TaxTMI 
TaxTMI 
2010 (12) TMI 15
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.... the respondent, were sold to M/s. Frito-Lay India, a `related person', and the balance of 4% were sold to independent wholesale buyers. From 12th January, 1998, the sale pattern between the two was changed, wherein M/s. Pepsi Foods Ltd. started manufacturing the aforesaid products on behalf of M/s. Frito-Lay India. 3. By a communication dated 15th December, 1997 addressed to the Assistant Commissioner, Central Excise, Division Jalandhar, the respondent stated that it had been paying excise duty on its manufactured excisable goods after taking into account inter alia, the costs of raw materials, packing materials, conversions and their profit margin. Subsequently it calculated and paid the differential duty, on the price at which the final products were sold by M/s. Frito-Lay India to its wholesale dealers. It enclosed certificate of a chartered accountant in support of its calculations. In its submission of Annexure-A as required under Rule 173C (3A) of Central Excise Rules, 1944, it mentioned that the sale of the products occurred at its factory gate. It was also evident from the letter that the final products were entering the market stream when they were being sold by....
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.... (3) ... (4) For the purposes of this section, - (a) ... (b) ... (c) "related person" 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 and a distributor of the assessee, and any sub-distributor of such distributor. Explanation.- In this clause "holding company", "subsidiary company" and "relative" have the same meanings as in the Companies Act, 1956 (1 of 1956). 9. The transaction between M/s. Pepsi Foods Ltd. and M/s. Frito-Lay India has to be understood as one where sale price cannot be known. In situations where the assessee sold its goods to a related person, it was prudent to understand that the price in such a sale would be deliberately understated so as to evade taxation within the scheme of the Act. It was to dissuade such sales that the legislature had decided to deem the price of the goods at the time of their sale by the related persons to wholesale market. The `normal price' as mentioned in Section 4 (1) (a) of the Act. The provision of Section 4(1)(a) is as follows: "4. Valuation....
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....pot of the related person from where the goods are sold to the whole sellers, instead of the factory gate of the assessee. The Revenue contends that an obvious corollary to this is that the freight charges so arising between the factory gate of the assessee and the place of removal at the depot of the related person should constitute the value of the goods for the purposes of computation of excise duty. It further contends that since, the `place of removal' is not the assessee's factory gate but rather the depot of the related person, the price is known, only at the price at which goods are sold to whole sellers by the related person. 11. Opposing the same, the learned counsel for the respondent contended that M/s. Frito Lay India is not a subsidiary of the respondent. The brand names of the products are held by Pepsi Co. Inc. USA. Respondent's case is that 96% of the products manufactured by it are sold to M/s. Frito Lay India and only 4% to independent whole sellers. Originally the assessable value of the items manufactured by the respondent was arrived at on the basis of price at which the respondent sold them to M/s. Frito Lay India by taking into account the costs of....
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....e of removal was not known and the taxable value of the excisable product had to be determined with reference to the price for delivery (sale) at a place other than the price of removal. Under Section 4 (2), the cost of transportation from the place of removal to the place of delivery was deductible, provided that the assessable value (taxable value) was not known at the factory gate and had to be determined with reference to another place. If the goods were manufactured at place "X" but the assessable value was determined with reference to place "Y", the cost of transportation had to be deducted." 14. In coming to the said conclusion, the learned judges relied on this Court's decision in Union of India and others v. Bombay Tyre International Limited and others, (1984) 1 SCC 467. In para 31 of Akay Cosmetics (supra), the learned judges summed up the essence of the question by saying, inter alia, "therefore the article became an object of assessment when it was sold by the manufacturer." 15. It is not in dispute in the instant case Section 4(2) does not apply. What applies is the provision of Section 4(1)(a)(iii) as it stood at the relevant time. The rationale of the pr....
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....AC of the Act as it stood at the relevant point of time runs as under: "11AC. Where any duty of excise has not been levied or paid or has been short- levied or short-paid or erroneously refunded by reasons of fraud, collusion or any wilful mis-statement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty, the person who is liable to pay duty as determined under sub- section (2) of section 11A, shall also be liable to pay a penalty equal to the duty so determined: Provided that where the duty determined to be payable is reduced or increased by the Commissioner (Appeals), the Appellate Tribunal or, as the case may be, the court, then, for the purposes of this section, the duty as reduced or increased, as the case may be, shall be taken into account." 19. From a perusal of the aforesaid section, especially the underlined portion, it is clear that in order to attract the penalty provision under Section 11 AC, criminal intent or `mens rea' is a necessary constituent. In the reply to the show cause notice the stand which has been taken by the respondent is that it has been ....