Court quashes orders, allows provisional assessment under rule 9B. Wholesalers not "related persons." Assistant Collector criticized.

The court allowed the writ petition, quashing the impugned orders and directing the respondents to allow the petitioners to avail of provisional assessment under rule 9B. The court held that wholesalers were not "related persons" under Section 4(4)(c) of the Act, emphasizing the absence of a financial or managerial association. The court criticized the Assistant Collector for not considering the petitioners' submissions and violating principles of natural justice. The petitioners were granted costs and directed to reconsider the price list in line with established principles.

---

---

Issues Involved:
1. Interpretation of Section 4 of the Central Excises and Salt Act, 1999.
2. Determination of whether wholesalers are "related persons" under Section 4(4)(c) of the Act.
3. Proper valuation of goods for excise duty purposes.

Detailed Analysis:

Issue 1: Interpretation of Section 4 of the Central Excises and Salt Act, 1999

The main question in this writ petition concerns the interpretation of Section 4 of the Central Excises and Salt Act, 1999. The petitioners manufacture various kinds of papers and paper boards subject to excise under Tariff Item No. 17 of the First Schedule of the Central Excises and Salt Act, 1944. The goods are sold to or through 32 wholesalers across the country, who are independent and have no financial interest or shareholding in the petitioner-company. The sales are made at government-fixed prices with a trade discount of 10%.

Issue 2: Determination of whether wholesalers are "related persons" under Section 4(4)(c) of the Act

The petitioners contend that the wholesalers are not "related persons" as defined under Section 4(4)(c) of the Act. The Divisional Officer, Central Excises, Bhopal, concluded that the wholesalers had monetary interest in the promotion of sales of the petitioner-company, thus were "related persons" and that only a 5% trade discount could be deducted, not 10%. The Appellate Collector and the Central Government upheld this decision, stating that the wholesalers were "related persons" and the price at which the goods were sold by them would be the normal value.

The court observed that neither of the three authorities found that the wholesalers were acting as distributors. The mere assertion by the respondents that wholesalers were distributors was not supported by any material evidence. The court held that a mere commercial contract between two independent parties does not make them "related persons". For a person to be regarded as a "related person," there must be a financial or managerial association and interest in each other's business. The court cited the case of Jay Engineering Works Ltd. v. Union of India, where it was held that a sole selling agent was not a "related person" under the first part of the definition.

Issue 3: Proper valuation of goods for excise duty purposes

The petitioners submitted a price list indicating the value based on manufacturing cost and manufacturing profit, certified by a Cost Accountant. The Assistant Collector rejected this price list, stating that the petitioners had not provided requisite information in the prescribed proforma. The court noted that the petitioners had offered to supply all necessary particulars and had requested provisional assessment under rule 9B of the Central Excise Rules, 1944. The court held that the Assistant Collector erred by not considering the petitioners' letter and not following the principles of natural justice.

Conclusion

The writ petition is allowed. The impugned orders dated 10th November 1976, 15th March 1978, 31st January 1979, and 28th August 1981 are quashed. The respondents are directed to allow the petitioners to avail of provisional assessment under rule 9B and reconsider the price list in accordance with the principles enunciated by the court in Hindustan Milkfood Manufacturers' case. The petitioners are entitled to costs, with counsel's fee set at Rs. 550/-.

---