on air- conditioners and parts of water coolers with effect from March 1, 1961. The respondent claimed, in accordance with s.4(a) of the Central Excises and Salt Act 1944, that the list price after deducting the discount of 22 per cent allowed to the wholesale dealers would constitute the 'wholesale cash price' for ascertaining the real value of the articles. This case was accepted by the excise authorities and assessments were made up to the end of 1962 on that basis. Later however the Superintendent of Central Excise intimated the respondent that excise duty would be assessed and levied not on the basis of wholesale cash price but on the basis of retail price under s.4(b ) of the Act. _Assessments for the period January 1, 1963 to December 31, 1963 were made on the basis of list prices, for sales to consumers. The respondent's appeal having been dismissed by the first appellant, the respondent filed a writ petition in <ORG>. <ORG> allowed the petition holding that the price for which the articles were sold to the wholesale dealers, less the discount allowed to them under the agreements represented the 'wholesale cash price' and that excise duty was chargeable under s.4(a) of the Act., Appeal to this Court was filed by certificate. Dismissing the appeal, HELD : (i) For a wholesale market to exist it is not necessary that there should be a market in the physical sense of the term where articles of a like kind and quality are or could be sold or that the articles should be sold to so-called independent buyers. [1093 G] 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 riot in any way affect the existence of market in the proper sense of the term provided the articles themselves could be sold wholesale to traders, even though the articles are sold to them on the basis of agreements which confer certain advantages upon 1090 them. The application of s.4(a) does not depend upon any hypothesis to the effect that at the time or 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 like kind and quality.- [1093 H] (ii)There can be no doubt that the 'wholesale cash price' has to be ascertained only on the basis of transactions at arms length. Once that is established the determination of the wholesale cash price for the purpose of s.4(a) of the Act may not depend upon the number of such wholesale dealings. The fact that the 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 anytheless the 'wholesale cash price' for the purpose of s.4(a) even if those 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. [1097 B] (iii)The Privy <ORG> held in the case of <ORG> that the words 'wholesale price' were used in contra-distinction to a ,retail price'. The term 'cash price' was held to mean price from any augmentation for credit or other advantages to the buyer; it is to be net price that is to say 'less trade discount'. [1098 B-C] 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 postulates that the wholesale price should be taken on the basis of cash payment thus eliminating the interest involved in wholesale price which gives credit to the wholesale buyer for a period of time and that the price has to be fixed for delivery at the factory gate, thereby eliminating freight, octroi and other charges involved in the transport of the articles. [1098 E] (iv)The appellant's contention that 22 per cent discount allowed to the wholesalers was not 'trade discount' was not raised before <ORG> and therefore would not be considered. <CITATION> for India in <ORG>, 65 Indian Appeal, 32 <CITATION> for India in <ORG> 59 Indian Appeals 258, applied. <CITATION> , A.I.R. 1961 Calcutta, 477, <CITATION> , A.I.R. 1967 Andhra Pradesh 281, <CITATION> , A.I.R. 1963 Mysore 216, <CITATION> , A.I.R. 1968 Calcutta 154 and <CITATION> , 1969 II Andhra Weekly Reporter 57, disapproved. JUDGMENT:

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 47 of 1972. Appeal by certificate from the judgment and order dated August 14, 17, 1970 of <ORG> in Misc. Peti- tion No. 324 of 1967.

<NAME>, <NAME>, <NAME> and <NAME>, for the appellants.

<NAME>, <NAME>, <NAME>, and <NAME>, for the respondent.

<NAME>, <NAME>, <NAME> and <NAME>, for the intervener (<ORG>) <NAME> and <NAME>, for the intervener (<ORG>).

<NAME>, <NAME> and <NAME>, for the Intervener (<ORG>). <ORG>, the respondent here, tiled a writ petition before <ORG>, challenging the validity of the appellate order passed by the 1st appellant on May 2, 1967, in respect of the liability of the respondent to pay excise duty for the year 1963 and the orders of the Assist-ant Collector of Central Excise relating to the liability of the respondent to pay excise duty for the years 1962, 1964, 1965 and 1966, as also the notice demanding the assessed amount of Rs. 27,57,177.19. <ORG> allowed the petition. This appeal, by certificate, is against that order.

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

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's case was that the list price after deducting the discount of 22 per cent allowed to the wholesale dealers would constitute the 'wholesale cash price,' for ascertaining the real value of the articles. This case was accepted by the excise authorities and assessments were made upto the end of 1962 on that basis. In April, 1964, the Superintendent of Central Excise intimated the respondent that excise duty would be assessed and levied not on the footing of the 'wholesale cash price' but on the basis of the retail price and, by his three orders dated September 5, 1964 and one dated September 10, 1964, he assessed the respondent to excise duty in respect of the sales on the footing of list prices for sale to consumers for the period from January 1, 1963, to December 31, 1963, and a notice of demand dated October 8, 1964, was served on the respondent calling upon it to pay the above sum. The respondent filed an appeal against the orders but that was dismissed by the 1st appellant by his order dated May 2, 1967 and this was the main order that was challenged in the writ petition.

The question that was canvassed before <ORG> was whether the respondent was liable to be chargedwith excise duty on the basis of the price of retail sales made byit directly to the consumers from its head office and branch officesunder clause (b) of s. 4 or whether it was liable to be charged onthe basis of the price payable by the wholesale dealers, after deducting the 22 per cent discounts under clause (a) of s. 4 of the, Central Excises and Salt Act 1944 (hereinafter referred to as the 'Act') ?

<ORG> held that the price for which the articles were sold to the wholesale dealers less the discount allowed to them under the agreements represented the 'wholesale cash price' and that exise duty was chargeable under s. 4(a) of the Act.

Section 4 of the Act provides :

"4. Where under this Act, any article is chargeable with duty at a rate dependent on the value of the article, such value shall be- deemed to be-

(a) the wholesale cash price for which an article of the like kind and quality is sold or is capable of being sold at the time of the removal of the article chargeable with duty from the factory or any other premises of manufacture or production for delivery at the place of manufacture or production, or if a wholesale market does not exist for such article at such place, at the nearest place where such market exists, or

(b) where such price is not ascertainable, the price at which an article of the like kind and quality is sold or is capable of being sold by the manufacturer or producer, or his agent , at the time of the removal of the article chargeable with duty from such factory or other premises for delivery at the place of manufacture or production, or if such article is not sold or is not. capable of being sold at such place, at any other place nearest these to Explanation : In determining the price of any article under this section, no abatement or deduction shall be allowed except in respect of trade discount and the amount of duty payable at the time of the removal of the article chargeable with duty from the factory or other premises aforesaid."

The appellants 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 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.

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 which confer certain commercial advantages upon them. In other words, the sale to the wholesale,- dealers did not cease to be wholesale sales merely because the wholesale dealers had entered into agreement with the respondent under which certain commercial benefits were conferred upon them in consideration of their undertaking to do service to the articles sold, or cause 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.

<CITATION> for India in Council(1) the appellants before <ORG>, who imported <ORG> vehicles from Canada to India. where they had a monopoly of the supply of those vehicles, sold them only to authorised dealers or distributors, each of whom was sole agent for a retail seller of the vehicles in a particular district. The appellants obtained from the distributors information as to their future requirements and placed consolidated orders accordingly with the manufacturers in Canada. The retail price charged by the distributors to the public was that stated in a price list issued by the appellants and current at the time of the arrival of vehicles in India, and the price payable by the distributors to the appellants was the same price less a discount of 20 per cent. The distributors bad to pay that price before obtaining delivery, which was given "free on rail". On arrival in India the vehicles were not completely assembled, and were so delivered to the distributors, an agreed allowance against the price being made by the appellants. On the question whether S. 30(a) or 30(b) of the Sea Customs Act, 1878, applied, for the purpose of finding out the real value of the goods for levy of customs duty, <ORG> held that the price charged by the appellants to the distributors excluding the assembling allowance was the "wholesale cash price, less trade discount" for which the vehicles were sold " at the time and place of importation" within the meaning of s. 30(a) of that Act, the terms of which are more or less similar to those of S. 4 (a) of the Act. This case is an authority for the (1) 65 <ORG> 32.

proposition that mere existence of the agreements between the respondent and the wholesale dealers under which certain obligations were undertaken by them like service to the articles, would not render the price any the less the 'wholesale cash price'. To put it in other words, even if the articles in question were sold only to wholesale dealers on the basis of agreements and not to independent persons,- that would not make the price for the sales anything other than the 'wholesale cash price'. The argument that what was relevant to determine the 'wholesale cash price' under 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 cl.

(a) be considered as members of their own class even though at the time and place of importation there are no other members and that the price obtained for them may correctly represent the price obtainable for goods of a like kind and quality at the time and place of importation. Counsel for the appellants submitted that the preponderance of authority in the various <ORG> is in favour of the view that in order that sales might be wholesale sales, the purchasers must be independent persons.

<CITATION> (1) a learned single Judge of that Court held that the word 'wholesale market' must mean a place where articles are habitually sold to any person who wishes to make a purchase and that, merely because a factory manufactures the articles at a particular place and sells, them there to its stockists or dealers would not', by itself, convert it into a wholesale market and the question whether there is a 'wholesale market' at that location would depend upon a variety of questions, namely, whether goods were really being sold wholesale and whether any person wishing ,to purchase the goods could do so at the location. The Court also said that, in order that the price may be the 'wholesale cash price' it is necessary that the transaction should be between a manufacturer and an independent purchaser. In other words,the Court was of the view that if the transaction was between a manufacturer and a 'favoured purchaser', the price paid by him would not be the 'wholesale cash price' within the meaning of s. 4 (a) of the Act.

<CITATION> (2), the Court said that the sale to wholesale distributors with whom the company in question had entered into agreements for sale of the articles stipulating for certain commercial advantages would not constitute the price of those sales "wholesale cash price" as mentioned in s. 4(a) . The Court further said that (1) A.I.R. 1961 Calcutta 477.

(2) A.I.R. 1967 Andhra Pradesh 281.

since the manufacturer was not free to sell the article to others by virtue of the agreement and, as in fact, no independent sales were proved to have been made to anyone other than the authorised distributors, the sales were not sales in the wholesale market. The <ORG> referred to the decision of <ORG> in <CITATION> for India in Council (supra) but did not seem to have appreciated the real ratio of the case. <CITATION> (1), the <ORG> said that wholesale price means the price which a wholesale dealer, and not the retail dealer, charges for his goods when he sells them in wholesale units and what constitutes wholesale unit will have to be determined with reference to the practice of the trade at the place where the goods are sold. A wholesale market, according to the <ORG>, is a place where goods in question or goods of a like kind and-quality, are sold, or, are capable of being sold to independent buyers meaning thereby, anyone who intends to effect such purchase upon payment of proper price without restriction.

<CITATION> (2) the Court followed its earlier decision already referred to. and said that the 'wholesale cash price' means the price( which a wholesale dealer and not a retail dealer charges for his goods when he sells them in wholesale units in a wholesale market. The Court also said that the words wholesale market mean a place, where the articles in question are habitually sold to any body who wishes to make a purchase at wholesale price and the mere fact that a factory manufactures articles at a particular place and sells them there to stockists or dealers will not by itself convert the place of sale into a wholesale market. In <ORG> v. The Collector of Central Excise(3), the Court held that a sale to a favoured buyer cannot be regarded as a sale in a wholesale market and that in the light of the language of clause (a) to S. 4 of the Act a sale by the manufacturer at the factory, by itself, would not be sufficient to constitute the price of the sale the 'wholesale cash price'.

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 manufacturer has entered into agreements with them stipulating for commercial advantages, are correct. If a manufacturer were to enter into agreements with dealers for wholesale sales of the articles manufactured on certain terms and (1) A.T.R. 1963 Mysore 216.

(2) A.I.R. 1968 Calcutta 154.

(3) (1969) II Andhra Weekly Reporter 57.

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 s. 4 (a) of the Act. A sole distributor might of might not be a favoured buyer according as terms of the agreement with him are fair and reasonable and were arrived at on purely commercial basis. Once wholesale dealings at arms length are established, the determination of the wholesale cash price for the 'Purpose of s. 4 (a) of the Act may not depend upon the number of such wholesale 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.

The next question is : what exactly is the meaning of the term the 'wholesale cash price' ? <CITATION> for India in Council(1), it was held that the term means the price paid by retail traders on wholesale purchase. The essence of the idea is that the purchase must be a wholesale purchase and not a retail one. In other words, the sale must be wholesale and not a retail one in order that the price realised may be termed the 'wholesale cash price'. In that case the appellants before <ORG> imported at Bombay, very large quantities of lubricating oil of a particular manufacture and mark. They sold it direct to numerous customers, never to dealers. The price they charged was the same whether a large or small quantity was bought, except that if a consumer contracted to buy from them all his requirements for a year, he was entitled to a discount from 2-1/2 to 15 per cent according to the quantity bought in the year. No other lubricating oil of a like kind and quality was sold in Bombay. On the question whether the appellant was bound to pay customs duty on the basis of clause (a) or clause (b) of s. 30 of the Sea Customs Act, 1878, <ORG> held that since the sales were to customers direct, the real value of the goods cannot be ascertained under clause (a) of s. 30 and that clause (b) of s. 30 was applicable. Their Lordships said (1) 59 Indian Appeals, 258.

that in determining the price which is to represent the real value of the goods to be 'taxed, "the price must be conservative in every respect and free in particular from any loading for any post importation charges incurred in relation to the goods". "The price is to be a price for goods. as they are both at the 'time' and 'place' of importation. It is to be a 'cash price', that is to say a price free from any augmentation for credit or other advantage allowed to a buyer; it is to be a net price, that is to say it is a price 'less trade discount' ". Their Lordships, therefore, held that the words the 'wholesale price' were used in the section in contra-distinction to a 'retail price', and that not only on the round that such is a well recognised meaning of the words but because their association with the words 'trade discount' indicates that sales to the trade are those in contemplation, and also because only by attaching that meaning to the word is the 'wholesale price' relieved of the loading representing post- importation expenses which, as a matter of business, must always be charged to the consumer, and which are eliminated. Excise is a tax on the production and manufacture of goods [see <CITATION> (1)]. 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 post-manufacturing operation, namely selling profit. The section postulates that the wholesale price should be taken on the basis of cash payment thus eliminating the interest involved in wholesale price which gives credit to the wholesale buyer for a period of time and that the price has to be fixed for delivery at the factory Rate thereby eliminating freight, octroi and other charges involved in the transport of the articles. As already stated it is not necessary for attracting the operation of 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.

The appellant contended that 22 per cent discount allowed under the agreements with the wholesale dealers was not trade discount. On the round that there was no evidence to show that the discount allowed was 'trade discount' within the meaning of the Explanation to S. 4 . There was no contention by the appellants before <ORG> that the discount allowed to the (1)  Supp. 1 S.C.R. 586, wholesale dealers was not 'trade discount'. The whole argument before <ORG> proceeded on the basis that direct sales by the respondent to consumers constituted the major portion of the sales and that the sales to the, wholesale dealers only represented a minor portion and, therefore, the price charged for the sales to wholesale dealers would not represent the 'wholesale cash price' of the articles sold. No data was placed before <ORG> by the appellant to show that the 22 per cent discount did not represent 'trade discount' for the purpose of the Explanation. A trade discount' is a percentage deduction from the regular list or catalogue price of goods. As there was no case for the appellants that there was any secret arrangement between the wholesale dealers and the respondent in respect of the sales to them or that the price of the articles was understated in the agreements or that any extra-commercial advantages to the dealers were taken into account in fixing the price, we do not think that we should go into the question whether the discount allowed to the wholesale dealers was 'trade discount' or not for the purpose of the Explanation.

We think <ORG> was right in its conclusion. We dismiss the appeal but in the circumstances make no order as to costs.

<NAME>

Appeal dismissed.

I Sup. C.I./73-2500,25-4-74 G.I.P.F.