TMI Blog1994 (8) TMI 101X X X X Extracts X X X X X X X X Extracts X X X X ..... 37,428 Equity Shares of Rs. 100/- each representing 14% of the total paid-up and subscribed share capital of the appellant Company and similarly the appellant Company has also acquired 34,152 Equity Shares of Rs. 100/- each, representing 9% of the paid-up and subscribed capital of M/s. Alembic Chemical Works Co. Ltd. Accordingly to the Department both the companies have mutuality interest in the business of each other since there were common Chairman and the three Directors. It was charged that the appellants Company made upward revision of price in respect of other buyers on account of increase in prices of raw materials etc. but did not do so in respect of the goods supplied to Alembic Chemical Works Co. Ltd. for about 2 years. Further they did not file separate price list for different customers. Accordingly two show cause notices were issued dated 6-8-1983 and 29-3-1982 covering period from 6-7-1979 to 15-1-1982 alleging suppression of information and demanding the total amount of Rs. 35,95,197.76 for the period dated 6-9-1979 to 15-1-1982 and to impose the penalty. Two show cause notices were duly answered by the appellants by giving detailed reply denying the charges and l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stantial production is sold in the course of wholesale trade to or through M/s. Alembic Chemical Works Co. Ltd. It is not even the case of the Department that either the appellant company has so arranged or that it is generally not selling the goods except to or through M/s. Alembic Chemical Works Co. Ltd. Further legislature has itself recognised in Proviso 1 to Section 4 of the Act that there can be different prices to different classes of buyers and each such price will be deemed to be normal price. Therefore the prices at which the goods are sold to M/s. Alembic Chemical Works Co. Ltd. must be deemed to be the normal price and the same should be accepted for the purpose of valuation. On the issue of concept of related person, they referred to the observations made by the Supreme Court in paras 44 and 46 in the case of Union of India Others v. Bomaby Tyre International Ltd., reported in 1983 (14) E.L.T. 1896 (SC) and also relied upon the following decisions :- 1. Cosmos (India) Rubber Works Pvt. Ltd. another v. Union of India and Others - 1988 (36) E.L.T. 102 (Bom.) 2. Jay Engineering Works Ltd. and another v. Union of India and others - 1981 (8) E.L.T. 284 (Del.) 3. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the price of the goods sold to M/s. Alembic Chemical Works Co. Ltd. were declared and duly approved and the activity of both the companies was within the knowledge of the Department. Not only both the companies fell within the jurisdiction of the same Collectorate and Range Office but the Central Excise Office is also situated within the premises of M/s. Alembic Chemical Works Co. Ltd. On time barring issue they relied upon the decisions in the case of Collector of C. Excise v. Chemphar Drugs Liniments [1989 (40) E.L.T. 276 (SC)] and Padmini Products v. Collector of Central Excise [1989 (43) E.L.T. 195 (SC)] in support of their contention. Further it was submitted that there was no case for imposition of penalty in the absence of clandestine removal and in the absence of mens rea. 5. It was contended on behalf of the Revenue that very fact that they are holding shares in each other and having common Chairman and three Directors which clearly indicates their mutuality of interest to hold M/s. Alembic Chemical Works Co. Ltd. is a related person as envisaged under Section 4(4)(c) of the Act. She also relied upon the observations made by the Supreme Court in the case of Union o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here was not wholesale price at factory gate and since the foods were captively consumed by M/s. Alembic Chemical Works Co. Ltd. whom the goods were supplied and since the prices were not ascertainable under Section 4(1)(a) the value would have to be arrived under Rule 6 of the Valulation Rules. Rule 6(b)(ii) permits to determine the value based upon the cost of the manufacture including profit and this was exactly done by the Adjudicating Authority in this case. In support of her contention that the value can be determined based upon the cost of manufacture she relied upon the following decisions :- 1. Food Specialities Ltd. v. Appellate Collector, Central Excise Customs, New Delhi and Others - 1988 (33) E.L.T. 331 (P H) 2. Window Glass Ltd. v. Collector of Central Excise, Calcutta - 1989 (39) E.L.T. 641 (Tribunal) 3. Collector of Central Excise v. United Glass, Bangalore - 1989 (40) E.L.T. 488 (Tribunal) 4. Collector of Central Excise, Bangalore v. Baggaram Enterprises, Bangalore - 1986 (25) E.L.T. 356 (Tribunal) Relying upon the decisions in the case of Indian Tobacco Co. Ltd. v. Union of India and others [1988 (34) E.L.T. 473 (Cal.) = 1988 (17) E.C.R. 148 (SC)] an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss interest, which Section 4(4)(c) contemplates between the manufacturer and its buyers cannot be established by merely showing that they have business dealings between them. It must also be shown one has special interest in the promotion or development of the business of the other. The Supreme Court in the case of Union of India and Others v. Atic Industries Ltd. [1984 (17) E.L.T. 323 (SC) (supra) held that merely holding 50% shares by a customer in the manufacturing company does not amount to mutuality of interest. It observed that the first part of the definition of related person as given in Section 4(4)(c) of the Act requires that the person who is sought to be branded as a related person must be a person who is associated with the assessee that they have interest directly or indirectly in the business of each other. It is not enough that the assessee has an interest directly or indirectly in the business of the person alleged to be a related person nor is it enough that the person alleged to be a related person has any interest directly or indirectly in the business of the assessee. It is essential to attract the applicability of the first part of the definition that the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Collector should have resorted to Valuation Rules in determining the assessable value. An inference can be drawn that the increase in the price of raw materials will result in increase of finished products but that itself cannot be the basis in determining the value. The cost of raw materials is one of the factors but that is not only determinative as it was argued on behalf of the appellants. Prior to the decision of the Supreme Court in the case of Bombay Tyre International Ltd., the various High Courts in a series of cases have taken the view that since levy of excise duty is on the manufacture and production of the goods, therefore it cannot go beyond the manufacturing cost plus manufacturing profit and accordingly the assessable value under Section 4 held to be determinable only on the basis of manufacturing cost plus manufacturing profit excluding post-manufacturing and non-manufacturing expenses. However the Supreme Court has overruled such contention by observing that either under old Section 4 or under new Section 4 it was never intended that the value of excisable articles has to be determined in terms of manufacturing cost and manufacturing profit exclusively. It held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lue cannot be determined under sub-clause (1), on the cost of production or manufacture including profits, if any, which the assessee would have normally earned on the sale of such goods; (c)........................" 10. Rule 6 provides two methods for valuation. The first method under Rule 6(b)(i) is to adopt after necessary adjustments, prices of comparable goods provided by another manufacturer. If this method is not available only then resort can be had to the other method under Rule 6(b)(ii) to work out the value on the basis of cost of manufacture of the assessee unit and thereto a reasonable margin of profit. In the instant case if the Department is of the opinion goods sold to the other buyers are not identical or comparable goods then it should resort to the method under Rule 6(b)(i) whether any comparable goods were manufactured by any other manufacturer and the price of such comparable goods should be taken as basis in determining the assessable value. Since this has not been done, we are of the view that this issue requires reconsideration. The appellants should co-operate with the Department in furnishing the particulars to arrive at the proper value. Accordingly w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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