1979 (2) TMI 108 - HC - Central Excise

Legal Analysis: Parliament's Legislative Scope, 'Related Person' Definition, and Excise Duty Refund

CIBATUL LIMITED., PO. ATUL Versus UNION OF INDIA AND OTHERS

CIBATUL LIMITED., PO. ATUL Versus UNION OF INDIA AND OTHERS - 1979 (4) E.L.T. (J 407) (Guj.) Issues Involved:1. Legislative competence of Parliament to introduce the concept of 'related person' in Section 4 of the Excise Act.2. Determination of whether the manufacturer and the buyer are 'related persons' under the Excise Act.Issue-wise Detailed Analysis:I. Legislative Competence of Parliament to Introduce the Concept of 'Related Person' in Section 4 of the Excise ActContention: The petitioner contended that the concept of 'related person' introduced by Parliament in amended Section 4 of the Excise Act is ultra vires the legislative competence of Parliament under Article 246 read with Entry 84 in List I (Union List) of the Seventh Schedule to the Constitution of India.Analysis:1. Scope of Entry 84: Entry 84 in the Union List pertains to 'Duties of excise on tobacco and other goods manufactured or produced in India.' The Court examined the width and amplitude of the expression 'Duties of excise' and referred to several decisions of the Federal Court and the Supreme Court which have consistently held that excise duty is a tax on the manufacture or production of goods and not on their sale.2. Relevant Precedents:- Central Provinces and Berar Sales of Motor Spirit and Lubricants Taxation Act, 1938: The Federal Court held that excise duties are levied upon the manufacturer or producer of excisable articles at the stage of or in connection with manufacture or production.- Province of Madras v. Messrs Boddu Paidanna & Sons: The Federal Court reiterated that excise duties are duties leviable upon the manufacturer or producer.- Governor General in Council v. Province of Madras: The Privy Council observed that excise duty is a tax upon goods, not upon sales or the proceeds of sale of goods.- M/s. Chhotabhai Jethabhai Patel & Co. v. Union of India: The Supreme Court held that the taxable event for excise duty is the manufacture or production of goods.- R.C. Jall Parsi v. Union of India: The Supreme Court emphasized that excise duty is a tax on articles produced or manufactured in the taxing country.- Union of India v. Delhi Cloth and General Mills Co. Ltd.: The Supreme Court reiterated that excise duty is a tax on the manufacture of goods and not on their sale.- In Re: Sea Customs Act: The Supreme Court observed that excise duty is an indirect duty passed on to the ultimate consumer.- M/s. Shinde Brothers v. Deputy Commissioner, Raichur: The Supreme Court laid down principles for determining whether a levy is an excise duty.- South Bihar Sugar Mills Ltd. v. Union of India: The Supreme Court held that excise duty is a tax on the manufacture or production of goods.- A.K. Roy v. Voltas Ltd.: The Supreme Court held that excise duty is levied on the amount representing the manufacturing cost plus the manufacturing profit.- Atic Industries Ltd. v. H.H. Dave: The Supreme Court held that excise duty should be levied on the amount of manufacturing costs and manufacturing profits, excluding post-manufacturing costs and profits.3. Amended Section 4: The Court analyzed the amended Section 4 of the Excise Act, which provides for the determination of the value of excisable goods with reference to the 'normal price' and includes provisions for sales to or through 'related persons.'4. Concept of 'Related Person': The Court found that the concept of 'related person' in the amended Section 4 requires the price charged by the related person to be taken into account for assessing excise duty, even if the manufacturer charges a fully commercial price. This inclusion of post-manufacturing costs and profits in the assessable value was found to be inconsistent with the nature of excise duty as defined by the Supreme Court.5. Constitutional Violation: The Court concluded that the concept of 'related person' in the amended Section 4 is ultra vires the legislative competence of Parliament under Article 246 read with Entry 84 in the Union List, as it encroaches upon Entry 54 in the State List, which pertains to sales tax.II. Determination of Whether the Manufacturer and the Buyer are 'Related Persons' under the Excise ActContention: The petitioner contended that the manufacturer and the buyer are not 'related persons' within the meaning of that expression given in the Excise Act.Analysis:1. Definition of 'Related Person': The expression 'related person' is defined in the Excise Act as 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, a relative, and a distributor of the assessee and any sub-distributor of such distributor.2. Mutuality of Business Interest: The Court examined whether there was mutuality of business interest between the manufacturer and the buyer. It found that the manufacturer only manufactures goods, and the buyer only buys them, indicating a one-way business relationship without mutuality of business interest.3. Shareholding: The Court noted that the buyer holds only 5% of the manufacturer's shares, and the manufacturer holds no shares of the buyer. This does not satisfy the requirements of a holding company or subsidiary company as defined under the Companies Act, 1956.4. MRTP Act Declaration: The department's reliance on the declaration under the Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act) that the manufacturer and the buyer were 'inter-connected undertakings' was found to be misplaced. The Court held that the definition given in one statute cannot be used for the purpose of another statute.5. Conclusion: The Court concluded that the manufacturer and the buyer are not 'related persons' within the meaning of that expression given in the Excise Act.Judgment:1. The expression 'where the buyer is not a related person' used in Section 4 (1) (a) of the Excise Act is ultra vires Article 246 read with Entry 84 in the Union List.2. The manufacturer and the buyer are not 'related persons' under the Excise Act.Orders:1. The respondents were directed to cancel their orders and refund the sum collected on the basis that excise duty is leviable on the second price charged by the buyer.2. The respondents were directed to pay the costs of the bank guarantee incurred by the petitioner and finalize calculations regarding excess payment of excise duty.3. The operation of the writ was stayed for two months to allow the respondents to approach the Supreme Court for necessary interim orders.Certification:The Court granted a certificate of fitness under Article 132 and Article 133 (1) of the Constitution for appealing against the decision to the Supreme Court, as the case involved substantial questions of law of general importance pertaining to central excise and the interpretation of constitutional entries.