1988 (1) TMI 135 - AT - Central Excise

Summary

Issues Involved:
1. Whether Ratna was a 'related person' of Prabhat under Section 4(4)(c) of the Central Excises and Salt Act, 1944.
2. Whether Ratna was a consignment agent of Prabhat working on a commission agency basis.
3. Deductions from Ratna's sale price to their dealers, specifically equalised freight and additional packing costs.

Issue-wise Detailed Analysis:

1. Whether Ratna was a 'related person' of Prabhat under Section 4(4)(c) of the Central Excises and Salt Act, 1944:
The primary issue was to determine if Ratna was a 'related person' of Prabhat under Section 4(4)(c). The legislative provision defines 'related persons' as those having mutual interest, directly or indirectly, in each other's business, including relatives and distributors. The department contended that Ratna was a 'related person' due to mutuality of interest, as 7 out of 11 partners of Ratna were related to 8 out of 9 partners of Prabhat. The appellants argued against this, claiming that Ratna's price should be considered at arm's length. However, the Tribunal noted the overwhelming inter-relationship among the partners of both firms, establishing mutuality of interest. The Tribunal referenced the Supreme Court judgments in Atic Industries Ltd. and Bombay Tyres International Ltd., emphasizing that mutual interest, whether direct or indirect, suffices to establish a 'related person' status. The Tribunal concluded that Ratna was a 'related person' under both parts of Section 4(4)(c).

2. Whether Ratna was a consignment agent of Prabhat working on a commission agency basis:
The Tribunal also examined whether Ratna acted as a consignment agent on a commission basis. The department argued that if Ratna was a consignment agent, the commission paid to Ratna would not be deductible from the assessable value, as per the Supreme Court judgment in Coromandel Fertilisers Ltd. The Tribunal found that the relationship between Prabhat and Ratna included features typical of a consignment agent, such as Ratna bearing significant expenses for publicity and sales promotion of Prabhat's products. The Tribunal noted that the agreements between the two firms indicated that Ratna functioned as an extended arm of Prabhat, further supporting the consignment agent argument. Consequently, the Tribunal held that Ratna was indeed a consignment agent, and the commission paid to Ratna was not admissible for deduction from the assessable value.

3. Deductions from Ratna's sale price to their dealers:
The appellants sought deductions for equalised freight and additional packing costs from Ratna's sale price to their dealers. The department's representative did not object to the deduction of equalised freight, provided the amounts were verified by the Assistant Collector. Regarding additional packing costs, the Tribunal agreed to remand the matter to the Assistant Collector for verification, as the facts were not clear. The Tribunal directed that if it was established that Ratna had performed additional packing or repacking over and above Prabhat's factory packing, the cost of such additional packing would not be included in the assessable value. Similarly, the cost of equalised freight would also be excluded.

Conclusion:
The Tribunal upheld the department's orders, confirming that Ratna was a 'related person' and a consignment agent of Prabhat. The appeal was dismissed, except for the modifications regarding the deductions for equalised freight and additional packing costs, which were remanded to the Assistant Collector for verification and decision.