P L D 1961 Supreme Court 66 (PLP)

Date of hearing : 21st November 1960. B. Z. KAIKAUS, J.-This appeal, by special leave, filed by the Pakistan Government raises a question relating to the basis on which excise duty is to be assessed on cigarettes manufactured by the respondents, the Popular Tobacco Co. According to section 3 of the Central Excises and Salt Act, 1944, excise duty is to be paid on all excisable goods and cigarettes are included among excisable goods. In accordance with the annual Finance Act excise duty is to be assessed on the value of the cigarettes and this value has to be calculated in accordance with section 4 of the Central Excises and Salt Act which runs. "Where under this Act any article is chargeable with duty at a rate dependent on the value of the articles, such value shall be deemed to be the wholesale cash price for which an article of the like kind and quality is sold or is capable of being sold for delivery at the place of manufacture and at the time of its removal therefrom, without any abatement or deduction whatever except trade discount and the amount of duty then payable." It will be observed that in accordance with this section the value for the purpose of assessment is the wholesale cash price for which the goods are sold for delivery at the place of manufacture at the time of their removal therefrom less any trade discount. In order to appreciate the point of dispute it is necessary to state the procedure adopted by the respondents for the sale of their goods to the consumer. The respondents sell their cigarettes for a cash price to distributors. Distributors in their turn sell them to wholesale dealers and wholesale dealers pass them on to the market. From the cash price which the distributor is to pay when he receives goods from the factory there is deducted a discount, part of which the distributor retains for himself, the other part being intended for the wholesale dealer to whom he sells the goods. For instance, in the case of the brand known as the `Forest King' the distributor is allowed a total discount of annas 13 per thousand out of which he has to retain annas 8 for himself and to allow annas 5 to the dealers. The respondents had since the time they were manufacturing cigarettes been assessed on the basis of the amount which they actually receive from the distributors, that is, the price fixed by them less the discount allowed, but on the first of April 1957, the Inspector of Central Excise directed them to include the discount in the amount on the basis of which excise duty was assessed and also to pay arrears of excise duty from the 1st of October 1956, on the same basis. The respondents refused to comply with the demand. As a result the respondents filed a writ petition in the High Court of West Pakistan, Karachi Bench. Prima facie, the original basis of assessment i.e., the price paid by the distributor less the discount, was correct, and the appellant was called upon to state the reasons why a demand was made to include the discount in the amount on which duty was to be assessed. The plea taken on behalf of the appellant was that the distributor was a privileged person and an agent of the respondent and therefore, the discount allowed to him was not the trade discount contemplated by section 4 of the Central Excises and Salt Act, 1944. In the alternative, it was contended that only that part of the discount should be deducted which was intended for the wholesale dealer. The learned Judges of the High Court were unable to accept that the distributor was a privileged person or an agent and, accordingly, they issued a writ as prayed for. In the argument before us the contention that the distributor was a privileged person or an agent has been dropped and properly so. The expression `privileged person' appears neither in the Central Excises and Salt Act, 1944, nor in any other relevant legislation or commentary, and it is not understood why it was employed. There are no materials on the record to justify the finding that the distributors were the agents of the respondents. The first contention put forward by the learned Attorney-General is that the distributor is not a wholesale dealer and the deduction permitted by section 4 is only the trade discount intended for such dealer. Now, in the first place, section 4 does not speak of the dealer but only of the wholesale cash price, and it cannot be denied that the distributor- purchases. goods wholesale and pays a cash price. It is in fact provided in the agreement between the respondents and distributors which has been placed on the record by the appellant that the distributor received delivery of goods only on the payment of the full cash price less the trade discount, but it is not even correct to say that the distributor is not a wholesale dealer. He purchases the goods wholesale and in accordance with the allegations of the appellant itself sells goods wholesale to the wholesale dealers. The mere fact that he is called distributor cannot exclude him from the category of wholesale dealers. At the same time, if section 4 were to apply only to the sale made to the wholesale dealer and the distributor be not a wholesale dealer the result would be that the excise duty would not be payable in this case at all, because it is only at the point when the goods leave the factory that the tax is to be assessed. Any subsequent transaction is not liable to excise duty, and therefore it would not be possible to levy duty on the basis of the transaction between the distributor and the wholesale dealer. The alternative contention put forward is that only that part of the discount should be allowed which is intended for the wholesale dealer, but this contention too is not supported by any sound argument. There is no good ground for a distinction between the part of the discount which is retained by the distributor himself and that part which is to go to the wholesale dealer. It is obvious that the whole discount is a trade discount. All that is urged is that the trade discount which is intended for the wholesale dealer alone should be deducted, but this point is really included in the contention dealt with in the preceding paragraph. The last contention of the learned Attorney-General is that the sale to the distributor is only a colourable transaction. Now if this contention was true on facts the appellant would have a case. If the apparent sale in favour of the distributor was only a fraud so that the property in the goods never passed to the distributor and the intention of this fictitious transaction was only the partial evasion of excise duty, the transaction would have to be ignored. But there are no materials at all on the record for holding that the transaction is only colourable. All that the learned Attorney-General is able to say is that some of the distributors are related to those who are in charge of the business of the respondents. That fact is by itself too slender a foundation on which any argument may be based. The distributors do pay money in cash to the respondents before they take delivery of the goods and it is only on the basis of some strong evidence that the transaction could be held to be fraudulent and the record lacks any such evidence. The real reason for the action taken by the excise authorities appears to be that they regard the introduction of the distributor between the manufacturer and the wholesale dealer as unnecessary and one which would affect the amount of excise duty which has to be realized. But for the purpose of assessment of duty it is not material whether their introduction was necessary. At the same time, it does not appear to us to be correct that the introduction does affect the excise duty. If the manufacturers were to sell direct to the wholesale dealer there does not appear any reason why they should not sell at the same price which they charge from the distributor. The intention of the law is that excise duty should be paid by the manufacturers on the amount which they actually receive and it is on such amount that excise duty was being originally levied. In , agreement with the learned Judges of the High Court we find that the demand for additional duty made by the Excise Department was unjustified and we dismiss this appeal with costs. K. s. A. ?????????? Appeal dismissed.