Full Judgment Text
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PETITIONER:
UNION OF INDIA & ORS.
Vs.
RESPONDENT:
PLAYWORLD ELECTRONICS PVT. LTD. & ANR.
DATE OF JUDGMENT02/05/1989
BENCH:
MUKHARJI, SABYASACHI (J)
BENCH:
MUKHARJI, SABYASACHI (J)
RANGNATHAN, S.
CITATION:
1990 AIR 202 1989 SCR (2)1023
1989 SCC (3) 181 JT 1989 (3) 11
1989 SCALE (1)1186
ACT:
Central Excises and Salt Act, 1944: Sections 4(1)(a),
4(4)(c)/ Central Excise Rules, 1944: Rule 9B.
Assessee--Manufacturing wireless receiving sets, tape
recorders, tape players under brand name ’Bush’--Selling
products exclusively to the Company (Bush India Ltd.) and
its authorised wholesale dealers-price charged--Whether
represents correct assessable value for excise duty.
Company Law--Tax evasion or perpetration of a
fraud--Duty of Court to lift corporate veil.
Taxation--Tax planning within the framework of law is
legitimate--Colourable devices cannot be part of tax plan-
ning.
Words and phrases: ’Related person ’--Meaning of.
HEADNOTE:
The respondent company was engaged in the manufacture of
wireless receiving sets, tape recorders, tape players. These
products were assessable under Tariff Items 33A and 37AA of
the Central Excise Tariff. In the classification list and
price lists filed by the respondentassessee company these
goods were shown as unbranded goods. Subsequentiy it was
found that the respondent-assessee company was manufacturing
their products in the brand name of "Bush" and were selling
the same exclusively to M/s Bush India Ltd. or its autho-
rised wholesale dealers only. The appellants-Revenue alleged
that there was wilful suppression of facts by the respondent
company with intention to evade excise duty because this
fact was not mentioned by the company in the price list or
classification list, filed.
A show Cause Notice was issued requiring the respondent
company to show cause as to why, (i) M/s Bush India Limited
should not be treated as .a ’related person’ and a favoured
buyer of the respondent company for the purpose of determi-
nation of wholesale cash price, (ii) the concessional rate
of duty under notification No. 358/77-CE should
1024
not be denied to the respondent and, (iii) the differential
duty in respect of the goods cleared should not be recov-
ered.
Instead of executing the surety bond the respondent-
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assessee company filed a writ petition in the High Court
praying for quashing of the Show Cause Notice and for a
mandamus to allow it to clear the goods on the basis of the
price at which the goods were sold by it to Bush India
Limited allowing the benefit of the relevant notification.
The High Court following its earlier decision held that
for the purpose of payment of excise duty the market value
of the goods of the respondent-assessee company was the
price charged by it from M/s Bush India Ltd., and not the
market value at which price M/s Bush India Ltd. sold the
goods. It further held that there was no misdeclaration of
the value by the assessee company, and it accordingly
quashed the Show Cause Notice and the Demand Notice for
recovery.
In this appeal by the Revenue it was contended that in
the facts and circumstances of the case the High Court
committed an error in not realising that M/s Bush India Ltd.
was a related person and as such the price charged by the
respondent company from M/s Bush India could not represent
the correct assessable value for the purpose of excise duty.
Dismissing the appeal,
HELD: 1. Tax planning may be legitimate provided it is
within the’ framework of the law. But 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. In order to create the atmosphere of tax com-
pliance, taxes must be reasonably collected and when col-
lected, should be utilised in proper expenditure and not
wasted. It is too much to expect the legislature to inter-
vene and take care of every device and scheme to avoid
taxation and it is up to the court sometimes to take stock
to determine the nature of the new sophisticated legal
devices to avoid tax and to expose the devices for what they
really are and to refuse to give judicial benediction.
[1034A-B, D]
2. One must find out the true nature of the transaction.
Even though the corporation might be a legal personality
distinct from 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 perpetrate a fraud.
[1034E, 1033G]
1025
3. It is unsafe to make bad laws out of hard facts and
one should avoid subverting the rule of law. In the instant
case, facts have not been found with such an approach by the
lower authorities, and the High Court had no alternative on
the facts as found but to quash the Show Cause and Demand
Notices. It appears that the brand name "Bush" was affixed
to the goods produced by the respondent. For the purpose of
excise duty, the market value of such goods was the price
charged from M/s Bush India Ltd. and not the market value at
which price M/s Bush India sold the same. [1034E, 1033C, E]
Juggi Lal Kamlapat v. Commissioner of Income-tax, U.P.,
[1969] 1 SCR 988; Mc Dowell and Co. Ltd. v. Commercial Tax
Officer, [1985] 154 ITR 148; Commissioner of Wealth Tax v.
Arvind Narottam, [1988] 4 SCC 114; Sherdeley v. Sherdeley,
[1987] 2 All E.R. 54 and Greenberg v. IRC. [1971] 47 TC 240
(HL) referred to.
Union of India v. Bombay Tyre International, [1984] 1
SCR 347; Union of India & Ors., v. Atic Industries Ltd.,
[1984] 3 SCR 930; Union of India & Ors. v. Cibatul Limited,
[1985] Supp. 3 SCR 95; Joint Secretary to the Government of
India & Ors. v. Food Specialities Ltd., [1985] Supp. 3 SCR
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165 and M/s Sidhosons & Ors. v. Union of India & Ors, [1987]
1 SCC 25 relied on.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 859(NM)
of 1988.
From the Judgment and Order dated 12.1.1987 in the High
Court of Delhi at New Delhi in C.W. No. 355 of 1985.
A. Subba Rao, P. Parmeshwaran and Mrs. Sushma Suri for
the Petitioners.
M. Chandrasekharan, N.M. Popli and V.J. Francis for the
Respondent.
The Judgment of the Court was delivered by
SABYASACHI MUKHARJI, J. This is an appeal by special
leave from the judgment and order of ,the High Court. of
Delhi dated 12th January, 1988.
The respondent company manufactured wireless receiving
sets, tape recorders, tape players which were assessable
under Tariff Items’
1026
33A and 37AA of the Central Excise Tariff and it had filed
classification list and price lists in respect of the said
goods. On verification of the said lists, it was found that
goods were unbranded and on investigation it was alleged to
have come to the notice of the Department that the respond-
ent company was engaged in the manufacture Of wireless
receiving sets and tape recorders in the brand name of
"Bush". From the documents filed by the respondent, accord-
ing 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 M/s Bush India Limited 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 revenue the respondent was re-
quested 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 respondent evaded the
execution of the said bond which was, according to the
appellants, done deliberately. Thereafter, on 4th January,
1985, a Show Cause Notice was issued for the period 1st
April, 1983 to 30th November, 1984 requiring the respondent
to show cause as to why M/s Bush India Limited should not be
treated as a related person and a favoured buyer of the
respondent company for the purpose of determination of
wholesale cash price and as to why the concessional rate of
duty under notification No. 358/77-CE should not be denied
to the respondent and as to why the differential duty in
respect of the goods cleared during the period should not be
recovered. While the adjudication on the basis of the Show
Cause Notice was pending, the respondent company was again
requested to execute the surety bond in July, 1984. Respond-
ent company thereafter filed a writ petition in the High
Court of Delhi under Article 226 of the Constitution praying
for quashing of the Show Cause Notice and the communication
dated 11th July, 1984 and for mandamus to allow it to clear
the goods on the basis of the price at which the goods were
sold by it allowing the benefit of the relevant notifica-
tion. The High Court by the order dated 12th January, 1987
held that the value of the goods manufactured by the re-
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spondent company was the price charged by it from M/s Bush
India Ltd. and not the market value at which M/s Bush India
Ltd. sold the goods to its wholesalers. In the premises, it
was held that there was no misdeclaration of the value and
the Show Cause Notices were quashed. In passing the impugned
order, the High Court followed its decision in C.W. 197/85.
It is, therefore, necessary to refer to the said decision of
the High Court. The said decision challenged
1027
the notice dated 31st December, 1984 and a demand notice of
the same date. It was contended on behalf of the petitioner
in that case, who is the respondent in the instant appeal
that the said respondent merely manufacture the aforesaid
items for Bush India and after manufacturing those,-it sells
those to M/s Bush India Ltd. It was contended that for the
purpose of finding out the price for payment of excise duty,
only the price which was charged by the respondent from Bush
India Limited could be taken into account and the price at
which M/s Bush India Ltd. further sold those goods in the
market was not the price which was to be taken for the
excise duty. It was contended that Bush India Ltd. was not a
related person of the respondent within the meaning of
Section 4(4)(c) of the Central Excises & Salt Act, 1944
(hereinafter referred to as ’the Act’) and reliance was
placed on the decision of this Court in Union of India v.
Bombay Tyre International, [1984] 1 SCR 347. On the merits
of the case, reliance was also placed on 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 prem-
ises, 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 con-
tended 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 really M/s 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 hereinbefore, 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
other than salt which are produced and manufactured in
India. Section 4(1)(a) of the Act provides:
"4. (1) Where under this Act, the duty of
excise is chargeable on any excisable goods
with reference to value, such value shall,
subject to the other provisions of this sec-
tion, be deemed to be--(a) the normal price
thereof, that is to
1028
say, the price at which such goods are ordi-
narily sold by the assessee to a buyer in the
course of wholesale trade for delivery at the
time and place of removal, where the buyer is
not a related person and the price is the sole
consideration for the sale:
Provided that--(i) where, in accordance with
the normal practice of the wholesale ’trade in
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such goods, such goods are sold by the asses-
see 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 class of buyers ;"
Proviso (iii) to section 4(1)(a) of the Act enjoins that:
"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 related person in
the course of wholesale trade at the time of
removal, to dealers (not being related per-
sons) or where such goods are not sold to such
dealers, to dealers (being related persons)
who sell such goods in retail."
According to clause (c) of sub-section (4) of section 4
of the Act, "related person" means a person who is so asso-
ciated 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. The Explanation to Section 4(4)(c) further
provides that in this clause "holding company", "subsidiary
company" and "relative" have the same meanings as in the
Companies Act, 1956( 1 of 1956). It is in this context that
the validity or otherwise of the High Court’s view has to be
judged.
In Union of India v. Bombay Tyre International, (supra),
this Court had to examine this question. This Court examined
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
1029
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 s.
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 fic-
tion. This Court reiterated that it is well-settled that in
a suitable case the court could lift the corporate veil
where the companies share the relationship of a holding
company and a subsidiary company and also to pay regard to
the economic realities behind the legal facade. The true
position, it was explained by the aforesaid decision, under
the said Act is--the price at which the excisable goods are
ordinarily sold by the assessee to a buyer in the course of
wholesale trade for delivery at the time and place of remov-
al as defined in sub-section (4)(b) of section 4 of the Act
is the basis for determination of excisable value provided,
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of course, the buyer is not a related person within the
meaning of sub-section (4)(c) of section 4 and the price is
the sole consideration for the sale. This aspect was further
examined by this Court in Union of India & Ors. v. Atic
Industries Ltd., [1984] 3 SCR 930. This Court referred to
the decision of Bombay Tyre International (supra) and also
referred to the first part of the definition of "related
person" in clause (c) of section 4(4) which defines "related
person" to mean "a person who is so associated with the
assessee that they have interest directly or indirectly in
the business of each other". It was not enough, it was held,
that the person alleged to be a related person had an inter-
est, direct or indirect in the business of the assessee. To
attract the applicability of the first part of the defini-
tion, the assessee and, the 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. The quality and
degree of interest which each has in the business of the
other may be different; the interest of one in the business
of the other may be direct while the interest of the latter
in the business of the former may be indirect. That would
not make any difference so long as each has got some inter-
est, direct or indirect in the business of the other. In
that case, this Court found that Atul Products Ltd. has
interest in the business of M/s Atic Industries Ltd. since
it held 50% of
1030
the share capital of that assessee and had interest as
shareholder in the business carried on by the assessee. But
this Court was of the view that it could not be said that
the assessee, a limited company, had any interest, direct or
indirect in the business carried on by one of its sharehold-
ers, namely, Atul Products Ltd., even though the sharehold-
ing 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 trans-
actions between them were as principal to principal, it was
difficult to appreciate how the assessee could be said by
virtue of that circumstances to have any interest, direct or
indirect, in the business of Atul Products Ltd. The asses-
see, 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 circum-
stances, the first part of the definition of related persons
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 Dves
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 amended Act. In those circumstances, the
assessable value, it was held, of the dyes manufactured by
the assessee could not be determined with reference to the
selling price charged by Atul Products Ltd. and Crescent
Dyes and Chemicals Ltd. to their purchasers but must be
determined on the basis of the wholesale case price charged
by the assessee to Atul Products Ltd. and Crescent Dyes and
Chemicals Ltd. In that case, the assessee at all material
times sold the large bulk of dyes manufactured by it in
wholesale to Atul Products and Imperial Chemical Industries
(India) Pvt. Ltd. which subsequently came to be known as
Crescent Dyes & Chemicals Ltd. at a uniform price applicable
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alike to both these wholesale buyers and these wholesale
buyers sold these dyes to dealers and consumers at a higher
price which inter alia included the expenses incurred by
them as also their profit. It was noted that the transac-
tions between the assessee .on the one hand and Atul
Products Ltd. and Crescent Dyes and Chemicals Ltd. on the
other were as principal to principal and the wholesale price
charged by the assessee to Atul Products Ltd. and Crescent
Dyes and Chemicals was the sole consideration for the sale
and no extra-commercial consideration entered in the deter-
mination of such price. For appreciating how the wholesale
price could be the basis of the determination of the assess-
able value, a reference may be made to the decision of this
Court in Union of India & Ors. v. Cibatul Limited, [1985]
Supp. 3 SCR 95. In
1031
that case, the respondent Cibatul Ltd. entered into two
agreements with Ciba Geigy of India Ltd. for manufacturing
resins by the seller. The joint manufacturing programme
indicated that the resins were to be manufactured in accord-
ance with the restrictions and specifications constituting
the buyer’s standard and supplied at prices to be agreed
upon from time to time. The buyer was entitled to test a
sample of each batch of the goods and after its approval the
goods were to be released for sale to the buyer. The
products were to bear certain trademarks being the property
of the foreign company--Ciba Geigy of Basle. Tripartite
agreements were also executed between the buyer, the seller
and the foreign company, recognising the buyer as the regis-
tered or licensed user of the trade-marks, authorising the
seller to affix the trade-marks on the products manufactured
"as an agent 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 declaration
for the purposes of levy of excise under the said Act show-
ing the wholesale prices of different classes .of goods sold
by it during the period May, 1972 to May, 1975. The declara-
tion included the wholesale prices of the different resins
manufactured under the two aforesaid agreements. The Assist-
ant Collector of Custom 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 Govt. under sub-section (2)
of s. 36 of the Act and the orders made by the Assistant
Collector were restored. According to the Central Govt. the
buyer was the person engaged in the production of the goods
and the seller merely manufactured them on behalf of.the
buyer and that under the agreements the seller was required
to affix the trade-marks of the buyer on the manufactured
goods and that indicated that the goods belonged to the
buyer. There is a ring of similarity between the facts of
that case and the facts of the instant appeal before us. The
orders of the Central Govt. were challenged under Article
226 of the Constitution. The High Court held that the goods
were manufactured by the seller as its own goods, and there-
fore, the wholesale price charged by the seller must form
the true basis for the levy of excise duty. On appeal. this
Court held that the High Court was right in concluding that
the wholesale price of the goods manufactured by the seller
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was the wholesale price at which it sold those goods to the
buyer, and it was
1032
not the wholesale price at which the buyer sold those goods
to others. The relevant provisions of the agreements and the
other material on the record showed that the manufacturing
programme was drawn up jointly by the buyer and the seller
and not merely by the buyer, and that the buyer was obliged
to purchase the manufactured product from the seller only if
it conformed to the buyer’s standard. For this purpose, the
buyer was entitled to test a sample of each batch of the
manufactured product and it was only on approval by him that
the product was released for sale by the seller to the
buyer. It was apparent that the seller could not be said to
manufacture the goods in those facts, it was held, on behalf
of the buyer. It was further found that it was clear from
the record that the trade-marks of the buyer were to be
affixed on those goods only which were found to conform to
the specifications or standard stipulated by the buyer. All
goods not approved by the buyer could not bear those trade-
marks and were disposed of by the sellers without the advan-
tage of those trade-marks.
This question was again examined by this Court in Joint
Secretary to.the Govt. of India & Ors. v. Food Specialities
Ltd., [1985] Supp. 3 SCR 165. There the respondent used to
manufacture certain goods for sale in India by M/s Nestle’s
Products India Ltd. (for short Nestle’s) under certain trade
marks in respect of which the latter was registered as the
sole registered user in India. The goods were supplied 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 respond-
ent were goods manufactured by it with the trade marks
affixed to them and it was the wholesale cash price of goods
that must determine the value for the purpose of assessment
of excise duty. It
1033
was immaterial that the trade marks belonged to Nestle’s.
What was material was that Nestle’s had authorised the
respondent to affix the trade marks on the goods manufac-
tured by it and it was the goods with the trade marks af-
fixed to them that were sold by the respondent to Nestle’s.
There could, therefore, be no doubt, it was held, that the
wholesale price at which the goods with the trade marks
affixed to them were sold by the respondent to Nestle’s as
stipulated under the agreements would be the value of the
goods for the purpose of excise duty. That was the price at
which the respondent sold the goods to Nestle’s in the
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course of wholesale trade.
Similarly in the instant case, it appears that the brand
name "Bush" was affixed to the goods produced by the re-
spondent. In M/s Sidhosons and Others v. Union of India and
others, [1987] 1 SCC 25, it was held that the excise duty
was payable on the market value fetched by the goods, in the
wholesale market at the factory gate manufactured by the
manufacturers, i.e., the price charged by the manufacturers
to the buyer under the agreement. It could not be assessed
on the basis of the market value obtained by the buyers who
also add to the value of the manufactured goods the value of
their own property in the goodwill of the ’brand name’.
In view of the facts that have emerged in this case, the
High Court came to the conclusion that the market value of
the goods of the respondent herein was the price charged
from M/s Bush India Ltd. and not the market value at which
price M/s Bush India Ltd. sold to its whole-sellers for the
purpose of payment of excise duty. The High Court, there-
fore, quashed the Show Cause Notice and the Demand Notice.
Shri A. Subba Rao on behalf of the Revenue tried to
contend before us that the facts of this case revealed that
it was a device to under-charge. The respondent herein was
brought in to divide the sale price of M/s Bush India Ltd.
to be the basis of the assessable value. It is true that the
facts of this case do warrant a great deal of suspicion. But
it is not possible to hold otherwise than what has been held
by the High Court in this case. It is true, as Shri Rao drew
our attention, that even though the Corporation might be a
legal personality distinct from its members, the Court is
entitled to lift the mask of corporate entity if the concep-
tion is used for tax evasion, or to circumvent tax obliga-
tion or to perpetrate a fraud. In this connection, reference
may be made to the observations of this Court in Juggi Lal
Kamlapat v. Commissioner of Income-tax, U.P., [1969] 1 SCR
988. In the background of the facts
1034
found we, however, need not get ourselves bogged with the
controversy as to judicial approach to tax avoidance devices
as tax pointed out in McDowell and Co. Ltd. v. Commercial
Tax Officer, [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,the atmosphere of tax compliance,
taxes must be reasonably collected and when collected,
should be utilised in proper expenditure and not wasted.
(See the observations in Commissioner of Wealth Tax v.
Arvind Narottam, [1988] 4 SCC 113), It is not necessary, in
the facts of this case to notice the change in the trend of
judicial approach in England: (Sherdeley v. Sherdeley,
[1987] 2 AER 54). While it is true, as observed by Chinnappa
Reddy, J. in McDowell and Co. Ltd. v. Commercial Tax Offi-
cer, (supra) too much to expect the legislature to intervene
and take care of every device and scheme to avoid taxation
and it is up to the court sometimes to take stock to deter-
mine the nature of the new and sophisticated legal devices
to avoid tax and to expose the devices for what they really
are and to refuse to give judicial’ benediction, it is
necessary to remember as observed by Lord Reid in Greenberg
v. IRC, [1971] 47 TC 240(HL) that one must find out the
true nature of the transaction. It is unsafe to make bad
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laws out of hard facts and one should avoid subverting the
rule of law. Unfortunately, in the instant case, facts have
not been found with such an approach by the lower authori-
ties and the High Court had no alternative on the facts as
found but to quash the Show Cause and the Demand Notices.
In that view of the matter, the appeal fails and is
accordingly dismissed. But there will be no order as to
costs. We dismiss this appeal with reluctance. Our reluc-
tance is not to be ascribed to any hesitation to accept the
inference flowing from the facts found but reluctance is due
to the fact that the facts were not properly found.
T.N.A. Appeal dismissed.
1035