TMI Blog1988 (12) TMI 256X X X X Extracts X X X X X X X X Extracts X X X X ..... e context of new Section 4. 2. The facts regarding manufacturing activity, sales pattern are the same in all the cases. Briefly stated, the facts are that the appellants are manufacturer of Data Processing Machines (Computers) in their factories at Bangalore and Pune and sell their production to M/s. International Computers India Ltd. (buying firm). At the relevant time, they had an agreement with the buying firm and sold all their machines to them in terms of this agreement. The appellants were despatching the machines on the instructions of the buying firm to various customers and the invoices for the goods to the customers were raised by the buying firm. The price shown in the gate passes and other excise documents was price which the appellants were charging the buying firm and which was lower than the price charged by the buying firm. Some of the sales effected were on outright basis to the ultimate customers while other were on lease basis. In respect of the sales made on lease basis, the Central Excise authorities worked out the assessable value based on the life of the machine, lease charges, etc. In regard to the machines sold on outright sales basis, the Revenue has hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r through a related person, the normal price of the goods sold by the assessee to or through such related person shall be deemed to be the price at which they are ordinarily sold by the related person in the course of wholesale trade at the time of removal, to dealers (not being related persons) or where such goods are not sold to such dealers, to dealers (being related persons) who sell such goods in retail; (2) Where, in relation to any excisable goods the price thereof for delivery at the place of removal is not known and the value thereof is determined with reference to the price for delivery at a place other than the place of removal, the cost of transportation from the place of removal to the place of delivery shall be excluded from such price. (4)(c) related person means a person who is so associated with the assessee that they have interest, directly or indirectly, in the business of each other and includes a holding company, a subsidiary company, a relative and a distributor of the assessee, and any sub-distributor of such distributor. Explanation. - In this clause holding company , subsidiary company and relative have the same meanings as in the Companies Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessable value. The Appellate Collector negatived the appellants pleas that (i) the sales made by them to ICIL were on principle to principle basis (ii) the two firms had no interest in the business of each other (iii) no extra commercial consideration was involved in the sale of goods and that price was the sole consideration of sale and (iv) that they did not fall within the mischief of the definition of related person as defined in Section 4 of the Central Excises and Salt Act. The Collector (A) held that in view of the fact that the appellants sold the full production only to ICIL, M/s. ICIL were, therefore, distributor of the appellants and hence were a related person for the purpose of Section 4. He also disallowed any deductions from the sale price at which ICIL sold the goods to the ultimate customers. In regard to the goods sold on lease basis, he has also held that the distinction between the machines sold on outright sale basis and lease basis has been correctly drawn by the lower authorities. 7. The points which arise for consideration in all these appeals are : (1) Whether in terms of new Section 4, M/s. ICIM and ICIL are related persons by virtue of being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preme Court on the point at issue. 10. We observe that the position in regard to the modalities of the sales, various factors involved for ruling as to whether the ICIL ICIM were related persons or not, have been dealt with at length in some of the appeals before us. The learned advocate was asked to proceed with his pleas in this regard. The learned advocate pleaded that so far as ICIM ICIL are concerned, both are subsidiaries of the UK firm and UK firm was the holding company. He pleaded that neither of the two companies held any share of the other company and so far as these two companies were concerned, they had no connection other than that of a seller and buyer of goods on principal to principal basis. He conceded, no doubt, that for some time, there was a common Managing Director also and there were also common directors between the two companies. This he pleaded, did not detract from the fact that the two are separate juridical entities. He pleaded that in terms of the Hon ble Supreme Court judgment in the case of Bombay Tyres International [1983 (14) E.L.T. 1896 (S.C.)] and also the judgment in the case of Atic [1984 (17) E.L.T. 323 (S.C.)], unless it can be shown th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He pleaded no doubt, the law as it stands now settled by the Hon ble Supreme Court the buying Company M/s. ICIL who has been held as the distributor by the lower authorities, cannot be considered as a related person of the appellants by reason of being or distributor. He however, pleaded that in terms of the main definition of the term related person , they are so associated, that they have got interest in the business of each other by virtue of the ICIM ICIL being the subsidiaries of the same UK firm. He pleaded that all aspects of sales transactions were not examined by the lower authorities. He stated that it has to be gone into as to whether the price was the sole consideration of sale between the two companies and this he pleaded, was not examined by the lower authority as the Appellate Collector had after holding the appellants buyers ICIL as related persons based on the law as it was understood them by virtue of being a distributor, without going into any other aspects. He ordered the assessment at the price at which M/s. ICIL sold the goods to ultimate customers. He pleaded that inasmuch as the lower authority did not go into the other aspects, the examination of the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be treated as normal commercial transactions at arms length. 15. It was pleaded that there was interest direct or indirect between the buyer and seller and they were related persons in terms of sale. His plea is that through the holding company M/s. ICIL ICIM functioning as they do through one person, they can be taken to be having interest in the business of each other. The advocate for the appellants in reply conceded that while it can be said that two parties were close to each other, they could not be treated as related persons in terms of new Section 4 or even in terms of old Section 4. He pleaded that the sales were at arms length. It cannot be said that the lower authorities have established in law based on the facts of this case that in fact the relationship between ICIL ICIM was such that the price at which the appellants sold the goods could not be accepted under Section 4. He pleaded that the judgments of the Supreme Court in the case of Bombay Tyres International and Atic judgment cited by him, rule out any inference attempted to be drawn by the Revenue. He pleaded that merely for the reason that ICIL ICIM were subsidiaries of the UK firm did not make them rela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vice charges recovered by ECIL per set from customers flowed back to them and, therefore, this cannot be in addition to their price which is a price charged by them independent of any consideration except market price charged by them independent of any consideration except market consideration. It is a principal to principal sale. The learned counsel read the order in original of the Assistant Collector and said that he based his decision on his understanding of the two persons being related. He then read the order in appeal; this he said is not a case that is covered by the Supreme Court judgment in Bombay Tyre International case 1983 E.L.T. 1890. He then proceeded to read Notification 96/80-CE., dated 19-6-1980 amended by Notification No. 144/80-C.E. He said that the Supreme Court judgment in Cibatul 1985 (22) E.L.T. 302 covered his case completely and he did not have to say much more. We will examine the judgment of the Hon ble Supreme Court in Cibatul case 1985 (22) E.L.T. 303 quoted by the learned counsel for M/s. Television Factory, according to which, they say the value of their goods should be assessed at the price at which they sell the goods to ECIL and that nothing s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... graph 6 of the CIBATUL judgment, could sell the goods to others or even destroy them if they are not accepted. Apparently the goods did not belong to the buyer and, therefore, the seller could, if the buyer did not take them, sell them or destroy them. For this reasons, the court said that the seller cannot be said to manufacture the goods on behalf of the buyer M/s. Television Factory cannot sell the goods to other buyers. These goods bear the ECIL brand and can be sold only to ECIL. Whatever the TV receivers manufactured and sold to this parties, they were receivers not covered by the agreement with ECIL. But in respect of the receivers made under the agreement with ECIL. But in respect of the receivers made under the agreement, the appellants had nothing but a very limited freedom of action, one not to be compared with the freedom enjoyed by Cibatul. It is clear, therefore, that M/s. Television Factory, the appellants, made the goods on behalf of ECIL. From this we say that the price declared by M/s. Television Factory, a price agreed upon between them and ECIL, is not an acceptable price under Section 4 of the Customs Act, and that the only acceptable price for assessment i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsidiary of the parent company, the agreement would stand terminated. He also pleaded that the buying company was having a separate agreement with their customers so far as the warranty and maintenance of the equipment was concerned, and pleaded that in fact no warranty element was involved in the matter of sales. He pleaded having common Managing Director as earlier mentioned did not taint the transaction for being considered as coming under the provision of Section 4. 1(a) proviso (3) as held by the Tribunal in their case of Mafatlal Fine Spg. Mfg. Co. Ltd. v. Collector of Central Excise, Bombay [1985 (21) E.L.T. 474]. He also pleaded the decision of the Tribunal in the case of M/s. Television Factory, Solan v. Collector of Central Excise, Chandigarh [1986 (26) E.L.T. 317] was not relevant as the agreement between the two parties in that case and the agreement between the two parties in the appellants case were quite different and no correspondence has been drawn by the Revenue in this regard. 18. He pleaded that it was open to the Department to investigate that the goods were sold at favourable price in view of the agreements and with the 100% sales of the appellants goods s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the value thereof is determined with reference to the wholesale price for delivery at a place other than the place of removal, the cost of transportation from the place of removal to the place of delivery should be excluded from such price; (iv) Of course, these principles cannot apply where the tariff value has been fixed in respect of any excisable goods under sub-section (2) of Section 3. (v) On a proper interpretation of the definition of related person in sub-section (4)(e) of Section 4, the words a relative and a distributor of the assessee do not refer to any distributor but they are limited only to a distributor who is a relative of the assessee within the meaning of the Companies Act, 1956. So read, the definition of related person is unduly wide and does not suffer from any constitutional infirmity. It is within the legislative competence of Parliament. It is only when an assessee so arranges that the goods are generally not sold by him in the course of wholesale trade except to or through such a related person that the price at which the goods are ordinarily sold by the related person in the course of wholesale trade at the time of removal of dealers (not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C.)] have examined the issue in the context of sales by a subsidiary of the company to the sole distributor of the holding company and have observed as under :- The Tribunal held that the distributors were not related persons and in the light of the observations of this Court Atic Industries case (supra) set out hereinbefore. We are of the opinion that what was necessary to find out, was whether the buyer is holding company or subsidiary company or relative of the manufacturer. From the explanation of the relationship furnished in this case, such is not the position. It appears that the link between the respondents T.I. Miller Ltd. Company and T.I. M. Sales Ltd., is the main distributors of M/s. Tube Investments of India Ltd., who are the holding company of the respondents. This relationship does not satisfy the criteria for establishing the related persons concept. These were limited companies at the material time, and it will be difficult to say that a limited company has any interest direct or indirect in the business carried on by one of its shareholders. 23. We observe that in the present case also both ICIM ICIL are limited companies and there is no evidence to show ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons and, therefore, not to be taken at arms length. We observe that the Hon ble Supreme Court in the case of Voltas judgment, referred to supra, and various other judgments have held that quantum of sales is not the criteria for determining as to whether the sales are in the open market conditions. There will have to be something more like unusually low price charged or some other such factor on record to establish that the price charged did not reflect the open market price. No such facts are on record to come to this conclusion. We, on examination of all the facts on record, however, observe that all along the lower authorities were examining the question as to whether ICIL ICIM were related persons or whether the sales were at arms length but no attempt or scrutiny has been made to find out whether the price is the sole consideration for sale of goods or whether any other factors were also involved. The appellants want the price declared by them to be accepted under Section 4(1)(a) of the new section and 4(a) of the old section. These are reproduced below for convenience of reference :- 4(1) Where under this Act, the duty of excise is chargeable on any excisable goods with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... detailed requirement of the prospects concerned and submit schemes which would be viable in a highly competitive market. Obviously not all of these activities result in orders for sale or hire of equipment. Furthermore, after an order is received, various services require to be organised such as customers staff selection and training, site preparation, progressive implementation planning, system reports and advice before the equipment is supplied. Thereafter, the equipment is required to be installed, tested and commissioned to the satisfaction of the customer by highly specialised and qualified technical staff. Also, support from various angles such as software, systems, training and maintenance of the equipment has to be afforded to the customer on a continual basis. We may also mention here that we keep certain equipment for demonstration purposes. (c) It is generally well-known that rapid advances take place in the types of equipment which we deal in and to keep pace with those advances our staff needs to be continually trained. Because of the heavy outlay and the aforesaid developments in techniques, many customers favour a contract of hire to that of outright purchase. Hir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... marketability of the article and enter into its value in the trade. Where the sale in the course of wholesale trade is effected by the assessee through its sales organisation at a place or places outside the factory gate, the expenses incurred by the assessee up to the date of delivery under the aforesaid heads incurred, by the assessee up to the date of delivery under the aforesaid heads cannot, on the same grounds, be deducted. But the assessee will be entitled to a deduction on account of the cost of transportation of the excisable article from the factory gate to the place or places where it is sold. The cost of transportation will include the cost of insurance on the freight for transportation of the goods from the factory gate to the place or places of delivery." 26. We observe that the appellants buyers ICIL perform the function of prospecting for users, study the detailed requirement of prospects concerned and give a feedback to the appellants as to the machines and product mix which is ultimately required to be manufactured for the purpose as identified by M/s. ICIL. M/s. ICIL on their own admission as seen from the letter above in the line of business of goods manufact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of his submissions in the other case, the price charged from ICIL should be accepted for assessment purposes. He pleaded that under the show-cause notice in this case was issued on 2-1-1976 and duly demanded was for the period 1971 onwards till 30th September, 1975 under Rule 10A of Central Excise Rules 1944 by fixing the assessable value under Section 4(b) of the old Section 4, as in force at the relevant time. He pleaded that the assessable value in view of his pleas made earlier was required to be determined under Section 4(a) and not under 4(b) as the Hon ble Supreme Court in the case of Bombay Tyre International 1983 ELT 1896 has held that the valuation provision under new Section 4 and old Section 4 were substantially the same so far as the sale concept of sales at arms length is concerned. 30. His plea is that arguments adduced by him in the context of new Section 4 will hold good in this case also and that there was no warrant for not accepting the wholesale price at which the goods were sold by the appellants to ICIL. He pleaded that it was not necessary that the market for the goods should exist and inasmuch as the goods were sold to M/s. ICIL at the price acceptable in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quiring him to show cause to the Assistant Collector of Central Excise why he should not pay the amount specified in the notice. (2) The Assistant Collector of Central Excise, after considering the representation, if any, made by the person on whom notice is served under sub-rule (1), shall determine the amount of duty, deficiency in duty or sum due from such person (not being in excess of the amount specified in the notice) and thereupon such person shall pay the amount so determined within ten days from the date on which he is required to pay such amount or within such extended period as the Assistant Collector of Central Excise may, in any particular case allow." 32. He pleaded that unless it could be shown that their case did not fall under Rule 10, only then the provision of Rule 10A could be invoked. 33. In this connection he cited the case of Magrat Paints v. Union of India 1978 ELT (J) 39. He pleaded that rule 10A was residuary in nature and under Rule 10 specific categories of cases as set out in the said rule were covered. He pleaded that the appellants bad been filing price lists and the same were accepted all along. He pointed out that the appellant had furnished ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Court judgment in the case of Assistant Collector of Central Excise, Bombay Others v. The Elphinstone Spinning Weaving Mills Co. Limited 1978 ELT (J) 399 referred to supra. 36. On behalf of the revenue, it was argued by learned SDR that the appellants were working under SRP and were under obligation to furnish all the facts relevant for assessment purposes and they should have furnished full details regarding their relationship with ICIL at the time of filing the price list. He pleaded that the copy of the agreement between ICIL and ICIM was sent to the Superintendent and the balance sheet was also sent in 1971 as pleaded by the appellants in connection with some other enquiry. He pleaded that these documents were not furnished in the context of approval of the price list. He pleaded that the balance sheet was asked for in the context of getting data in respect of important units. He pleaded that it was not correct on the part of the appellants to say that there was no obligation on their part to furnish price list at which M/s. ICIL were selling the goods and that they held back the information in regard to the price list published by ICIL. 37. In this connection, he ci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompleted with the finalisation of the same. He pleaded that there was a difference between levy and assessment as brought out by the Hon ble High Court of Madras in their judgment in the case of Binny Ltd. v. Superintendent Central Excise Gundy and Others [1979 ELT (J 65)]. 40. He pleaded in respect of RT 12 assessments Rule 10 need not be invoked. 41. He further pleaded that any payment made does not mean that the assessment had been completed as held by the Hon ble Supreme Court in the case of Assistant Collector, Central Excise v. National Tobacco Co. [1978 ELT (J 416)]. It was also pointed out that any mis-interpretation in regard to the price declared based on the appellants understanding of the law could not be tentamount to mis-statement as held in the case of Indo-national (1978 ELT 416). The learned Representative of the Department also pleaded that Rule 9(2) will be applicable as the goods had been cleared without payment of duty due and he cited the case of Star Mettle v. Collector of Central Excise, Bombay [1984 (19) ELT 489]. It was pleaded that vital information had been held back and therefore, duty can be recovered as held by the Hon ble Supreme Court in the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was sought to be realised, the same not having been paid by the person from whom it was payable. For recovery of such amount there was no limitation as is clear from Section 11 of the Act. 42. During the course of arguments, the point as to whether there were wholesale transactions at the factory gate, was also argued by both sides. While the appellants pleaded that the wholesale transactions took place at the factory gate, the plea of the Revenue is that the sales at the factory gate were in single units and therefore could not be taken to be in wholesale lots and therefore, there was no wholesale price. 43. Before going into the question of the applicability of Rule 10 or 10A, we propose to first dispose of the plea by the Revenue that in case Rule 10A was not held to be applicable, Rule 9(2) could be invoked. 44. We observe that the lower authorities neither in the show cause notice nor in the orders passed have at any time invoked this rule. No factual or legal basis has also been laid as to how it could be invoked by the lower authorities. 45. It is a matter of record that all clearances were made after filing of the price lists and classification lists by the appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edures for filing price list and classification lists and approval thereof by the authorities and thereafter determination of duty by the assessee and payment of the same have been prescribed and followed and after clearance of goods, a final accountal by filing of RT 12 returns is done. 52. In view of this, we have to hold that in the present case the assessments had taken place. The point to be considered is whether in case of these assessments short-levy involved is covered by any of the specified elements of Rule 10. 53. The plea of the Revenue is that the authorities were not in possession of the full facts relating to the agreement between ICIL ICIM. We however, observe that inasmuch as the agreement was submitted by the appellants to be Superintendent of the Inspection Unit and with a copy to the Jurisdictional Superintendent in the office of the Jurisdictional Assistant Collector the same can be taken to have been within the knowledge of the authorities concerned. 54. We find no specific reason has been given for calling for these agreements but nothing has been shown from the record that the agreement was called for in connection with the approval of the price list ..... X X X X Extracts X X X X X X X X Extracts X X X X
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