1984 (9) TMI 51 - HC - Central Excise

Court rules purchasing companies not 'related persons' under Central Excises & Salt Act, 1944

The court ruled that the three purchasing companies were not considered 'related persons' under Section 4(4)(c) of the Central Excises and Salt Act, 1944. ... Valuation - Related person Issues Involved:1. Relationship between the petitioner company and the three purchasing companies.2. Determination of the value of goods for excise purposes under Section 4 of the Central Excises and Salt Act, 1944.3. Validity of the show cause notices issued by the respondents.4. Refund of excess excise duty paid by the petitioners.Issue-wise Detailed Analysis:1. Relationship between the petitioner company and the three purchasing companies:The core issue was whether the three purchasing companies (Debsons Private Ltd., Mecotronics Private Limited, and Lakhanpal Pvt. Limited) were 'related persons' under Section 4(4)(c) of the Central Excises and Salt Act, 1944. The petitioners argued that the sales to these companies were on a principal-to-principal basis, with no mutual interest in each other's business. The court noted that prior to 1974, directors of the petitioner company were also directors of these purchasing companies, but this ceased post-1974. The agreements with these companies expired by 1973 and were not renewed, although marketing arrangements continued. The court relied on the Supreme Court's ruling in Union of India v. Atic Industries Ltd., which clarified that a 'related person' must have a mutual interest in the business of the assessee. Since there was no such mutual interest post-1974, the purchasing companies could not be considered 'related persons.'2. Determination of the value of goods for excise purposes under Section 4 of the Central Excises and Salt Act, 1944:Section 4(l)(a) of the Act provides that the value of goods for excise purposes is the normal price at which goods are sold in the wholesale trade, provided the buyer is not a related person. The respondents had issued show cause notices asserting that the three companies were related persons, thus requiring the petitioner to file price lists under part IV of the prescribed form. The court found that since the purchasing companies were not related persons, the price lists should be filed under part I, reflecting the prices at which goods were sold to these companies in the ordinary course of wholesale trade.3. Validity of the show cause notices issued by the respondents:The respondents issued show cause notices in January 1980, questioning the price lists submitted by the petitioners and asserting that the purchasing companies were distributors and related persons. The court examined the expired agreements and the continued marketing arrangements, concluding that the show cause notices were based on an incorrect interpretation of the relationship between the petitioner and the purchasing companies. The court emphasized that the mere continuation of marketing arrangements did not imply that the original distributorship terms remained in force.4. Refund of excess excise duty paid by the petitioners:The petitioners sought a refund of excess excise duty paid under protest from July 1977, based on the incorrect classification of the purchasing companies as related persons. The court ruled in favor of the petitioners, directing the respondents to approve the price lists submitted from July 1977 without deducting any post-manufacturing costs or expenses. The respondents were ordered to determine the exact refund amounts within four months and to refund the excess duty collected from the petitioners forthwith.Conclusion:The court ruled that the three purchasing companies were not 'related persons' under Section 4(4)(c) of the Central Excises and Salt Act, 1944. Consequently, the petitioners were not required to file price lists under part IV of the prescribed form. The court directed the respondents to approve the price lists as submitted by the petitioners from July 1977 and to refund the excess excise duty collected. The respondents were also ordered to pay the costs of the petition to the petitioners.