TaxTMI 
TaxTMI 
1988 (1) TMI 135
X X X X Extracts X X X X
X X X X Extracts X X X X
....ent of Prabhat, working on commission agency basis. The period of the controversy started from 1.10.1975, the date on which the new Section 4 of the Act with its concept of 'related person' came into force. 2. The legislative provision in the new Section 4(4)(c) on 'related person' read as under :- "related persons means a person who is so associated with the assessee that they have interest, directly or indirectly, in the business of each other and includes a holding company, a subsidiary company, a relative a distributor of the assessee, and any sub-distributor of the such distributor". Proviso (iii) to Section 4(1 )(a) provided for as under :- "where the assessee so arranges that the goods are generally not sold by him in the course of wholesale trade except to or through a related person, the normal price of the goods sold by the assessee to or through such related person shall be deemed to be the price at which they are ordinarily sold by the related person in the course of wholesale trade at the time of removal, to dealers (not being related persons) or where such goods are not sold to such dealers, to dealers (being related persons) who sell such goods in retail"....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sons before they can be considered 'related persons'; only one-sided interest is not sufficient. However, once the two-way interest is established, it does not matter whether the interest is direct or indirect. The degree of interest is also not material. So long as the two persons have some common mutual interest in the business of each other, whether direct or indirect, they could be considered "related persons'. Under the second part of Section 4(4)(c), the customer, besides being a distributor of the assessee, should also be a relative of the assessee within the meaning of the term under the Companies Act, 1956. 6. It is in the light of the aforesaid principles laid down by Hon'ble Supreme Court that the facts of the present case have to be judged. For a proper appreciation of the facts, we have for guidance the judgement of the Hon'ble Supreme Court in the case of Mohan Lal Magan lal Bhavsar and Others Vs. Union of India and Others - 1986 (23) E.L.T. 3 (S.C.). In that case, there were two separate partnership firms - the manufacturing firm and the chief distributor firm. The three partners of the manufacturing firm along with a son of each of them were also the partners of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... were to share only in the profits of the distributor firm, but not to be liable for any losses. 7. We observe that the detailed facts of no two cases would be alike. What is to be seen is the totality of the circumstances of each case and draw comparison between the substance of the relationship in the two cases. 8. Coming to the facts of their own case, the appellants state that both the firms, Prabhat as well as Ratna, existed long before the Central Excise duty was imposed on branded chewing tobacco on 1.3.1975. Prabhat was set-up in 1962 and Ratna in 1970. It could not, therefore, be said that Ratna was created as a separate firm with the object of avoiding payment of a part of the Central Excise duty. Further, both the firms had been registered separately as partnership firms and they were separate assessees for the purpose of Income-tax. We observe that, unlike under the Income-tax Act, under the Central Excises and Salt Act or the Partnership Act a firm is not a juristic person. "The firm's name is only a collective name for the individual partners" 1986 (24) E.L.T. 186 (S.C.) - Deputy Commissioner of Sales Tax (Law) v. K. Kelukutty. Further, because of the related pe....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... agreements between the two firms from time to time. We find that the manufacturing firm, Prabhat, very cleverly passed on their own functions of publicity and sales promotion of their products to the distributor firm, Ratna, and made it the responsibility of Ratna to safeguard the goodwill of Prabhat's products in the country-wide markets. For instance, we quote the following clauses from their Deed of Agreement dated 1.4.1980. In these clauses, "FIRST PARTY" refers to Prabhat and "SECOND PARTY" refers to Ratna :- "(14) That it has been mutually agreed that the expenses on advertisement, publicity and sale-promotion will be borne by the parties in the following manner :- (a) The SECOND PARTY will bear the following expenses :- (i) expenses on advertisements in magazines, newspapers, journals and periodicals and souvenirs, and also on pamphlets, brochures, hand-bills etc. (ii) expenses (including incoming and outgoing freight) by means of free gifts, prizes and sample distribution of zarda and other articles under any scheme meant for sale promotion; (iii) expenses on sale promotion activities by means of show centres, pavilions or gates in exhibitions, fairs, melas,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....by the Deed of Agreement dated 1.4.1980 itself. Clause (2) of this Deed laid down that the Muzaffarpur office of Ratna was to purchase goods from Prabhat, but Ratna were doing business from their Delhi office as commission agent of Prabhat and Prabhat agreed to dispatch goods to the Delhi office of the SECOND PARTY to be sold in the commission agency of the SECOND PARTY". The terms and conditions of the commission agency were to be settled by mutual correspondences between the parties. It is clear, therefore, that at least in respect of the dispatches to Ratna's Delhi office, there could be no question of deduction of any trade discount for the purpose of determining the assessable value; the commission given to Ratna on the goods dispatched by Prabhat to them on consignment basis is inadmissible for deduction in view of the Hon'ble Supreme Court's judgment in the case of M/s. Coromandel Fertilisers Ltd. - 1984 (17) E.L.T. 607 (S.C.). (v) There was no clear co-relation between sale bills issued and despatches made by Prabhat to Ratna on the one hand and payments made by Ratna to Prabhat on the other. We re-produce below clause (12) of the Deed of Agreement dated 1.4.1980 to show....