Court upholds Excise Authorities decision on arms length agreement, grants relief for low-cost footwear.

The court upheld the Excise Authorities' decision that the agreement between the petitioners and Bata Shoe Company was not at arms length. The court rejected the petitioners' claim for exemption from excise duty for the specified period but granted relief for footwear costing less than Rs. 5 by directing the exclusion of post-manufacturing costs in determining assessable value. The court remanded the proceedings to the Assistant Collector for further assessment in line with the judgment.

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Issues:
1. Determination of whether an agreement between petitioners and Bata Shoe Company is at arms length.
2. Exemption from excise duty for the period from May 28, 1967, to December 1, 1967.
3. Exemption from excise duty on footwear costing less than Rs. 5.

Analysis:

Issue 1: Arms Length Agreement
The petitioners contended that the agreement with Bata Shoe Company was at arms length, contrary to the Excise Authorities' view. The court considered various factors such as the setup costs, procurement of machinery, and determination of prices. The court analyzed the agreement's provisions, including technical assistance and working capital provided by Bata Shoe Company. Ultimately, the court upheld the Excise Authorities' view that the agreement was not at arms length, considering the cumulative effect of circumstances.

Issue 2: Exemption from Excise Duty (May 28, 1967 - Dec 1, 1967)
The petitioners sought exemption from excise duty based on a 1964 notification exempting certain plastic articles. However, the court clarified that the exemption applied to specific items under a different schedule, not including plastic footwear falling under Item 36. Consequently, the court rejected the petitioners' claim for exemption during the specified period.

Issue 3: Exemption for Footwear Costing Less than Rs. 5
The petitioners claimed exemption from excise duty for footwear costing less than Rs. 5 based on notifications from 1967 and 1968. The court agreed with this claim, directing the Assistant Collector to exclude post-manufacturing costs while determining assessable value. The court remanded the proceedings for this purpose, granting relief to the petitioners in this regard.

In conclusion, the court upheld the Excise Authorities' decision regarding the arms length nature of the agreement. The court rejected the petitioners' claim for exemption from excise duty for the specified period but granted relief for footwear costing less than Rs. 5 by directing the exclusion of post-manufacturing costs in determining assessable value. The court remanded the proceedings to the Assistant Collector for further assessment in line with the judgment.

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