1986 (4) TMI 59 - SC - Central Excise

Supreme Court: 'Related person' definition clarified in Central Excises Act case

The Supreme Court clarified the interpretation of the definition of 'related person' in the Central Excises & Salt Act, 1944, in a case involving M/s. ... Whether the firm of M/s. Alok Textiles could be said to be related person within the meaning of that expression as defined in Clause (c) of Sub-Section (4) of Section 4 of the Central Excises & Salt act, 1944? Whether the value of the excisable goods for the purpose of levy of excise duty in the hands of the respondents could be taken to be the whole-sale cash price at which the excisable goods were sold by the firm of M/s. Alok Textiles on the basis that the firm of M/s. Alok Textiles was a related person? Held that:- Having regard to the decision of this court in Union of India v. Bombay Tyres International [1983 (10) TMI 51 - SUPREME COURT OF INDIA, NEW DELHI] the view taken by the High Court that the definition of 'related person' in Clause (c) of Sub-Section (4) of Section 4 is unconstitutional and void has to be rejected. The Assessing authorities were therefore, clearly wrong in taking the wholesale cash price at which the excisable goods were sold by the wholesale traders as the value of excisable goods for the purpose of levy of excise duty. The wholesale cash price at which the excisable goods were sold by the respondents to M/s. Alok Textiles and other wholesale dealers was the only price liable to be taken for determination of the value for the purpose of levy of excise duty. We would therefore partly allow the appeal Issues:1. Interpretation of the definition of 'related person' in the Central Excises & Salt Act, 1944.2. Determination of the value of excisable goods for the purpose of levy of excise duty.3. Exclusion of post-manufacturing expenses and profits in the valuation of excisable goods.Analysis:The Supreme Court considered the interpretation of the definition of 'related person' in the Central Excises & Salt Act, 1944, specifically in relation to the firm of M/s. Alok Textiles. The Department argued that the value of excisable goods for levy of excise duty should be based on the wholesale cash price at which M/s. Alok Textiles sold goods, as they were considered a related person. However, the Court found it difficult to classify M/s. Alok Textiles as a 'related person' since the respondents did not have direct or indirect interest in their business. The Court emphasized that the wholesale cash price at which goods were sold to various wholesale dealers, including M/s. Alok Textiles, should be considered for excise duty valuation, not just the price at which M/s. Alok Textiles sold.Regarding the determination of the value of excisable goods for excise duty, the Court rejected the view that post-manufacturing expenses and profits should be included in the valuation. Instead, the Court held that the wholesale cash price at which goods are sold in wholesale at the factory gate is the appropriate price for determining the value of excisable goods for levy of excise duty. This decision overturned previous rulings that supported including post-manufacturing expenses and profits in the valuation.In conclusion, the Court partly allowed the appeal, directing a fresh assessment based on the wholesale cash price at which goods were sold by the respondents to M/s. Alok Textiles and other wholesale dealers. The assessment was to be completed within six weeks, with the bank guarantee to be encashed only if the respondents were liable to pay any amount to the Department. Refunds were to be made promptly if any amount was found refundable to the respondents. The Court also disposed of similar appeals with no order as to costs, maintaining consistency in its rulings.