1988 (3) TMI 209 - AT - Central Excise

Tribunal rules against dual role, deems transactions non-genuine, orders reassessment

The Tribunal upheld the department's objection that M/s. Agarcon could not be both a commission agent and a related person simultaneously. It determined ... Valuation - When sales made through shadow firms Issues Involved:1. Preliminary objections by the respondents.2. Determination of whether M/s. Agarcon was a commission agent or a related person.3. Validity of the four intermediary firms' transactions.4. Basis for determining the assessable value of the fabrics.5. Deductions from M/s. Agarcon's purchase price.Detailed Analysis:Preliminary Objections by the Respondents:The respondents raised two preliminary objections: (1) The Board had not specified the points arising out of the Collector's order requiring determination by the Tribunal; (2) The point that M/s. Agarcon functioned as the commission agent did not arise from the Collector's order. The Tribunal found that the Board's order substantially complied with the provisions of Section 35E(1), dismissing the first objection. However, the second objection was upheld as the department realized that a person could not be both a commission agent and a related person simultaneously. The department dropped the point that M/s. Agarcon was a commission agent.Determination of Whether M/s. Agarcon was a Commission Agent or a Related Person:The Tribunal considered whether M/s. Agarcon could be regarded as a related person of the respondents. Since both were limited companies and separate legal entities, they could not be regarded as 'relatives' under the second part of Section 4(4)(c). The Supreme Court's judgment in Bombay Tyres International Limited clarified that being a distributor alone did not make M/s. Agarcon a related person. The Tribunal found no mutuality of interest between the respondents and M/s. Agarcon, as there was no shareholding between them or the intermediary firms. The department conceded that M/s. Agarcon was a genuine party and not a related person.Validity of the Four Intermediary Firms' Transactions:The Tribunal found that the four intermediary firms were mere shadows with minimal investment and no storage space, acting only as carting agents. The firms existed only on paper, and their transactions were not considered genuine wholesale transactions. The Tribunal held that these firms were deliberately created as a colorable device, and their purchase and resale transactions could not be accepted as the basis of normal price under Section 4(1)(a).Basis for Determining the Assessable Value of the Fabrics:The Tribunal concluded that the fabrics entered the stream of wholesale trade when sold to M/s. Agarcon, who were neither commission agents nor related persons. The purchase price paid by M/s. Agarcon was, therefore, acceptable as the basis for determining the assessable value under Section 4(1)(a). No additional consideration for design/fashion feedback was warranted.Deductions from M/s. Agarcon's Purchase Price:The respondents argued for deductions from M/s. Agarcon's purchase price for transportation costs and interest charges for the credit period. The Tribunal accepted this plea, directing the Collector to verify and quantify these deductions.Conclusion:1. The four intermediary firms were mere shadows, and their transactions were not accepted as the normal price under Section 4(1)(a).2. The fabrics entered the wholesale trade stream when sold to M/s. Agarcon, who were not commission agents or related persons.3. No addition to M/s. Agarcon's purchase price for design/fashion feedback was required.4. Deductions for transportation costs and interest charges from M/s. Agarcon's purchase price were warranted.The Tribunal set aside the Collector's order and directed a re-determination of the assessable values and differential duty, if any, in light of the Tribunal's findings. The reference application was disposed of accordingly.