The wholesale price at factory gate is the normal price for determining the assessable value of excisable goods, even if the bulk of the products are sold to a related person at a higher price.

The petitioner is a public limited company with its registered office situated in Bombay. Under a technical collaboration agreement with Messrs Witco Chemicals Corporation, U.S.A., the petitioner is engaged in the manufacture of petro-chemical products at its factory at Manali, Madras. The products of surphonates manufactured by the petitioner are excisable goods and they fall under Tariff Item No. 15-AA of the First Schedule to the Central Excises and Salt Act 1 of 1944 (hereinafter referred to as the Act). According to the petitioner, there is not much demand for sulphonates at Madras, though the petitioner has a wholesale price at factory gate and there are instances of sales at wholesale rates at the factory gates at Manali. On the other hand, the petitioner's products are in great demand at Bombay where about 80 per cent of the total production of the products are sold. Messrs Sikri and Grover are the main buyers for sale of the products of the petitioner, at Bombay. Sikri and Grover, who have selling branches at Bombay, Calcutta, New Delhi and Madras, sell the petitioner's products to dealers, manufacturers and public sector undertakings. There is no discrimination in the prices at which the petitioner's products are sold to Sikri and Grover when compared with the prices at which they are sold to wholesale buyers. But, of necessity, the petitioner has to include post manufacturing expenses such as cost of transportation, insurance, packing, octroi, sales tax and overheads of branches, in the price at which the products are sold to Sikri and Grover. If the sales are effected on deferred terms, the selling price also carries a premium of interest. On account of this, whenever Sikri and Grover sell the products to dealers, manufacturers etc., their price will include excise duty, octroi, sales tax, packing and forwarding charges etc., included in their purchase price.

2.The petitioner company does not have bonded warehouses in different parts of the country. Therefore, excise duty is paid at the gate of the factory. The payment of excise duty will have therefore, to be on the basis of the wholesale price at factory gate, and not at the price at which the products are sold to Sikri and Grover at Bombay, even though more than 75 per cent of the petitioner's products are sold to Sikri and Grover, because the sales rate at Bombay comprehends within itself post-manufacturing expenses also.

3.Section 3 of the Act provides for levy of excise duty to all excisable goods which are produced or manufactured in India at the rates contained in the First Schedule to the Act. Section 4 of the Act, as it originally stood, provided for determination of value for the purpose of levy of excise duty on the following basis -

(a) 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 removal of the article, from the factory or other premises for delivery at the place of manufacture or production, or

(a)(i) if a wholesale market does not exist for such article, at such price, at the nearest place where such market exist, or

(b) where such price is not ascertainable, the price at which an article of the like kind or quality is sold or is capable of being sold by the manufacturer or producer, at the time of removal of the article, from such factory or other premises, for delivery at the place of manufacture or production, or

(c)(i) if such article is not sold at such place, at any other place nearest thereto. Section 4 contained an explanation which laid down that in determining the price of any article under the 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 from the factory.

4.Section 4 was amended by the Central Excises and Salt (Amendment) Act, 1973, dated 19th May 1973, and the new section came into force with effect from 1st October, 1975. The amended section