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

UNION OF INDIA AND OTHERS Versus KANTILAL CHUNILAL AND OTHERS

UNION OF INDIA AND OTHERS Versus KANTILAL CHUNILAL AND OTHERS - 1986 (26) E.L.T. 289 (SC) 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.