TMI Blog1992 (2) TMI 86X X X X Extracts X X X X X X X X Extracts X X X X ..... e sales of the said H.P. Motors by the petitioners are on principal to principal basis and are at arm's length. It is also pleaded that the price charged for the said H.P. motors by the petitioners is the normal price and it is the sole consideration for the sale. It is the case of the petitioners that as far as the said H.P. motors, they are charging, from the buyers, prices which not only include the manufacturing costs and manufacturing profits but also post-manufacturing costs, expenses and profits such as (i) marketing and distribution expenses, (ii) advertising attributable to selling operation, (iii) packing (secondary packing), and (iv) interest charges incurred on selling and distributing the finished goods. It is the case of the petitioners that as regards other products viz. portable, electrical tools, machines, stands and attachments (hereinafter referred to as "the other products") the petitioner company is selling the same to Rallis India who were their distributors for these products at the relevant time. It is the case of the petitioners that as regards the said "other products" the petitioner company is a subsidiary company of the said Rallis India but the prices w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xcise Authorities in which, through oversight as alleged, the petitioners included expenses for sale, sales tax payable on the first sale, freight, trading profits etc. According to the petitioner company, towards the end of March 1978, the petitioner company realised the said mistake and therefore by letter dated 30th March, 1978 addressed to the second respondent, the petitioner company referred to the aforestated alleged mistake and pointed out that the excise duty paid by the petitioners was under mistake of law and the same be refunded. Along with said letter dated 30th March, 1978 the petitioners enclosed its price lists showing the assessable value including the post-manufacturing expenses from 1st April, 1978 and requested respondent No. 2 to approve the same. It also claimed refund of duty erroneously collected for the period 1st March, 1977 to 28th February, 1978. The petitioners thereafter filed refund applications for the period 1st March, 1977 to July 1978 (the particulars of which are given in paragraphs 9 and 11 of the writ petition). 5. On 5th October, 1978 the second respondent approved the price list Nos. 17 and 18 submitted by the petitioner company without all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from time to time under Part IV of the proforma and the 2nd respondent approved the same without deduction on account of PME. In the circumstances one of the contentions raised by the petitioners in the said petition was whether the said other products sold by the petitioners to Rallis India would fall in the category of the third proviso to Section 4(l)(a) of the Central Excises and Salt Act, 1944, as being sold to or through the related person. 11. This petition came to be admitted on 18th June, 1981. By interim order the respondents were required to deposit in Court Rs. 54,00,748.90 representing excess duty amount refundable for the period from 1st March, 1977 to 3ist August, 1981. This interim order came to be passed in view of several judgments of this Court at the relevant time which held that the post-manufacturing expenses cannot be included in the price for the purposes of levy of excise duty. Pursuant to the orders passed by this Court, the respondents deposited Rs. 54,00,748.90 and the petitioners withdrew the said amount on furnishing the bank guarantee. 12. In the meantime, the Supreme Court of India declared the law regarding the post-manufacturing expenses in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th March, 1981 referred to hereinabove is not required to be gone into. 14. Accordingly, in view of the said order of this Court dated 14th December, 1983, the petitioners filed their revised statement of claim on or about 9th January, 1984 claiming the deductions from the sale price on account of the following heads :- (a) Freight (b) Packing (c) Commission (d) Interest on Book Debts (e) Sates Tax. 15. Pursuant to the notice dated 23rd January, 1984, clarifications were called for by the second respondent from the petitioner company. A personal hearing was also given to the petitioners and they were directed to produce documentary evidence in support of their claim including deduction of equalised freight and sales tax. By his order dated 24th August, 1984 the second respondent allowed the petitioners' entire claim on account of equalised freight and sales tax but only from 10th July, 1983 onwards. In effect it was held that claim for the prior period was time-barred. However, the second respondent rejected the deduction in respect of remaining three of the abovementioned items, namely, commission, packing and interest on book debts on the ground that the said three ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present case. 20. In the circumstances, in the present petition, the petitioners have sought to challenge broadly two orders of the second respondent, namely, (i) order dated 24th August, 1984 by which respondent No. 2 rejected the claim of the petitioner company seeking deduction of the above three items of post-manufacturing expenses namely, packing, commission and interest on book debts; (ii) the order dated 30th October, 1984 passed by the second respondent holding that at the relevant time Rallis India being the holding company of the petitioner company was a related person under Section 4(l)(a) read with third proviso thereto and accordingly the second respondent directed the petitioner company to file their price lists in accordance with the said third proviso to Section 4(l)(a). In other words, as the Rallis India has been held to be a related person of the petitioner company the duty charged was on the basis of the price charged by Rallis India and not on the basis of the price charged by the petitioner company. Both the above mentioned orders dated 24th August, 1984 and 30th October, 1984 are the subject matters of challenge in this amended writ petition. 21. Before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he sale : Provided that: (i) where in accordance with the normal practice of the wholesale trade in such goods, such goods are sold by the assessee at different prices to different classes of buyers (not being related persons) each such price, shall, subject to the existence of the other circumstances specified in clause (a), be deemed to be the normal price of such goods in relation to each such class of buyers; (ii) where such goods are sold by the assessee in the course of wholesale trade for delivery at the time and place of removal at a price fixed under any law for the time being in force, or at a price, being the maximum fixed under any such law, then, notwithstanding anything contained in cl. (iii) of this proviso the price or the maximum price, as the case may be, so fixed shall, in relation to the goods so sold, be deemed to be the normal price thereof; (iii) where the assessee so arranges that the goods are generally not sold by him in the course of wholesale trade except to or 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 rela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f excise, sales tax and other taxes, if any, payable on such goods and, subject to such rules as may be made, the trade discount (such discount not being refundable on any account whatsoever) allowed in accordance with the normal practice of the wholesale trade at the time of removal in respect of such goods sold or contracted for sale; (e) "wholesale trade" means sales to dealers, industrial consumers. Government, local authorities and other buyers, who or which purchase their requirements otherwise than in retail." 24. As stated above Section 4 of the said Act (before and after amendment) came to be interpreted by the Supreme Court in the Bombay Tyres (supra). In the said case it was laid down as follows : (i) that there was no material difference between the old Section 4 and new Section 4 of the Central Excises and Salt Act, 1944; (ii) that for the purposes of excise duty the assessable value was fixed with reference to the price of the article. The said price provided a measure by reference to which excise duty is assessed: (iii) that the price charged by the manufacturer for the sale of the goods in wholesale is the price which represents the real value of the goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut that would not make any difference so long as each has some interest in the business of the other. The facts of Atic Industries Ltd. (supra) indicate that the goods were purchased by Atul Products Limited and Crescent Dyes (i.e. the shareholders of the Assessee) from the assessee and therefore, it was held by the department that the wholesale buyers of the goods were related persons of the said Atic Industries Ltd. Despite the above facts, it was held by the Supreme Court that the agreement between the assessee and the buyers showed that they were on principal to principal basis and extra-commercial considerations were taken into account in fixing the normal price and accordingly the order passed by the Revenue was set aside. 26. Similar view was followed also by this Court in the case of Dawn Apparels Limited v. Union of India reported in 1989 (43) E.L.T. 401 (Bom.). In the said case, it was found that the petitioner Dawn Apparels Ltd. was subsidiary company of Dawn Mills. The petitioner manufactured items of apparel and under an agreement with Dawn Mills the entire stock of apparels manufactured by the petitioner at an ex-factory rate came to be purchased by the Dawn Mills. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. It was held by the second respondent that the third proviso to Section 4(l)(a) of the Act was ipso facto applicable since Rallis India is the holding company and the petitioner company is subsidiary company under the Companies Act, 1956 and on that basis alone the respondent No. 2 rejected the revised price lists filed by the petitioner company. The petitioner company was further directed to file their price lists in proforma IV which will indicate the prices at which the goods are sold by Rallis India Ltd. The impugned order proceeds on the basis that the facts of Atic Industries (supra) were quite different and that in the case of Atic Industries there was no question of holding company and subsidiary company and therefore according to the second respondent the decision in Atic Industries did not apply. 29. Mr. Bharucha, the learned counsel appearing on behalf of the petitioner company submitted that in order to attract the third proviso to Section 4(l)(a) read with Section 4(4)(c), three conditions are required to be satisfied :- (a) mutuality of interest; (b) normal price is not the sole consideration and that the extra-commercial consideration has reduced the normal p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will arise in the case of holding company and subsidiary company, inasmuch as according to Mr. Sethna it has been laid down by the Supreme Court in the case of Bombay Tyres (supra) that where the relationship of a holding company and subsidiary company exists, the relationship falls in the category of a tainted relationship and therefore wherever there is relationship of an assessee and the wholesale buyer falling in the category of a holding company and subsidiary company then such relationship automatically falls in the category of a related person as defined under Section 4(4)(c). 31. We are not inclined to accept the contention of the Department as submitted by Mr. Sethna, the learned counsel appearing for the respondents for the following reasons:- (a) that Section 4(4)(c) is a defining section of the expression "related person" and the said section must be read and seen in the context of third proviso to Section 4(l)(a). If one, therefore, reads the entire section, it is clear that three conditions are required to be satisfied before invoking the third proviso : Firstly, there should be mutuality of interest. Secondly, the price charged should not be normal price but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r dated 24th August 1984, the above facts indicate that the petitioners initially claimed deduction of five items namely, freight, packing, commission, interest on book-debts and sales tax. As mentioned above, the said impugned order dated 24th August, 1984 came to be passed in view of the order of this Court in the present writ petition dated 14th December, 1983 by which leave was granted to the petitioners to amend the price lists and seek deduction in the light of the judgment of the Supreme Court in the case of Bombay Tyres (supra). 35. In the matter of averaged freight and sales tax, the second respondent held by the impugned order that the petitioner company was entitled to claim deduction in respect thereof. It was found by the second respondent that the deduction of the freight claimed by the petitioner company was checked by taking into account the freight bills issued by the transport company. It was also found that where the freight is paid by the dealers it is deducted from the Invoice value in the invoices raised by Rallis India and therefore when the freight is paid by the Rallis India it is not deducted in the invoices by the petitioner. The second respondent accep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given to the petitioner company to lead evidence in terms of the order of this Court dated 14th December, 1983 and despite the fact that ample opportunities were given to the petitioner company to produce their record in support of their claim of the said three items, the petitioner company did not avail of the said opportunities and that the claim of the petitioner company regarding the said three items, therefore, stood rejected. 38. Mr. Sethna, the learned counsel for the Department vehemently argued that no indulgence should be shown to the petitioner who despite repeated opportunities being given failed to produce any evidence either oral or documentary in respect of its claim for deduction on these three items and that if any indulgence is shown to the petitioner/assessee, it would be impossible for the Department to verify the record, assess and recover the revenue if the matter is remanded time and again. Mr. Sethna further submitted that the petitioner/assessee having failed to avail of an opportunity the impugned order cannot be faulted. Mr. Sethna also submitted that at this length of time if the assessee is permitted to adduce any evidence once again despite repeated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny was that until final decision of the Supreme Court, the claims as regards commission, cost of packing and interest on book-debts be kept in abeyance without prejudice to their rights. Ultimately, out of sheer exasperation the second respondent passed the impugned order dated 24th August, 1984 and by paragraph 23 of the said order he rejected the case of the petitioner company and in our opinion, he was to some extent justified in so doing. 40. In normal circumstances, however, we would have dismissed the writ petition to the extent of the above three items, namely, packing, commission and interest on book-debts. However, after giving due consideration to the matter, we are of the opinion that since we are setting aside the impugned order dated 30th October, 1984 and since the second respondent will have to decide as to whether Rallis India is a related person to the petitioner and that whether the goods are sold by the petitioner company on the principal to principal basis or not, we think it fit to remand the matter, not only with regard to the question of the related person, to the second respondent but also one more opportunity be given to the petitioner company to prove it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 1991) on the ground that the Act is viola live of the fundamental rights of the petitioners and it is ultra vires of the Constitution. He submitted that the petitioners are entitled for refund of duties paid under mistake of law and that in view of the said Act No. 40 of 1991, his clients were deprived of the recovery of the said amount. In view of our above order remanding the matter back to the second respondent, the question of refund at this stage of the matter does not arise. We, therefore, did not permit the petitioner company to amend the petition at this point of time. However, we make it clear that in the event of the petitioner subsequently proving its case of refund and in the event of the petitioner company succeeding in their claim for refund of duty which if it is denied to them on the ground of the provisions of the said Act No. 40 of 1991, then the petitioners would be at liberty to challenge the constitutional validity of the said Act at such future point of time. 42. We would, however, like to make certain directions which the second respondent will bear in mind while passing the orders : (a) That the second respondent will intimate to the petitioners the da ..... X X X X Extracts X X X X X X X X Extracts X X X X
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