1989 (5) TMI 57 - SC - Central Excise

Section 4(4)(c) 'related person' includes holding/subsidiary, relative, distributor; excise value is manufacturer's price, appeal dismissed

SC held that 'related person' under section 4(4)(c) includes holding/subsidiary, relative, distributor and sub-distributor, as defined by the Companies ... Assessable value - normal price - wholesale cash price - related person - lifting the corporate veil - affixing trade marks - colourable deviceRelated person - lifting the corporate veil - colourable device - Whether Bush India Ltd. was a 'related person' of the respondent-company so as to require valuation with reference to Bush India Ltd.'s resale prices and whether the corporate veil should be lifted. - HELD THAT: - The Court examined the statutory definition of 'related person' in section 4(4)(c) of the Central Excises and Salt Act, 1944 and the authorities interpreting that definition. Prior decisions establish that the first limb of the definition requires mutual interest in each other's businesses such that each has a direct or indirect interest in the other's business, and that mere commercial dealings as principal-to-principal do not suffice. Although the facts gave rise to suspicion of an arranged affair or device to undercharge, the material before the authorities and the High Court did not establish the requisite mutual interest or other indicia to treat Bush India Ltd. as a related person. Absent findings of such mutual interest or other decisive facts warranting piercing the corporate veil, the Court held it was not open to infer relatedness or lift the corporate mask on the record before it.Bush India Ltd. is not to be treated as a 'related person' of the respondent on the facts before the Court; the corporate veil is not to be lifted on the existing record.Assessable value - normal price - wholesale cash price - affixing trade marks - Whether the assessable value for excise duty is the price charged by the respondent to Bush India Ltd. or the market price at which Bush India Ltd. sold the goods to wholesalers. - HELD THAT: - The Court applied the established principle that, where the buyer is not a related person and the price is the sole consideration, the normal price for excise valuation is the wholesale price at which the assessee sells to its buyer. Prior decisions cited by the Court (including cases where goods bore the buyer's trade marks) hold that where the manufacturer sells goods (with trade marks affixed pursuant to agreement) as its own production and the wholesale price charged by the manufacturer is the sole consideration, that wholesale cash price is the basis for assessing excise duty. On the facts, the respondent manufactured goods bearing the brand 'Bush' and sold them to Bush India Ltd.; the High Court correctly concluded that the appropriate value for excise purposes was the price charged by the respondent to Bush India Ltd., not Bush India Ltd.'s resale price to wholesalers.The assessable value is the wholesale cash price charged by the respondent to Bush India Ltd., and not the resale price fetched by Bush India Ltd. in the wholesale market.Assessable value - show-cause notice - demand notice - Whether the show-cause and demand notices issued by the Revenue were rightly quashed by the High Court. - HELD THAT: - Because the material did not establish that Bush India Ltd. was a related person nor that the respondent's declared wholesale price was not the sole consideration, the High Court's conclusion that there was no misdeclaration of value was sustained. Although the facts engendered suspicion of an arranged scheme to undercharge, the absence of proper factual findings by the authorities and lower tribunal meant the notices could not be upheld. The Supreme Court emphasised that courts may lift the corporate veil where appropriate, but on the available record it was not possible to do so and the High Court's order quashing the notices must stand.The High Court's quashing of the show-cause and demand notices is affirmed.Final Conclusion: The appeal is dismissed; the High Court correctly held that (i) Bush India Ltd. was not shown to be a 'related person' on the record, (ii) the assessable value for excise is the wholesale cash price charged by the respondent to Bush India Ltd., and (iii) the show-cause and demand notices were therefore rightly quashed. No order as to costs. Issues Involved:1. Classification and valuation of goods for excise duty.2. Determination of 'related person' under Section 4 of the Central Excises and Salt Act, 1944.3. Allegation of wilful suppression of facts and evasion of excise duty.4. Validity of the High Court's decision to quash show-cause and demand notices.Issue-Wise Detailed Analysis:1. Classification and Valuation of Goods for Excise Duty:The respondent company manufactured wireless receiving sets and tape recorders under the brand name 'Bush.' The goods were assessed under Tariff items Nos. 33A and 37AA of the Central Excise Tariff. The company filed classification and price lists, but the Department alleged that the goods were branded and sold exclusively to Bush India Ltd. The High Court held that the value of the goods should be the price charged by the respondent to Bush India Ltd., not the market value at which Bush India Ltd. sold the goods to its wholesalers. This was based on the principle that the price charged by the manufacturer in the course of wholesale trade should be considered for excise duty purposes.2. Determination of 'Related Person' under Section 4 of the Central Excises and Salt Act, 1944:The Department contended that Bush India Ltd. should be treated as a related person under Section 4(4)(c) of the Act, which would affect the assessable value of the goods. The High Court, however, found that Bush India Ltd. was not a related person within the meaning of the Act. The Court relied on precedents like Union of India v. Bombay Tyre International Ltd. and Union of India v. Atic Industries Ltd., which clarified that a related person must have a direct or indirect interest in the business of each other. The Court concluded that the transactions between the respondent and Bush India Ltd. were on a principal-to-principal basis, and no extra-commercial considerations were involved.3. Allegation of Wilful Suppression of Facts and Evasion of Excise Duty:The Department alleged that the respondent wilfully suppressed the fact that the goods were branded and sold exclusively to Bush India Ltd. to evade excise duty. The respondent was requested to execute a surety bond under rule 9B of the Central Excise Rules, 1944, but allegedly evaded this. The High Court quashed the show-cause notice and demand notice, finding no misdeclaration of value by the respondent. The Court noted that the price charged by the respondent to Bush India Ltd. was the correct assessable value and there was no evidence of wilful suppression.4. Validity of the High Court's Decision to Quash Show-Cause and Demand Notices:The High Court's decision was based on its interpretation of Section 4 of the Act and relevant case law. The Court held that the price charged by the respondent to Bush India Ltd. was the correct assessable value for excise duty purposes. The Supreme Court, while dismissing the appeal, noted that the facts of the case warranted suspicion but upheld the High Court's decision due to the lack of properly found facts by the lower authorities. The Supreme Court emphasized that it is the obligation of every citizen to pay taxes honestly and discouraged the use of colourable devices for tax evasion.Conclusion:The Supreme Court dismissed the appeal, upholding the High Court's decision to quash the show-cause and demand notices. The Court reiterated the principles for determining the assessable value for excise duty and the definition of a related person under the Act. The judgment emphasized the importance of proper fact-finding by lower authorities and discouraged tax evasion through dubious methods.