JUDGMENT

BHAGWATI, J. (as he then was).—This appeal by certificate is directed against a judgment of a division bench of the High Court of Andhra Pradesh upholding a notice issued by the Assistant Collector of Central Excise, Nellore demanding a sum of Rs 6,96,177-09 representing the amount of differential duty in respect of mopeds manufactured by the appellants and cleared from their factory during the period from October 1, 1975 up to April 30, 1979. The facts giving rise to the present appeal are few and may be briefly stated as follows :

2. The appellants manufacture mopeds under the brand names of Suvega Standard, Suvega Deluxe and Suvega Samrat. These mopeds manufactured by the appellants are liable to excise duty under the Central Excises and Salt Act, 1944, (hereinafter referred to as the Act). The appellants have 179 dealers all over the country to whom 98% of the mopeds manufactured by them are sold. Not more than 2% of the mopeds are delivered at the factory gate ; the bulk of the mopeds representing about 80% of the manufacture are delivered to the various dealers at the depots maintained by the appellants. The appellants have entered into agreements with the dealers in connection with the sale of the mopeds manufactured by them and these agreements are substantially in the same terms and it will, therefore, be sufficient if we refer to a specimen agreement for the purpose of ascertaining the terms and conditions on which the mopeds are supplied by the appellants to the dealers. Clause 2(a) of the agreement provides that the dealer shall keep a deposit of Rs 6,000 with the appellants as a guarantee for due fulfilment of the agreement and this deposit will carry simple interest at the rate of 44% per annum and Clause 2(b) declares inter alia that upon termination of the agreement, the balance of the deposit if any, after deducting all amounts due to the appellants shall be returned to the dealer with interest. Clause 3 (a) of the agreement is material since considerable reliance has been placed upon it on behalf of the Department. It reads as follows :

The Dealer will get a commission of Rs 110 (Rupees one hundred and ten only) for Suvega moped and Rs 145 (Rupees one hundred and forty-five only) for Suvega moped fitted with shock absorber which will be introduced shortly.

The appellants are entitled to change prices from time to time as per Clause 4 of the agreement and that clause proceeds to add that the appellants shall not be bound to execute the order pending execution with the dealer at the old rate and will be entitled to change the price ruling on the date on which the moped leaves the factory or stockyard of the appellants. Clauses 5 and 6 are material for the purpose of determination of the controversy between the parties and they read as follows :

5(a) Unless otherwise agreed specifically to all deliveries to the dealer shall be ex-factory in unpacked condition and the bills/RR/LB/PWB shall be sent through their bankers and all bank charges thereon shall be borne by the dealer. In case the dealer does not honour the bills sent through bank immediately on presentation by bankers, the dealer shall be liable to the company for all damages/losses and expenses incurred in this connection and the same will be recovered from the deposit lying with the company.

(b) The despatches by the company will be insured by the dealer against all risks, pilferage, non-delivery and SRCC including breakage, wherever applicable from the time of leaving of the companys factory or stockyard until arrival at dealers premises, and all such expenditure incidental to transit shall be to the account of the dealer.

6. The dealer shall at his own expenditure maintain such organisation for the sale and service of the said vehicles, including showrooms, service stations, repair shops, parts, storerooms, salesmen, etc. The dealer shall train mechanics at their own cost with the company. The dealer shall give three free services to every vehicle