Full Judgment Text
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PETITIONER:
UNION OF INDIA & ORS.
Vs.
RESPONDENT:
HIND LAMP LTD.
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 & Salt Act, 1944---Section
4(4)(c)--Valuation of goods for purposes of levy of excise
duty--Whether Customer Companies can be regarded as ’related
persons’ as defined in Section 4(4)(c)--Whether the prices
charged by the assessee company to its Customer Companies
for its products or the prices charged by the Customer
Companies for further sale to wholesale dealers and others
should be the basis for determination of value of goods for
levy of excise duty.
HEADNOTE:
The respondent company, a manufacturer of electric
lamps, fluorescent-lamps and miniature lamps sold its entire
products to five customer companies namely (a) Bajaj Elec-
tricals Ltd. (b) Philips India Ltd. (c) Crompton Greaves
Ltd. (d) General Electric Co. of India Ltd. and (e) Mazda
Lamps Co. Ltd. after putting the brand names of the said
Customer companies as per their directions. The customer
companies in turn sold these lamps under their respective
names to wholesale dealers and others at prices higher than
the prices charged to them by the Respondent Company.
Excise duty on electric lamps at first was a specific
duty but later it was changed to ad valorem duty. After such
change there was a controversy between the Respondent Compa-
ny and the Central Excise authorities as to whether the
prices charged by the Respondent Company to its customer
companies or the prices charged by the customer companies
when they in turn sold to wholesale dealers and others,
should be the basis for determination of the value for levy
of excise duty. As the Department insisted that latter shall
be the value for levy of excise duty, the Respondent Company
moved a Writ Petition in the High Court of Allahabad. The
High Court by its order dated 14.5.74 allowed the Writ
Petition holding that the prices at which the Respondent
Company sold its products to the Customer companies should
be the value for levy of excise duty and not the prices at
which the customer companies sold these to wholesale dealers
and others. Hence this appeal by the Excise authorities.
874
Dismissing the appeal, this Court,
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HELD: The first part of Section 4(4)(c) refers to a
person who is so associated with the assessee that each had
interest, directly or indirectly in the business of the
other and the second part of that definition refers to a
holding company, a subsidiary company, a relative and a
distributor of the assessee and any sub-distributor of such
distributor. The sale by the assessee company was on princi-
pal to principal basis and the share holding company (Bajaj
Electrical Ltd.) and so called to associate companies .of
the foreign share holding companies. Goods were supplied to
the Customer companies in their brand names as in the case
of Atic Industries case. In Atic Industries case there was
no allegation of extra commercial consideration and in the
instant case also there was no such allegation. In Atic
Industries case, same prices were charged from all the
customers, similar is the position in the instant case.
[876G-H; 877H; 878A-B]
In view of the ratio of the decision of this Court in
Atic Industries case the Judgment and order of the High
Court is upheld and the appeal preferred by the Revenue
dismissed. [879E]
Union of India v. Bombay Tyre International Ltd., [1984]
1 SCR 347; A.K. Roy v. Voltas Ltd., [1973] 2 SCR 1089 and
Union of India v. Atic Industries Ltd., [1984] 3 SCR 930,
referred to.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2858 of
1977.
From the Judgment and Order dated 16.12. 1976 of the
Allahabad High Court in Civil Miscellaneous Writ No. 179 of
1976.
A. Subba Rao, P. Parmeshwaran and Mrs. Sushma Suri for
the Appellants.
H.N. Salve, Ravinder Narain, K.C. Dua, P.K. Ram and D.N.
Misra for the Respondents.
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
Allahabad dated 16th December, 1976.
875
The question in this case was the valuation of goods for
the purpose of levy of excise duty under the Central Excises
& Salt Act, 1944 (hereinafter referred to as ’the Act’). The
respondent company had submitted its price list in Form IV
to the Superintendent, Central Excise containing,the price
at which five companies to which it sold its entire output
(hereinafter referred to as the Customer Companies) sold
those products. The customer companies thereafter sold their
products. The respondent challenged the direction of the
Superintendent and had contended that for the purpose of
levy of excise duty the value of its products should be the
prices at which it sold those products to the customer
companies and not the prices at which these in turn sold
those products to wholesale dealers or others. The respond-
ent company was registered under the Indian Companies Act,
19 13. At the relevant time, there were five shareholders of
the company, namely, Bajaj Electricals Ltd., Bombay, Cromp-
ton Parkinson Ltd., London, N.V. Philips, Eindhoven (Hol-
land), General Electricals Co. Ltd., London and Mazda Lamp
Co. Ltd., Licencester, England. Except M/s Bajaj Electricals
Ltd., the aforesaid four companies are referred to as the
foreign companies. The said Bajaj Electricals held 1,80,000
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shares in the respondent company. It is called ’A’ share-
holder. The four foreign companies together held 1,80,000
shares. These are called ’B’ share holders. The respondent
company was engaged in manufacture of electric lamps, fluo-
rescent lamps and miniature lamps. It sold its entire output
of the products exclusively to the following customer compa-
nies:
(a) Bajaj Electricals Ltd.
(b) Philips India Ltd.
(c) Crompton Greaves Ltd.
(d) General Electric Co. of India Ltd.
(e) Mazda Lamps Co. Ltd.
On the lamps manufactured by the respondent company, it
put the brand names of trade marks like Philips, Osram,
Mazda, Crompton and Bajaj of the respective Customer Compa-
nies according to their directions. The Customer companies
in turn sold these lamps under their names at prices higher
than the prices charged by the respondent company. Excise
duty on electric lamps and fluorescent lamps was levied for
the first time in the year 1965. At first, excise duty on
lamps was a specific duty. Later, excise duty on them was
changed from specific to ad valorem duty. After such change,
there was a controversy between the respondent company and
the central excise authorities as to whether the prices
charged by the respondent com-
876
pany to its customer companies for its products or the
prices charged by the customer companies when they sold them
to wholesale dealers and others, should be the basis for
determination of the value for levy of excise duty. Being
aggrieved by the insistance of the Central Excise authori-
ties that the latter prices should be the value for levy of
excise duty, the respondent company approached the High
Court of Allahabad by Civil Misc. Writ No. 2 189 of 1973.
The High Court by its order dated 14th May, 1974, allowed
the writ petition and held that the prices at which the
respondent company sold its products to the customer compa-
nies, should be the value for levy of excise duty and not
the price at which the customer companies sold these to
wholesale dealers and others. The Central Excise authori-
ties, however, had taken the view that the aforesaid deci-
sion of the High Court which was rendered on the basis of
the old section 4 as it stood before it was amended by the
Amendment Act of 1973 did not apply to the levy of excise
duty subsequent to the Amendment Act coming into force on
1st October, 1973. On the other hand, the contention on
behalf of the respondent company was that the aforesaid
amendment of the Act had not altered the legal position so
far as the respondent company was concerned and that the
decision of the High Court would be binding. It appears that
the Central Excise Authorities were wrong in view of the
observations of this Court in Union of India v. Bombay Tyre
International Ltd., [1984] 1 SCR 347, where this Court
observed that it was not the intention of the Parliament
while enacting the new section to create a scheme materially
different from that embodied in the superseded s. 4. The
object and purpose remained the same, and so did the central
principle of the scheme. The new scheme was merely more
comprehensive and the language employed more precise and
definite. As in the old s. 4, the terms in which the value
was defined remained the price charged by the assessee in
the course of wholesale trade for delivery at the time and
place of removal. See the observations at pages 377 and 378
of the said Report. The High Court referred to the decision
of this Court in A.K. Roy v. Voltas Ltd., [1973] 2 SCR 1089
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and also in Union of India v. Atic Industries Ltd., [1984] 3
SCR 930.
The real question that arose in this case is whether the
five customer companies can be regarded as ’related persons’
as defined in section 4(4)(c). The definition of that con-
sists of two parts. The first part refers to a person who is
so associated with the assessee that each has interest,
directly or indirectly in the business of the other and the
second part of that definition refers to a holding company,
a subsidiary company, a relative and a distributor of the
assessee and any sub-
877
distributor of such distributor. The High Court held that in
order for the respondent company to come within the first
part of the definition, the respondent company and the
customer companies must have interest, directly or indirect-
ly, in the business of each other. Such of the customer
companies which held shares in the respondent company, could
be said, according to the High Court, to have interest in
the business of the respondent company. But only one of the
customers companies, namely, Bajaj Electricals Ltd., Bombay,
held shares in the respondent company. The remaining four
customer companies did not hold any shares in the respondent
company.
It was further contended before the High Court that
those four customer companies were respectively associated
companies of the four foreign companies and that hence those
four customer companies must also be held to have interest
indirectly, if not directly, in the business of the respond-
ent company. The High Court found that in the absence of
material, it was not possible to accede to the contention of
the company. What is ’interest, directly or indirectly’, has
been explained in Union of India & Ors. v. Atic Industries
Ltd., (supra). In that case, the respondent-assessee, a
limited company, was engaged in the business of manufactur-
ing dyes. Its 50 per cent share capital was held by Atul
Products Ltd. and the remaining 50 per cent by Imperial
Chemical Industries Ltd., London which also had a subsidiary
company fully owned by it, called Imperial Chemical Indus-
tries (India) Pvt. Ltd. The Imperial Chemical Industries
(India) Pvt. Ltd. ceased to be a subsidiary company wholly
owned by the Imperial Chemical Industries Ltd., London on
13th March, 1978, since 60 per cent of the share capital of
Imperial Chemical Industries (India) Pvt. Ltd., was offered
to the public in pursuance of the policy of the Government
of India requiring that not more than 40 per cent of the
share capital of an Indian company should be held by a
foreign shareholder. Consequent upon this dilution of for-
eign shareholding, the name of Imperial Chemical Industries
(India) Pvt. Ltd. was changed to Crescent Dyes and Chemicals
Ltd. The assessee in that case at all material times sold
the large bulk of dyes manufactured by it in wholesale to
Atul Products Ltd. and Imperial Chemical Industries (India)
Pvt. Ltd. which subsequently came to be known as Crescent
Dyes and Chemicals at a uniform price applicable alike to
both these wholesale buyers and those 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. The transactions between the assessee on the
one hand and Atul Products Ltd. and Crescent Dyes and Chemi-
cals Ltd. on the other were as principal to principal and
the wholesale price
878
charged by the assessee to Atul Products Ltd. and Crescent
Dyes and Chemicals Ltd. was the sole consideration for the
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sale and no extracommercial considerations entered in the
determination of such price. In that case, this Court held
that on a proper interpretation of the definition of "relat-
ed person" in sub-section (4)(c) of sec. 4, the words
"relative and a distributor of the assessee" do not refer to
any distributor but these were limited only to a distributor
who is a relative of the assessee within the meaning of the
Companies Act, 1956. It was held that the definition of
"related person" is not unduly wide and does not suffer from
any constitutional infirmity.
Reliance was also placed on the observations of this
Court in Union of India & Ors. v. Bombay Tyre International
Ltd., (supra). The first part of the definition defined
"related person" to mean a person who is so associated with
the assessee that each has interest, directly or indirectly,
in the business of each other. 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 asses-
see. To attract the applicability of the first part of the
definition, 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 must have 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.
After analysing the facts, this Court came to the conclusion
that there was no relationship.
Shri Sibal placed before us a Chart indicating the
similarity of the facts of Atic Industries’ case (supra) and
the facts of the present case. In Atic Industries’ case, 50
per cent of share capital belonged to Atul Products Ltd. and
50 per cent to the Imperial Chemicals (London) Ltd., a
foreign company. In the case of the respondent herein, 50
per cent share capital belonged to the Bajaj Electricals
Ltd. (Indian Company) and 50 per cent belonged to Philips
(17.67%), Mazda (14.86%), G.E.C. (10.59%) and Crompton
(6.88%), all foreign companies. In case of Atic Industries,
the sale of goods was on principal to principal basis and to
a share holding company and to another company, which was
initially a subsidiary of the foreign shareholding company
and to which subsequently became "associate" company of the
foreign shareholding company. In the instant case also, it
was on principal to principal basis and to a shareholding
company (Bajaj Electricals Ltd.)
879
and so called to associate companies of the foreign share-
holding companies. Goods were supplied to customers in their
brand name in the case of Atic Industries as in the instant
case. In Atic Industries’ case, there was no allegation of
extra commercial consideration and in the instant case also
there was no allegation of extra-commercial consideration.
In Atic Industries’ case, same prices were charged from all
the customers, similar is the position in the instant case.
In the aforesaid view of the matter and in view of the
ratio of the said decision, Shri Sibal sought to urge that
the High Court was right in the view it took. In our opin-
ion, Shri Sibal is right. There is a lurking doubt that the
five customer companies were the favoured customers, but no
investigation seems to have been carried out. The High Court
while allowing the writ petition held that it was open to
the Central Excise Authorities to examine whether or not the
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five customer companies were the favoured customers and
whether the price at which the respondent company sold its
products to these were the normal prices at which such goods
were ordinarily sold by a manufacturer in the course of
wholesale trade for delivery at the time and place of remov-
al. Apparently, no such scrutiny was done.
In that view of the matter, the judgment and order of
the High Court of Allahabad must be upheld and in view of
the ratio of the decision in Civil Appeal No. 859, this
appeal must fail without order as to costs.
R.N.J. Appeal dismissed.
880