TMI Blog1984 (10) TMI 224X X X X Extracts X X X X X X X X Extracts X X X X ..... fluenced by any commercial, financial or other relationship whether by contract or otherwise between the manufacturer or any person associated in business with the manufacturer and the buyer or any person associated in business with the buyer other than the relationship created by sale of the aforesaid goods; 3. It is the fulfilment of condition (iv) of the aforesaid Notification extracted, supra that requires to be decided in the following facts and circumstances of the case- (a) the Appellant manufactures baby products and rubber goods falling under Item No. 68 of the First Schedule and opted for the benefit of the exemption in the aforesaid Notification on 13-9-1975; (b) the Appellant had issued letters of appointment to more than 600 stockists in various places throughout the country and at times to a plurality of stockists in some of the places. The letters were uniformly the same with all the stockists and provided, inter alia, that- (i) the stockists are to stock the Appellant s products in reasonable quantities so as to enable execution of orders procured by the Appellant s sales staff. They are to maintain a level of stocks for a minimum period of two months. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f duty are akin to discount in kind and even though a well recognised trade practice; duty is still payable on such goods in terms of the Rules. Accordingly, the benefit of the Notification was disallowed and the concession thereof withdrawn. The Appellant was directed to file a price-list in Part IV i.e. on the basis of the price charged by the stockists to independent dealers, as well as to pay differential duty and 1% duty on the bonus pieces manufactured and cleared from 30th of April, 1975 up to the date of adjudication; (Adjudication order of the Assistant Collector of Central Excise dated 21-6-1977 at page 23 of the paper book); (g) the aforesaid order was confirmed in Appeal to the extent demand is not hit by limitation and the instant Revision Petition, heard by us as an Appeal, was the sequel. 4. Before us, it was submitted by Shri J.R. Gagrat, for the Appellant, inter alia, that- (a) the letters appointing the stockists had been misconstrued by the lower authorities. None of the conditions therein or the overriding commission or even the deposit can be construed to be unrelatable to the sales promotion of the Appellant s products. Indeed, the letters did not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fication, as that would render the Notification superfluous and where no part of the proceeds of the subsequent sale accrues either directly or indirectly to the benefit of the manufacturer, the Notification cannot be held to be inapplicable; (e) for a fact, it is inconceivable that- (i) the Appellant could have any commercial, financial or other relationship other than that created by sale of the goods in question with more than 600 stockists all over the country ; or (ii) such relationship, even if it existed, had influenced the invoice price ; (f) in the absence of any evidence to establish that any part of the proceeds of sale by the stockists accrued to the Appellant either directly or indirectly, the price specified in the invoice had to be accepted for levy of excise duty; (g) the bonus pieces given by the Appellant are declared and mentioned in the invoice and the price of the said pieces is included in the invoice for the quantities billed. 5. Reliance was placed by the learned Counsel on the decisions reported in 1981 ECR 91 (Allied Textile Leather Industries v. Union of India); 1982 ECR 711 (Amar Dye-Chem Ltd. v. Union of India); 1978 E.L.T. 350 (S.C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. (ii) Related person as defined in Sec. 4 of the Act implies mutuality of interest, direct or indirect, in the business of each other between the assessee and the person said to be related. As observed by the Hon ble Supreme Court in 1984 (17) E.L.T. 323 (S.C.) = 1984 ECR 1437 (S.C.) [Union of India v. Atic Industries]- It is not enough that the assessee has an interest, direct or indirect, 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 an interest, direct or indirect, in the business of the assessee. It is essential to attract the applicability of the first part of the definition that the assessee and a person alleged to be a related person must have interest, direct or indirect, in the business of each other. Each of them must have a direct or indirect interest in the business of the other. (iii) The fourth proviso in the Notification, however, speaks of any relationship whatsoever ( any commercial, financial or other relationship whether by contract or otherwise ) and not merely mutual business interest and to that extent it goes much beyond the scope meaning and effect of the expre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw. It is accordingly a contract. A concluded contract need not necessarily and specifically provide for the consequences of breach, for the law takes care of it. It is, nonetheless, a contract and such loss as may result from its breach can either be partly or fully compensated from the deposit even though there is no covenant for its forfeiture. Even if the contract does contain a condition enabling forfeiture of the deposit, indisputably in the nature of security, in case of breach, it is always a matter for consideration, if it does not amount to a penalty in terms of Sec. 74 of the Contract Act. [AIR 1963 S.C. 1405 (Fatehchand v. Balkishen Dass); (1969)2 S.C.C. 554 (Maula Bux v. Union of India)]. The absence, therefore, of a forfeiture clause in the agreement does not negate the existence of a contract in terms thereof. (F) But then, are they contracts of sale of goods agreements to sell-or contracts of agency? (i) The true relationship of the parties has to be gathered as an inference of fact from the nature of contract, its terms and conditions, and the terminology used by the parties themselves is, by no means, decisive of the legal relationship . [AIR. 1968 S.C. 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able in law, an agreement to sell goods in terms of Sec. 4 of the Sales of Goods Act presupposes that it is enforceable in law and hence, in reality, a contract to sell goods. A contract for sale of goods is, however, one of completed sale by change in the title to and ownership in the goods. (vi) Be that as it may, the so-called letters of appointment, can, if at all, be agreements for sale of goods and not contracts for sale of goods. With the issue of the letters, there has been no sale of goods, since the goods themselves are yet to come into existence and unless the property therein had passed to the stockists from the Appellant, there can be no question of a sale thereof, much less a relationship created by sale of goods. (vii) The true test as to whether a contract is an agreement or contract for sale of goods on the one hand or one of agency on the other is the absence or otherwise of the conveyance of the title to and ownership in the goods. The essence of an agency to sell is the delivery of the goods to an agent who is to sell them, not as his own property but as the goods of the principal who continues to be the owner of goods. No title in the goods passes to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etters of appointment of stockists are none other than agreements for sale of goods and the conditions therein singly or cumulatively do not render them anything other than such agreements. (G) (i) (a) Strictly speaking, in the view we have taken, the letters of appointment bring about a relationship other than that created by sale of goods. Such relationship, anterior to that created by sale, matures into a relationship consequent upon a completed sale each time goods are consigned to the stockists, pursuant thereto, and delivered after having been paid for. The agreement is the cause and sale the effect. (b) It is, undoubtedly, a commercial relationship. May be, the stockists of the Appellant s goods are not related persons as defined, since they and the Appellant are not mutually interested in the business of each other. There is no evidence, nor is it possible to infer from the letters of appointment that any part of the sale proceeds come back to the Appellant directly or indirectly. All the same, having taken note of the distinction in law between an agreement to sell and a sale of goods and in the context of the language of the Notification, it cannot be held otherwi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for, admittedly, there is no relationship between the Appellant and them and there can be no question of the price to them being influenced by such relationship. (J) In regard to assessability of the bonus articles cleared by the Appellant without payment of duty, we find ourselves in agreement with the ratio of the decisions of the Government of India, in 1981 E.L.T. 807 (In re : Kalapi Stores, Bombay) and 1981 E.L.T. 856 (In re : M/s. Burlington Exports) and that of the Bombay High Court in 1979 E.L.T. 454 (Queens Chemists v. Collector of Central Excise). 8. In the result the Appeal is allowed and the Appellant is entitled to consequential relief, if any. Per : S. Venkatesan, Senior Vice-President.- 9. While I concur in the conclusion reached by my learned brother Shri Murthy, I would reach that conclusion by a somewhat different route. 10. So far as the valuation of the bonus goods is concerned, I agree with the decision of the Government of India in the case of Kalapi Stores, Bombay (1981 E.L.T. 807). It is quite evident that, as represented by the appellants, the bonus pieces are not really given away free, but their price is distributed over the price of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion cannot be construed to be identical in scope and effect with the provisions of Section 4. It appears that the object in issuing the Notification was to effect a procedural simplification, by doing away with price-lists for individual goods, without departing from the principle of an arm s length price. In other words, both Section 4 and the Notification essentially seek to provide that the price to be adopted as the basis of assessable value shall be an arm s length price. However, having regard to the context in which Notification 120/75 was issued, where considerable reliance was to be placed on the certificate of the manufacturer, a different formula (as set out in para 2 above) has been adopted for defining the arm s length price. 14. Now, although the basic concept in Section 4 and Notification 120/75, which seek to define an arm s length price, is the same, their effect is not identical, since the formulations are different. In one way, the notification is more favourable to an assessee, and in another way it is less favourable. It is more favourable because the disqualification from the notification in terms of condition (iv) is incurred not merely through the exis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , I do not think it would serve any useful purpose at this stage to remand the matter back to the Collector (Appeals) or to the Assistant Collector for a fresh decision in terms of Section 4 after giving due notice to the appellants. As all the relevant facts are before us, we are in a position to decide the matter without prolonging the proceedings. 18. I shall now proceed to the question whether the invoice prices in this case fulfil the conditions of Notification 120/75. Without going into great detail, I consider that the following aspects are material:- (a) There was undoubtedly a relationship between the appellants and their stockists , created by the appellants letter which was confirmed by their distributors (in terms of the notification it is not material whether or not this is regarded as a contract); (b) this was a continuing relationship, and separate from the relationship created by each sale (the differentiation between an agreement to sell and a sale supports this view); (c) by virtue of this relationship certain payments (in respect of goods supplied direct) were admissible to the stockists; and (d) such payments, unconnected with any specific sale ..... X X X X Extracts X X X X X X X X Extracts X X X X
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