PETITIONER: UNION OF INDIA & ORS. Vs. RESPONDENT: LT. GEN. <NAME> & <NAME>. DATE OF JUDGMENT: 28/07/2000 BENCH: CJI., <NAME>, <NAME> & <NAME>, <NAME> JUDGMENT:

<NAME> J. :

The dispute in this case is in regard to the appointment to the post of <ORG> Commander. When Lt.Gen. <NAME> [hereinafter referred to as respondent No.2] was appointed or promoted as the <ORG> Commander, <ORG>, the same was challenged by Lt. Gen. <NAME> [hereinafter referred to as respondent No.1] by way of a writ petition (Civil Writ No. 1527 of 1998) in <ORG> principally on the ground that he is the senior-most eligible officer to be appointed to that post; that he was seeking the aid of the court to prevent unnecessary and avoidable aberration with regard to appointment/promotion of senior officers in the <ORG> and keeping in view the long term interest of the <ORG> and the country so as to avoid politicalisation of the crucial posts in the <ORG>; that he had won various meritorious awards; that he commanded a company in Nagaland and was awarded Vishist Seva Medal (VSM) on January 26, 1990 and as a Major General he commanded <ORG>, <ORG> rifles and <ORG> (BSF) and he was successfully able to bring cease fire in 1997 which is still holding; that he was awarded Ati Vishist Seva Medal (AVSM) on February 26, 1998 for his operational success and outstanding achievement; that he commanded a company in the Bangaladesh war; that his contribution in Operation Black Thunder was awarded The Chief of <ORG> Staffs Commendation in 1985; that he has the requisite staff experience and has served on the staff of <ORG> and <ORG> in Operational appointments; that he from the rank of Lt. Colonel onwards has attained all his select promotions in the first chance through unanimous decisions; since 1997 he has been in command of the oldest and the most prestigious strike <ORG> of the <ORG>; that the appointments and promotions to the post of <ORG> Commander/Vice Chief of the <ORG> Staff (VCOAS) are governed by the instructions as contained in the <ORG> letter dated October 20, 1986; that the said letter came into effect from January 1, 1989; that he became eligible to be promoted as <ORG> Commander as and when vacancy arose and instructions issued by the <ORG> were amended on November 18, 1996 which prescribe an additional criteria for appointment to the post of <ORG> Commander, namely, that the officer should have commanded a <ORG> for at least one year so as to become eligible for appointment as <ORG> Commander/VCOAS and no waiver in this stipulation is allowed without prior concurrence of the <ORG>; that the order dated November 18, 1996 has come into effect only to affect respondent No.1; that even otherwise in relation to such stipulation he had been granted a waiver by the <ORG> as prescribed by letter dated November 18, 1996 as per the <ORG> order dated March 16, 1998; that he was fit in all respects for appointment to the post of <ORG> Commander; that the second appellant had recorded in Annual Confidential Reports (ACRs) in respect of respondent No.1 that on or after February 27, 1998 he was fit in all respects; and, that having found respondent No.1 fit in all respects on or after February 27, 1998 and he being the senior most Lt. General in the Indian <ORG> ought to have been appointed as <ORG> Commander.

Respondent No.1 claimed that when he was posted as Attache in Paris he was considered for the post of Major General on April 24/25, 1992 wherein he was approved for being promoted as Major General and the said decision was communicated to him on July 7, 1992. However, he was promoted to the post of Major General on September 1, 1995 after respondent No.1 was repatriated from Paris. <ORG> for selecting Lt. General met on October 21, 1994, the decision of which was communicated to respondent No.1 on February 21, 1995. The case of respondent No.1 was deferred on the ground that the criteria appointment was lacking. Again on April 21/22, 1995 his appointment as Lt. General was deferred on the ground not adequately exercised in criteria appointment. Similarly, his case was again deferred on October 11/13, 1995 and on April 24/25, 1996. On October 31, 1996 his case was recommended to be promoted as Lt. General. It was contended before <ORG> that for certain irrelevant consideration and mala fide reasons the case of respondent No.1 was deferred by <ORG> to accommodate Major General <NAME> who was made a Lt. General; that such deferment of the case of respondent No.1 by <ORG> was unprecedented in the history of <ORG>. Respondent No.1 sought for review of the <ORG> decision regarding change of his grading from approved to deferred by an application made on March 8, 1997. On April 10, 1997 respondent No.1 was again considered by <ORG> to the post of Lt. General.

The decision thereto was conveyed to him on July 8, 1997. It is at this stage that the Chief of the <ORG> Staff had issued letters/instructions stipulating that henceforth an officer to be eligible to become <ORG> Commander/VCOAS should have commanded a <ORG> for at least one year. That is the first time such a stipulation had been introduced in the <ORG> and made applicable with immediate effect. On a representation made by respondent No.1 waiver was granted for a period of six months for his consideration for promotion to the rank of <ORG> Commander/VCOAS. It was contended on behalf of respondent No.1 that 2/3 days after respondent No.1 was recommended for promotion by respondent No. 2 (Appellant No. 2 herein) on March 2, 1998 a proposal was mooted for appointment of the <ORG> Commander, <ORG> for filling up the vacancy that arose on March 1, 1998 when respondent No.2 was recommended for promotion/appointment to the post of <ORG> Commander, <ORG>. On respondent No.1 approaching <ORG> on March 27, 1998, while directing notice it was made clear that if any appointment is made to the post of <ORG> Commander, <ORG>, the same shall be subject to the result of the writ petition. It was contended before <ORG> that for the first time more than one officer was considered at the time of making the recommendations for appointment or promotion to the post of <ORG> Commander in the Indian <ORG>; that in the past only name of senior most officer was forwarded and recommended for appointment/ promotion as <ORG> Commander; that respondent No.1 was recommended for appointment as <ORG> Commander; that when the statutory complaint was filed by respondent No.1, appellant No. 2 had recommended to appellant No. 1 the name of respondent No. 2 and, therefore, the impugned decision dated March 25, 1998 with the recommendation was sent to <ORG> the name of respondent No. 4 for promotion/appointment as <ORG> Commander, <ORG> in supersession of respondent No.1 is bad in law.

<ORG> first dealt with contention that stay of respondent No.1 in Paris should not come in his way for purpose of selection to a higher post. After going through the entire files it was noted that had respondent No.1s promotion not been deferred, he would have become Lt. General in 1996 itself although Major General <NAME> was promoted as Lt. General in spite of grading unfit to him by <ORG>. Surprisingly on November 23, 1996 the Defence Secretary recommended that Major General <NAME>s grading may be changed from Grade D to Grade B and in the case of the petition his grading from fit was recommended to be deferred and the Defence Secretary relied upon the fact that respondent No.1 has not completed the laid down adequately exercised period of 18 months. <ORG> commented on the manner of dealing with the files as rather strange and observed that there is inconsistency in the arguments advanced on behalf of the appellants inasmuch as only seniority of an officer is important; that the words senior most officer who is otherwise fit should be understood as that an officer whose name has been recommended by the <ORG> is also fit in all respects. On perusal of files, <ORG> came to the conclusion that the second respondent could never be deemed to be senior most officer who was otherwise fit and could not be compared with respondent No.1; that recommendation is in total disregard of the past practice and procedure; that the cases referred to are those of senior general officers, namely, Lt. General <NAME>, <NAME> and <NAME>, who missed promotion to the rank of <ORG> Commander on comparative merit and weak profile; that the note of the Joint Secretary admitted that in these cases there was no recommendation for promotion on account of their C.Rs. However, <ORG> proposed to consider their cases separately. <ORG> further concluded that from the records made available to the court it was evident that in the past only the senior most Lt. General was considered for promotion to the rank of <ORG> Commander in the vacancy arising as happened due to the retirement of Lt. General <NAME>; that the cases of Lt. General <NAME> and Lt. General <NAME> were recommended for promotion/appointment as GOC-In-C, <ORG>; that the reason for not appointing Lt. General <NAME> was that he was placed in low medical category.

<ORG> found force in the argument that comparative merit was not the requirement to be applied by the appellants; that the general officers meeting the requirement of <ORG> letter dated October 20, 1996 were promoted as <ORG> Commanders on the basis of the seniority; that fitness in every respect coupled with seniority is the criteria of appointment to the post of <ORG> Commander, and it noticed that the appellants could not go into the question of comparative merit to the post of <ORG> Commander when respondent No.1 carrier profile, experience, positive recommendation in the A.C.R. makes him fully fit for holding the post of <ORG> Commander, any other consideration which has gone into the process of denying that right is not justifiable if respondent No.1 was eligible in terms of policy of the appellants dated October 20, 1986 particularly when the appellants have considered his case for waiver which was granted by six months and when respondent No.1 stayed in Paris for a duration longer period and that the same cannot be utilised against him.

<ORG> also noticed that he had given his willingness certificate is not correct from the perusal of the records and he should have been repatriated on completion of three years which was not done. <ORG> also took into consideration the statutory complaint made by respondent No.1. It was noticed that on February 27, 1998 when the Chief of the <ORG> Staff had found respondent No.1 fit in every way to hold his present rank as well as found him fit for promotion to the next higher rank/appointment, how the name of respondent No. 4 could have been recommended on March 2, 1998. Therefore, <ORG> critically analysed the Cabinet Secretarys notice and found that respondent No.1 fulfilled the necessary criteria mentioned for promotion to the post of <ORG> Commander. <ORG> laid emphasis on the criteria seniority-cum-fitness rather than seniority-cum-merit and what is obligatory is that the promotion is automatic. Finally, <ORG> noticed that the only question before it whether the post of <ORG> Commander which became available on March 1, 1998 on the retirement of Lt. General <NAME> when the cases of respondent No. 1 and respondent No. 2 were considered whether the appointment of respondent No. 2 as <ORG> Commander in spite of respondent No. 1 being admittedly senior to respondent No. 2 was justified. <ORG> noticed that the argument advanced on behalf of the appellants that the Circular dated October 16, 1992 was complementary to the Circular dated October 20, 1986 does not inspire any confidence and it is not one of those orders issued in terms of Article 73 of the Constitution. The whole rationale, therefore, was of the principle of seniority-cum-fitness and thus considered, the senior person unless unfit should get the promotion automatically and, therefore, seniority ought to have been given preponderating weight. Further, It noted that the appointment of <ORG> commander is a selection grade appointment to be filled from eligible <ORG> Commander. Prior to 1986 <ORG> Commanders subject to having positive recommendation in their A.C.Rs. became <ORG> commanders In 1986 a criteria of two years residual service was introduced for their becoming <ORG> Commanders subject to their being fit in every respect. General Officers meeting the said criteria was promoted in the order of their seniority. One year command of a <ORG> was added to the criteria prescribed in 1986 by letter dated November 1996 which also provided for a waiver by the competent authority. The note of the Cabinet Secretary in which he has comparatively discussed the A.C.Rs. of 1971 of respondent No.1 amounts to importing a non- existent criteria after respondent No.1 was found fit in all respects in the A.C.R. on the basis of which he was promoted to next higher rank. The minimum tenure of one year as <ORG> commander had also been met by respondent No.1 on account of grant of waiver by the Government. The deferment made in the grading in October 1996 of <ORG> had adversely affected respondent No.1 and it is only thereafter stipulated that an officer to become eligible to be an <ORG> Commander should have commanded a <ORG> for at least one year. In this background, <ORG> quashed the appointment of respondent No. 2 as <ORG> Commander, <ORG> and allowed the writ petition.

Challenging this order of the learned Single Judge of <ORG> a Letters Patent Petition (L.P.A No. 568/98) was filed before <ORG> of <ORG>. By a very short order <ORG> of <ORG> disposed of the Letters Patent Petition stating that the comparative merit of officers was neither the requirement nor it is permissible and the appellants should not have treated the post of <ORG> Commander as a selection post. <ORG> is in agreement with the opinion of the learned Single Judge that in the past only a single person was considered and if he is not fit, then alone the next person in seniority was considered. Reliance placed by the <ORG> on Circular dated October 16, 1992 is not correct and was rightly rejected by the learned Single Judge inasmuch it is a non- statutory document. This is not the case of seniority-cum-merit but it is only seniority-cum-fitness subject to rejection on the basis of being unfit. Seniority alone governed the matter. On that basis <ORG> dismissed the appeal. Hence the present appeals - one filed by <ORG> and its officers (Civil Appeals Nos. 359-360 of 1999) and the other (Civil Appeals Nos. 361-362 of 1999) by Lt. Gen. <NAME>, respondent No. 2 in Civil Appeals Nos. 359-360 of 1999.

In this Court, the learned Attorney General contended on behalf of <ORG> that <ORG> had erred in quashing the appointment of respondent No. 2 as <ORG> Commander, <ORG>; that the entire consideration of the matter is mis-placed; that <ORG> had given undue importance to A.C.Rs. in the matter of promotion and when security of the country is of paramount consideration, mistakes cannot be allowed and gaining necessary field experience is absolutely essential; mere emphasis on the A.C.Rs. will not change the ground realities and, therefore, whatever may be the circumstances in which the appellant could not gain the necessary experience; that <ORG> could not have interfered with the impugned action. <ORG> has indulged in nit picking by making a censorious approach in examining the dossiers and files as also the note of the Cabinet Secretary; that the comparative merit is not prohibited in making the selection, which was quite often resorted to in making appointments to the post of <ORG> Commander. <NAME>, learned Senior Advocate appearing for respondent No. 2 and appellant in connected matter, supported the contentions of the learned Attorney General and supplemented the same on factual aspects.

<NAME>, learned senior advocate for respondent No.1, submitted, at the very outset, that decision in this case is of great momentous nature to the army inasmuch as the principles relating to the promotion to the post of <ORG> Commander, that is, in the highest echelons of service are in issue. Indeed he submitted that up to the stage of appointment as Lt. General, rigorous tests have to be undergone by the concerned officers before they are promoted and such processes have been undergone having reached a particular level. Further tests are held almost automatically unless there is something adverse as to their fitness. He stated that in these cases it is only seniority that governs and that when it was ignored the matter was taken to <ORG> and <ORG> has given relief in this case and, therefore, this <ORG> should not interfere in the order made by it. Respondent No.1 has always been senior to respondent No.2 by as many as 40 places although they belonged to the same batch having been commissioned on 10.6.1962. Respondent No.1 had a distinguished career and participated in the operations of 1971 Indo-Pak war and also has extensive counter insurgency experience. The battalion in which respondent No.1 was working during the war was engaged in fighting the enemy from Agartala to Dhaka and reached Dhaka on December 16, 1971 i.e. the date of cease-fire and surrender of the Pakistan <ORG>. In terms of letter dated November 18, 1996, the officer should have commanded <ORG> for at least one year so as to become eligible for appointment as <ORG> Commander unless waived with the prior concurrence of the <ORG>. As respondent No.1 was the only person to be affected by this new criterion which was sought to be enforced without any lead time, contrary to the earlier practice, in his statutory complaint dated 5.10.1997, he made an alternative request that this stipulation may be waived in his case as the delay in his promotions have been caused entirely in the interest of service and he specifically mentioned that the vacancy was due to occur on March 1, 1998 and he should be considered for the same. On 6.1.998, the Chief of the <ORG> Staff recommended the waiver by months for consideration for promotion to the appointment of <ORG> Commander for a vacancy occurring on March 1, 1998. <ORG> accepted the recommendation of the Chief of the <ORG> Staff. The case of respondent No.1 would have been considered for appointment for the <ORG> Commander in normal circumstances had he not been inordinately delayed in being placed on present criteria appointment. The delay was caused due to circumstances well beyond the control of respondent No.1 and was primarily due to administrative constraints of the organisation. New clause of tenure of one year as a <ORG> Commander affected only respondent No.1 and this aspect was borne in mind by the Chief of the <ORG> Staff while making the recommendation. On 10.4.1997, respondent No.1 was selected for the post of Lt. General by <ORG> and on 8.7.1997, he was intimated of the fact of selection and approval by the <ORG>. In another case filed by Major General <NAME>, the Delhi High <ORG> passed a stay order in July, 1997. On 23.8.1997, respondent No.1 was put in-charge of GOI-1 <ORG> and started gaining experience of commanding the <ORG> and continues to command the same even now. Thus <NAME> submits that in terms of letter dated November 18, 1996, it is enough if the officer has commanded a <ORG> for one year by the date of appointment to the post of <ORG> Commander in the absence of waiver or including the period of waiver. The appointment to the post of <ORG> Commander having been made by an order dated 20.4.1998, as on that date respondent No.1 had actually commanded <ORG> 1 for a period of seven months and 26 days; adding the period of waiver of six months, it comes to a total of one year, one month and 26 days. In other words, he fulfilled the requirement of commanding a <ORG> for at least one year by February 22, 1998. Therefore, he was eligible for consideration for the post in question and that he was rightly treated as eligible both by the Chief of the <ORG> Staff as well as by the <ORG> of India. He relies on the decision of this <ORG> in <CITATION> , 2000 (1) SCC

128. The criterion that the officer should be fit in every respect for such appointment stipulated in the <ORG> letter dated October 20, 1986 clearly indicates that the post of <ORG> Commander is a non-selection post. In contrast, the nature of selection posts in the <ORG> should be gathered from the selection system.

The hierarchy in the <ORG> and the method of selection and promotion to various posts starting from the post of Lieutenant and going up to the post of the Chief of the <ORG> Staff will clearly indicate that the posts of Lieutenant, Captain and Major are automatic promotion posts on passing the promotion examination irrespective of inter se merit, whereas the posts from Major to Lt. Colonel, Lt. Colonel to Colonel, Colonel to Brigadier, Brigadier to Major General and Major General to Lt. General are all selection posts filled up by promotion on the basis of relative merit assessed by the designated selection boards. From Lt. General [Corps Commander] to <ORG> Commander is a non-selection post to which promotion is made subject to fitness. It is promotion subject to fitness in all respects, although the rank remains the same. From the post of <ORG> Commander to that of the Chief of the <ORG> Staff, it is by promotion for which no specific criteria have been laid down. There have been precedents where the senior-most <ORG> Commanders have not been appointed as the Chief of the <ORG> Staff. Selection implies the right of rejection depending upon the criteria prescribed. Selection for promotion is based on different criteria depending upon the nature of the post and requirements of the service. Such criteria fall into three categories, namely,

1. Seniority cum fitness,

2. Seniority cum merit,

3. Merit cum suitability with due regard to seniority.

Wherever fitness is stipulated as the basis of selection, it is regarded as a non-selection post to be filled on the basis of seniority subject to rejection of the unfit. Fitness means fitness in all respects. Seniority cum merit postulates the requirement of certain minimum merit or satisfying a benchmark previously fixed. Subject to fulfilling this requirement the promotion is based on seniority. There is no requirement of assessment of comparative merit both in the case of seniority cum fitness and seniority cum merit. Merit cum suitability with due regard to seniority as prescribed in the case of promotion to <ORG> necessarily involves assessment of comparative merit of all eligible candidates, and selecting the best out of them.

<NAME> insisted that the letter dated October 20, 1986 containing the criteria for selection laid down by the President for the <ORG> Commander does not prescribe any minimum merit. In fact the word merit is conspicuously absent from the entire letter and the criteria do not postulate the comparative assessment of merit for appointment as <ORG> Commander or Lt. Generals in the same rank.

<NAME> further contended that the use of the word selection in a rule or administrative instruction does not necessarily make the post concerned a selection as has been contended by the appellant. Nor the expression selection grade used by respondent No.1 here and there makes the post in question a selection post to be filled in by promotion on the basis of comparative assessment of merit. In addition to the absence of merit being one of the criteria for selection and promotion to the post of <ORG> Commander, the past practice as recorded by the Defence Minister and concurrently found by the courts below shows that the senior-most Lt. General who is found fit in all respects for promotion according to the C.Rs. has always been promoted.

<NAME> also submitted that circular dated 28/16.10.1992 of <ORG> to the extent it applies to the appointment of <ORG> Commanders and is at variance with the letter dated October 20, 1986 setting out the criteria laid down by the President for appointment of <ORG> Commanders cannot be acted upon. In so far as the said circular provides for appointment of Corps Commander as the caption of the circular indicates, there will be no conflict with the criteria laid down by the President for appointment to the post of <ORG> Commander. The absence of the word seniority in the letter of <ORG> dated October 20, 1986 does not exclude the right to prior consideration flowing from being the senior-most officer entitled to the considered in terms of Articles 14 and 16 of the Constitution. The expression fitness in all respects or merit or suitability is not synonymous. It was submitted on behalf of respondent No.1 that an <ORG> Commander having experience of operations during war and extensive counter insurgency may be more suitable for commanding the <ORG> rather than for an equivalent staff post at the <ORG> and vice versa and that even the highest post in any organisation need not be a selection post to be filled on the basis of comparative assessment of merit of eligible officers.

<NAME> further elaborated that the post of <ORG> Commander, even if it is assumed, is selection post to be filled up on the basis of comparative assessment of relative merit of officers, the field of choice cannot be restricted to two persons only and there were as many as nine Lt. Generals eligible for consideration having had a residual service of two years and put in at least one year as <ORG> Commander including respondent No.1 and respondent No.2. Admittedly seven out of nine officers were not considered. The criteria adopted by the appellants are not that of selection or assessment of relative suitability of officers. According to <NAME>, the expression relative suitability of the officer does not mean the comparative assessment of merit. It means suitability for the particular command or the particular staff appointment as the case may be and that suitability is related to the command in question or the staff appointment in question and there is no mention of any comparative assessment of merit even in that circular. Even that circular does not itself lay down the two senior eligible officers should be considered for each <ORG> Commanders vacancy. In refers to a pre- existing <ORG> requirement without mentioning any <ORG> letter or circular. No such document containing this requirement has been produced so far. The so-called assessment of merit of respondent Nos.1 and 2 in the instant case does not reveal all the facts or take into consideration all the necessary facts that are required to be taken note of. There are several factors available on record such as Annexures 1, 2 and 3 of his representation to the Attorney General and Annexure C to the written submissions which will clearly indicate that the <ORG> has not taken note of all the factors in making the appointment in question. <NAME> submitted that advisory remarks are not adverse remarks and they cannot be relied upon for denying the promotion to an officer declared fit for promotion in all respects for that very post and that the reports which are too stale and remote cannot be dug up to change the settled inter se merit of officers assessed by as many as five selection boards for successive promotions from the ranks of Major to the rank of Lt. General all of which are selection posts. Advisory remarks of the Reviewing Officer in the CR of respondent No.1 for 1971 were never communicated to respondent No.1 and, therefore, the same could not be relied upon against him. Another submission that has been made by <NAME> is that consent to go on deputation cannot take away the right to be considered for promotion and if selected for promotion and that the policy regarding willingness certificate cannot in any event hold good beyond the normal tenure of three years of officers sent on foreign assignments in public interest and if the post of <ORG> Commander is a non-selection post to which appointment has to be made on the basis of seniority subject to fitness in all respects and fulfillment of both these criteria having already been held in his favour by the Chief of the <ORG> Staff, <ORG> was justified in issuing the writ.

The matter put before this Court in the light of the arguments advanced on behalf of the parties and the pleadings raised or the findings recorded by <ORG>, we have to consider the same from five facets of the case:

[i] Whether the Army Commander holds a selection post or one which is based on seniority but the officer should be fit in every respect for such appointment and should have a minimum of two years before retirement from the date of appointment as Army Commander/VCOAS?

[ii] Whether the instructions given on October 16, 1992 are executive instructions not supportable in law which stipulate that an officer to be eligible to the post of Corps Commander should either be eligible to become an Army Commander or should have a minimum of four years residual service on the date he is promoted to the rank of Lt. General and should have commanded a Corps for at least one year?

[iii] What is the effect of the ACRs recorded by the Chief of the Army Staff?

[iv] What is the effect of waiver granted to Lt. General R.S. Kadyan when he was a Brigadier serving in the Embassy of France?

[v] Whether the Cabinet Secretary is justified in taking into consideration the service profiles of Lt. General <NAME> and Lt. General <NAME> in making his recommendations?

Several decisions have been cited before us on either side by the learned counsel appearing in this case but we are not adverting to the same since we are not in any way detracting from the principles stated therein nor are we enunciating any new principle. Moreover, we are deciding on the special features arising in this case.

On October 20, 1986 criteria of appointment of Army Commander was issued purported to be under the orders of the President of India and such criteria is as follows :-

(a) The officer should be fit in every respect for appointment; and

(b) The officer should have a minimum of two years left before the retirement age from the date of appointment as <ORG> Commander/VCOAS.

(c) This will be applicable w.e.f. 1.1.1988

(d) As a one time exception, the pay but not the status of an <ORG> Commander will be given to those General officers, presently holding the rank of Lt. Gen., who are otherwise found fit to hold the appointment but are not selected because of the revision in the criteria.

(e) The officer should have commanded a <ORG> for at least one year so as to become eligible for appointment as <ORG> Commander/VCOAS. No waiver in this stipulation will be allowed without prior concurrence of the Government. [added on November 18, 1996 pursuant to letter No. 19(24)/96/D(MS) issued by <ORG>, <ORG>.] (Emphasis supplied) On the basis of this letter the argument advanced before us is that the appointment to the post of <ORG> Commander is of selection and not a mere promotion on the basis of seniority. It is urged on behalf of <ORG> and Lt. General <NAME> is that the post of <ORG> Commander is a selection post and not a post merely based on seniority. While <NAME>, learned senior Advocate for the contesting respondents, submitted that what is required in this letter is only that a concerned officer should be fit in every respect and should have fulfilled the other requirements. Though diametrically opposite views are stated, on a careful reading of this letter it becomes clear that an officer should be fit in every respect for such appointment will not merely mean that he must be physically fit or mentally fit but in every other respect. In addition, in clause (d) above in the letter while making certain exceptions what was in the mind of the authority is made clear that an officer holding the rank of Lt. General who is otherwise fit but not selected because of the revision of criteria will be a clear indication that it is a selection and not a mere promotion on the basis of seniority. Further, the expression fit has been brought to our notice as legally meaning fit to be chosen by elaborating the expression eligible in Strouds Judicial Dictionary, 5th Edn. However, the expression fit, which has different shades of meanings, also means a person to be appointed shall be legally eligible and eligible has already been explained by us to mean fit to be chosen. Again, the expression select means chosen or picked up. Therefore, we are of the view that to the post of <ORG> Commander, selection has to take place. Of course, considering the nature of rigorous standards adopted in the matter of selection of officers from the stage of Lt. Colonel onwards upto the stage of Lt. General in the usual course it may be that the senior most officer is selected as the <ORG> Commander. But that does not debar the Chief of the <ORG> Staff or <ORG> in making the selection of any other person for good reasons who fulfills the necessary criteria. Therefore, we are of the opinion that it was improper on the part of <ORG> to have concluded that the post of <ORG> Commander is a non-selection post. Further, the conclusion reached by <ORG> that appointment to the post of <ORG> Commander has to be made on the basis of seniority alone cannot be accepted.

The next question, which we have to consider, is what is the nature of the executive instructions that have been given. Even if we accept the view taken by <ORG> that <ORG> communication in this regard merely amounted to an executive instruction and not supported by any orders made by the President of India or <ORG>, the learned Attorney General submitted that the other parameters that are clearly laid down in the letters of <ORG> should be strictly followed, that is, all officers who are likely to be eligible for an <ORG> Commander appointment in terms of two years residual service will have to be given command of a <ORG> and unless such officer has commanded the <ORG> for at least one year he cannot be considered for promotion. In the present case, respondent No.1 became a <ORG> Commander on September 24, 1997 and the vacancy in the post of <ORG> Commander arose on March 1, 1998 and thus he had not completed one year of experience as a <ORG> Commander and he had put in 5 months and 7 days experience and to this if we add the waiver granted by the Government in terms of 6 months, it will only be 11 months and 7 days experience. Even so, he falls outside the zone of consideration for being appointed as an <ORG> Commander. However, much argument was addressed on the effect of the recommendation made by the Chief of the <ORG> Staff and the order made by <ORG> in that regard. On November 6, 1998 the Chief of the <ORG> Staff recorded a note in the following terms :- In view of the above, I recommend that redress be granted to tbe Gen officer by way of granting 6 months AE waiver to him for consideration for promotion to the appointment of <ORG> Cdr/VCOAS for a vacancy occurring on 01 Mar 98.

The argument addressed is that the waiver granted by the Government is identical with the consideration of his case for appointment as <ORG> Commander inasmuch as waiver has been granted for the purpose of considering his case to the post of <ORG> Commander it is contended that his case should have been considered. We fail to appreciate this line of argument. The basis upon which <ORG> proceeded is that having taken all the issues into consideration the respondents have taken a stand totally contrary to the recommendations of the Chief of the <ORG> Staff as well as <ORG>. The absence of the concerned officer from India on an assignment in the Embassy of France, the waiver granted only for a period of six months and other various factors taken into account are also set out in the following terms :-

In view of the above detailed examination of the case, <ORG> is of the view that Lt. Gen <NAME>, VSM, be granted waiver of six months in tenure of <ORG> and considered for the appointment of <ORG> as the Gen Offr is not completing AE criteria due to :-

(a) Delayed repatriation from France resulting in -

(b) Delayed placement on criteria appointment in the rank of Maj Gen.

(c) Delayed consideration for promotion to the rank of Lt Gen and

(d) Revision of FIT grading to Deferred, which resulted in

(e) Further delay in consideration, approval and placement as <ORG>, and

(f) Application of new clause vide MOD letter of 18 Nov. 96, the provisions of which only exclude him in 1962 batch vis-à-vis his batchmates.

All the above events were beyond the control of the complainant and were basically caused by the administrative constraints of the organisation. Hence, the Gen Offr deserves the benefit of grant of waiver in terms of natural justice and equal rights, clause of the law.

But whatever may be the circumstances or the period for which he fell short the waiver granted is only for a period of 6 months. If that is so, respondent No.1 cannot be said to have completed the period of one year of experience as Corps Commander. Further, Lt. General <NAME> was considered by <ORG> and found fit on April 10, 1997 but he could not be promoted as Lt. General and appointed as Corps Commander because of stay order passed by <ORG> in the writ petition filed by Lt. General <NAME>. The said order was vacated and thereafter Lt. General <NAME> was promoted on September 24, 1997 and he functioned as <ORG> with effect from August 23, 1997 without any effect on promotion, pay or any related benefits till he was actually promoted on September 24, 1997. Lt. General <NAME> was appointed as <ORG> after the stay was vacated on September 24, 1997. Hence that period including the period of waiver falls short of the requisite period of two years.

On 5.10.97, respondent No.1 made a statutory complaint that his case should be considered on the basis of merit-cum-seniority subject to being found fit for promotion and ultimately prayed for the following :

(1) The decision to defer his case in connection with the selection board met on October 31, 1996 may be reviewed and if he is deemed to have been placed in command of a corps retrospectively from the date of declaration of the results of <ORG>.

(2) In the alternative, he prayed that the stipulation of commanding of a corps for minimum one year to become eligible for appointment as an <ORG> Commander under the letter dated November 18, 1996 may be waived in his case as the delay in his promotion seems to have been caused entirely in the interest of service.

The Chief of Army Staff recommended waiver of this stipulation contained in the letter dated November 18, 1996 limiting to a period of six months. Therefore, the conclusion of <ORG> that he became eligible to be considered to the higher post does not seem to be valid nor <ORG> was justified in proceeding on that basis. The conclusion of <ORG> to that extent is erroneous.

The ACR for the period 1.10.1997 to 31.1.1998 is to the effect that he considered him fit in every way to hold his present rank and also to the next higher rank. On this basis, it is contended that the Chief of the Army Staff having recommended his case in the ACR as fit for promotion could not alter the same subsequently and give a finding that such a recommendation in ACR will have a limited effect. The position in law is that appraisal report or an annual confidential report is not the sole factor to be considered by the selection authority but one of the matters to be taken note of by such authority. We may advert to two decisions of this Court in this regard, namely, <CITATION> , 1993 (Supp.) 4 SCC 441 and <CITATION> , 1996 (10) SCC 555. Therefore, we are of the view that heavy reliance placed by <ORG> on the ACRs to reach the conclusion otherwise is not justified. In deciding whether a post is a selection post or not, one of the criteria to be considered is if it involves a comparative assessment of officers necessarily the element of selection is involved and, therefore, the post with which we are concerned is indeed a selection post although not totally ignoring a senior.

In raising an argument that respondent No.1 being the senior-most officer in the cadre was being considered for the next higher post. The post in question being a selection post for purposes of promotion, the contention advanced is that all the eligible candidates in that cadre should have been considered and consideration of only two candidates, namely, the appellant in one of the cases and respondent No.1, alone could not meet the necessary criteria. This contention does not also hold water because no one else has made a complaint and the case of respondent No.1 has been duly considered. Thus the argument advanced by <NAME> on this aspect does not stand to reason.

Now we come to the last aspect of the matter, namely, the manner in which the <ORG> Secretary examined the service profiles of the two officers in question. For purposes of convenience, we may set out the relevant portion of the note:

Lt. Gen. <NAME> He was commissioned in the Rajputana rifles regiment of the <ORG> in June, 1962 and has held various <ORG>, Staff and Instructional appointments. He picked up the rank of Lt. Gen. On 24th September, 1997 and started functioning as regular Corps <ORG>er. The General Officer has a balance exposure in <ORG>, Staff and Instructional appointments. However, his staff experience in senior ranks from Brig. onwards is only limited to that of Military Attachee. He has no experience of working in Northern <ORG> and <ORG>. Since 1980 he has worked for about 4 years in field areas. It also appears from his records that he did not participate in 1962, 1965 operations. In his report of 1971, when he participates in the operations, there are some advisory remarks both by the IO and RO as below:-

should be bold and aggressive in operation . Should lead his mean personally to difficult objectives. (Remarks by <NAME>).

.. his performance as a Rifle Coy Commander in the recent operations has been satisfactory though not upto the expected level. (Remarks by RO).

The overall profile of the officer, especially in senior ranks has been clearly above average. All the reporting officers gave him above average ratings with sprinkling of outstanding ratings.

As regards CI operations, the officer has handled the same as <ORG>, <ORG>, but he has not had experience of commanding a regular <ORG> Division. His experience as Corps Commander is also limited. He is a graduate of <ORG> and has also done higher command courses. He is recipient of Chiefs Commendation, VSM and AVSM. He is medical category SHAPE- 1.

Lt. Gen <NAME>: - He was commissioner in <ORG> in June, 1962. He became Lt. Gen in Feb, 1996 and since then he is commanding <ORG> the Eastern Sector. The general officer has rich experience in <ORG> and Staff appointments. He has worked both in Eastern and Northern <ORG>s including high altitude areas. Since 1982 he has worked for about 4 years in remote field areas in the Eastern Sector, especially the border areas with China. He has also held important staff assignments in Military Operations, Infantry and Staff Duties, Directorates in <ORG>. His instructional experience is however limited to junior ranks only and he has practically no experience of CI operations.

The officer did not participate in 1962 and 1965 operations. His report of 1971, the year in which operations took place is quite laudatory. The overall profile of the officer, especially in senior ranks has been clearly above average. All reporting officers have given him above average ratings with sprinklings of outstanding ratings. He is a graduate of <ORG> and has also done Senior Commands and NDS Courses. He is also a recipient of AVSM. He is medical category SHAPE-1.

The contention put forth before us is that there are factual inaccuracies in the statement recorded by the Cabinet Secretary in his note and, therefore, must be deemed to be vitiated so as to reach a conclusion that the decision of the <ORG> in this regard is not based on proper material. The learned Attorney General, therefore, took great pains to bring the entire records relating to the relevant period which was considered by the Cabinet Secretary and sought to point out that there were notings available on those files which justify these remarks. Prima facie, we cannot say, having gone through those records, that these notings are baseless. Critical analysis or appraisal of the file by the <ORG> may neither be conducive to the interests of the officers concerned or for the morale of the entire force. May be one may emphasize one aspect rather than the other but in the appraisal of the total profile, the entire service profile has been taken care of by the authorities concerned and we cannot substitute our view to that of the authorities. It is a well-known principle of administrative law that when relevant considerations have been taken note of and irrelevant aspects have been eschewed from consideration and that no relevant aspect has been ignored and the administrative decisions has nexus to the facts on record, the same cannot be attacked on merits. Judicial review is permissible only to the extent of finding whether process in reaching decision has been observed correctly and not the decision as such. In that view of the matter, we think there is no justification for the High <ORG> to have interfered with the order made by the <ORG>.

Before parting with the case we need to observe that considering the nature of the sensitivity of the posts involved and that each of the officer feeling that he did not get the best of the deal at the hands of the <ORG> or that the members of the force being aware who is the best is not heading them will certainly weaken the esteem and morale of the force. Therefore, the standards to be adopted and applied should be of the highest order so as to avoid such an impression in the force.

In the result, we allow the appeals filed by <ORG> and Lt. Gen. <NAME> and set aside the orders made by <ORG> and dismiss the writ petition filed by respondent No.1.


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.