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The main issue, referred to as "central issue", in that case was "whether the value of an article for the purposes of the excise levy must be determined by reference exclusively to the manufacturing cost and the manufacturing profit of the manufacturer or should be represented by the entire wholesale charged by the manufacture." This question arose in the context of the fact that "the wholesale price actually charged by the manufacturer consists of not merely his manufacturing cost and his manufacturing profit but includes, in addition, a whole range of expenses and an element of profit (conveniently referred to as "post-manufacturing expenses" and "post-manufacturing profit") arising between the completion of the manufacturing process and the point of sale by the manufacturer."

The contention of Sri N.A. Palkhivala, learned counsel for the assessees was that the duty of excise has three essential characterstics, viz., (1) it is a tax on manufacture or production and not on any thing else; (ii) uniformity of incidence is a basic characterstic of the duty of excise; and

(iii) exclusion of post manufacturing expenses and post-manufacturing profits is necessarily involved in the first principle and helps to achieve the second. On the other hand, the contention of Sri K. Parasaran, learned Solicitor General/Attorney General of India, who appeared for the Union of India, was that "the value of. an excisable article for the purposes of the levy must be taken at the price charged by the manufacturer on a wholesale transaction, the computation being made strictly in terms of the express provisions of the statute.....(and that) there is no warrant for confining the value to the assessee's manufacturing cost plus manufacturing profit". According to him, "though the duty of excise is a levy on the manufacture of goods, it was open to Parliament to adopt any basis for determining the value of an excisable article, that the measure for assessing the levy need not correspond completely to the nature of the levy and (that) no fault can be found with the measure so long as it bears a nexus with the charge."

(c) The contention that the duty of excise can be and must be levied only on manufacturing cost and manufacturing profit is unacceptable. "In both the old Section 4 and the new Section 4, the price charged by the manufacturer on a sale by him represents the measure. Price and sale are related concept and price has a definite connotation. The 'value' of the excisable article has to be computed with reference to the price charged by the manufacturer, the computation being made in accordance with the terms of Section 4."
having set out the several deductions which were in issue before them, Pathak, J. proceeded to deal with them. Inasmuch as Sri Nariman says that the said observations have to be understood in the light of and in the context of certain preceding observations, we set out the relevant paragraph along with the preceding paragraph :
"At the outset, we must make it clear that the contentions in this regard on behalf of the assessees proceeds on two broad bases. The first is that to determine the value of an excisable article, all expenses must be excluded which do not enter into the formula of manufacturing cost plus manufacturing profit. This follows from the principal plank of the assessees' case that the "value" must be confined to the manufacturing cost, and the manufacturing profit. For, it is said, that if the deductions claimed are allowed, the price would be brought down to the conceptual value. All post manufacturing expenses are claimed from that perspective and within that context. The other basis on which the claim proceeds, is that the price at the factory gate and the price at a depot outside the factory gate are identical.