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TMI Blog1989 (5) TMI 57X X X X Extracts X X X X X X X X Extracts X X X X ..... y the respondent, according to the appellants, it was revealed that the respondent manufactured their entire products in the brand name of "Bush" from the very beginning and were selling the same exclusively to Bush India Ltd. or its authorised wholesale dealers only. This fact was nowhere mentioned by the respondent in its price list or its classification lists and this, according to the appellants, amounted to wilful suppression of facts with the intention to evade payment of central excise duty. Certain enquiries were made and to safeguard the interest of the Revenue, the respondent was requested, time and again, to observe the provisions of rule 9B of the Central Excise Rules, 1944, and execute B-13 surety bond. However, it is stated that the respondent evaded the execution of the said bond which was, according to the appellants, done deliberately. Thereafter, on January 4, 1985, a show-cause notice was issued for the period April 1, 1983, to November 30, 1984, requiring the respondent to show cause as to why Bush India Ltd. should not be treated as a related person and a favoured buyer of the respondent company for the purpose of determination of the wholesale cash price and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certain decisions of this court as well as the decision of the Delhi High Court. The High Court found that the case of the respondent was directly covered by all these decisions. In the premises, the High Court quashed the said show-cause notices and the demand notice. The question, therefore, is whether the High Court was right in the view it took. Unfortunately, in the instant case, apart from the facts recorded hereinbefore, there is no other fact. Learned counsel appearing for the Revenue, Shri A. Subba Rao, contended before us that the High Court was in error in not realising that, in the facts and the circumstances of this case, it was an arranged affair and that really Bush India Ltd. was a related person and as such the price charged from it could not represent the correct assessable value for the purpose of excise duty. As noted hereinabove, the events in this case happened from 1985 onwards. In the premises, the amended provisions of section 4 of the Act, as amended by the Amendment Act of 1973, would be applicable. Section 3 of the said Act enjoins that there shall be levied and collected in such manner as might be prescribed duties of excise on all excisable goods oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the scheme of section 4(1)(a) before the Amendment Act, 1973, and also the position after the amendment. It was contended in that case before this court that the definition of the expression "related person" was arbitrary and it included within its ambit a distributor of the assessee. This court, however, held that, in the definition of "related person" being a relative and a distributor could be legitimately read down and its validity upheld. The definition of related person should be so read, this court emphasised, that the words "a relative and a distributor of the assessee" should be understood to mean a distributor who was a relative of the assessee. The Explanation to section 4(4)(c) provides that the expression "relative" has the same meaning as in the Companies Act, 1956. The definition of "related person", as being "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 ...", shows a sufficiently restricted basis for employing the legal fiction. This court reiterated that it is well-settled that, in a suitable case, the court could lift the corporate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shareholders, namely, Atul Products Ltd., even though the shareholding of such shareholder might be 50%. Secondly, it was noted that Atul Products Ltd. was a wholesale buyer of the dyes manufactured by the assessee but even then, since the transactions between them were as principal to principal, it was difficult to appreciate how the assessee could be said by virtue of that circumstance to have any interest, direct or indirect, in the business of Atul Products Ltd. The assessee, it was observed, was not concerned whether Atul Products sold or did not sell the dyes purchased by it from the assessee nor was it concerned whether Atul Products Ltd. sold such dyes at a profit or at a loss. In those circumstances, the first part of the definition of related person in clause (c) of sub-section (4) of section 4 of the amended Act was, therefore, clearly not satisfied both in relation to Atul Products Ltd. as also in relation to Crescent Dyes and Chemicals Ltd., a subsidiary company of Atic Industries Ltd., and neither of them could be said to be a "related person" vis-a-vis the assessee within the meaning of the definition of that term in clause (c) of sub-section (4) of section 4 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for and on behalf of the buyer and not of his own account" and the right of the buyer being reserved to revoke the authority given to the seller to affix the trade marks. The respondent in that case filed a declaration for the purposes of levy of excise duty under the said Act showing the wholesale prices of different classes of goods sold by it during the period May, 1972, to May, 1975. The declaration included the wholesale prices of the different resins manufactured under the two aforesaid agreements. The Assistant Collector of Customs revised those prices upwards on the basis that the wholesale price should be the price for which the buyer sold the product in the market. According to the Assistant Collector, the buyer was the manufacturer of goods and not the seller. The Collector of Central Excise allowed the appeals of the respondent and accepted the plea that the wholesale price disclosed by the seller was the proper basis for determining the excise duty. The appellate orders were, however, revised by the Central Government under sub-section (2) of section 36 of the Act and the orders made by the Assistant Collector were restored. According to the Central Government, the buy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to Nestle's at wholesale price on rail at Moga or free on lorry at factory. The respondent disputed the value of the goods determined by the excise authorities for the purpose of the levy under the said Act and ultimately the respondent filed writ petitions in the High Court. The High Court allowed the writ petitions holding that the value of the trade marks could not form a component of the value of the goods for the purpose of assessment of excise duty. In appeal to this court, the appellant contended that the value of the goods sold by the respondent to Nestle's should, for the purpose of levy of excise duty, include the value of the trade marks under which the goods were sold in the market and that the value of such trade marks should be added to the wholesale price for which the goods were sold by the respondent to Nestle's. Dismissing the appeal, it was held that the value of Nestle's trade marks could not be added to the wholesale price charged by the respondent to Nestle's for the purpose of computing the value of the goods manufactured by the respondent in the assessment to excise duty. In that case, it was held that what were sold and supplied by the respondent were goo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nality distinct front its members, the court is entitled to lift the mask of corporate entity if the conception is used for tax evasion, or to circumvent tax obligation or to perpetrate a fraud. In this connection, reference may be made to the observations of this court in Juggilal Kamlapat v. CIT [1969] 73 ITR 702 (SC), [1969] 1 SCR 988. In the background of the facts found, we, however, need not get ourselves bogged with the controversy as to the judicial approach to tax avoidance devices as was pointed out in McDowell and Co. Ltd. v. CTO [1985] 154 ITR 148, where this court tried to discourage colourable devices. It is true that tax planning may be legitimate provided it is within the framework of the law. Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by dubious methods. It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges. It is also true that, in order to create an atmosphere of tax compliance, taxes must be reasonably collected and when collected, should be utilised for proper expenditure and not wasted. (See the observations i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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