1985 (2) TMI 42 - SC - Central Excise

Whether the dealers are related persons ? Whether the commission of Rs. 110/- Rs. 145/- and Rs. 145/- allowed in respect of different varieties of mopeds to the dealers could be regarded as a trade discount or not? Held that - The dealers were wholesale buyers of the mopeds manufactured by the appellants and since the transactions between them were on principal to principal basis it is difficult to appreciate how the appellants could possibly be said to have any interest direct or indirect in the business of the dealers. The dealers could not therefore be said to be related persons vis-a-vis the appellants. The relationship between the appellants and the dealers was clearly on principal to principal basis and in the circumstances it is difficult to see how the amount of Rs. 110/- 145/- and 165/- allowed to the dealers in respect of different varieties of mopeds could be regarded as anything other than trade discount. The appellants charged to the dealers the price of the mopeds sold to them less the amount of Rs. 110/- Rs. 145/- and Rs. 165/-in respect of different varieties of mopeds. These amounts allowed to the dealers were clearly trade discount liable to be deducted from the price charged to the dealers for the purpose of arriving at the excisable value of the mopeds. Appeal allowed of assessee.

Summary

Issues Involved:

1. Whether the dealers were "related persons" vis-a-vis the appellants.
2. Whether the commission allowed to the dealers could be regarded as trade discount.

Issue-wise Detailed Analysis:

1. Whether the dealers were "related persons" vis-a-vis the appellants:

The appellants contended that there was no evidence to show that the dealers were related persons vis-a-vis the appellants. The concept of "related persons" was introduced in the Act by the Amending Act 22 of 1973, defined in clause (c) of sub-section (4) of Section 4. This definition was considered in the Union of India v. Bombay Tyre International Ltd., where it was held that the term "related person" is limited to a distributor who is a relative of the assessee within the meaning of the Companies Act, 1956. The appellants argued that the dealers were not relatives of the appellants within this meaning. The Department argued that the dealers were related persons as they were so associated with the appellants that they had an interest, directly or indirectly, in the business of each other. This part of the definition was considered in Union of India v. Atic Industries Ltd., where it was stated that both the assessee and the alleged related person must have an interest in the business of each other. The Court found that the appellants sold mopeds to the dealers on a principal-to-principal basis, and thus, neither party had an interest in the business of the other. Therefore, the dealers could not be considered related persons vis-a-vis the appellants. The Division Bench of the High Court erred in holding that the dealers were related persons. Consequently, the excise duty on the mopeds was to be determined based on the wholesale price charged by the appellants to the dealers.

2. Whether the commission allowed to the dealers could be regarded as trade discount:

The Division Bench of the High Court concluded that the commission of Rs. 110/-, Rs. 145/-, and Rs. 165/- per moped for different varieties could not be regarded as trade discount. Mr. Nariman, representing the appellants, argued that this commission was indeed a trade discount and should be deducted in determining the excisable value of the mopeds under sub-section (b)(ii) of Section 4 of the Act. The agreement between the appellants and the dealers was on a principal-to-principal basis, and the terms of the agreement supported this. Clauses 5(a) and 5(b) indicated that the dealers bore the responsibility for retiring bills and insuring the mopeds from the factory to their premises. Clause 6 required the dealers to maintain an organization for sale and service, including showrooms and service stations, at their own cost. The Court found that the relationship between the appellants and the dealers was clearly on a principal-to-principal basis. Therefore, the amounts of Rs. 110/-, Rs. 145/-, and Rs. 165/- allowed to the dealers were trade discounts and should be deducted from the price charged to the dealers to determine the excisable value of the mopeds.

Conclusion:

The Supreme Court allowed the appeal, set aside the judgment of the Division Bench of the High Court, and quashed the notice dated 15-5-1979 issued by the Assistant Collector of Central Excise and the order dated 25-9-1979 made in pursuance of that notice. Any payments made by the appellants under the order dated 25-9-1979 were to be refunded by the respondents within three months from the date of receipt of this order. The Bank Guarantee given by the appellants was to be discharged. There was no order as to costs.