TaxTMI 
TaxTMI 
1983 (9) TMI 89
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....t Voltas were appointed the sole distributors of the tractors manufactured by the Company. It is required to be stated that no excise duty was leviable on tractors manufactured by the Company prior to May 29, 1971 when for the first time Item 34A(3) was inserted providing excise duty 10% ad valorem on the manufacture of the tractors. The agreement between the Company and the Voltas was to remain in operation for a period of five years from February 26, 1970. The International Tractor Company was merged with the petitioner Company with effect from November 1, 1977 under an order dated March 9, 1978 passed by this Court and the entire assets and liabilities as well as entire undertaking of the Company has vested in the petitioners. 3. The petitioners initially paid excise duty on the tractors manufactured by them on the basis that the price charged by the Company to Voltas was the assessable value. The Department, however, claimed that the price charged by Voltas to their dealers was the assessable value and demanded a sum of Rs. 35,855.70 as duty short-levied for the months of June and July 1971. The duty was paid by the petitioners under protest. On October 3, 1971, the petition....
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....r of the appellate authority before the Joint Secretary to the Government of India and the revision was allowed by an order dated June 20, 1979 and the matter was remitted back to the Assistant Collector for fresh disposal. The Additional Secretary to the Government of India held that the decision taken by the authorities below was unsustainable in law and the Assistant Collector should take a decision in accordance with law and examine the refund claim of the petitioners on merits as expeditiously as possible. The refund claim which was remitted back for reconsideration to the Assistant Collector was for the period from October 4, 1971 to February 11, 1972. 5. The petitioners filed application for refund of Rs. 6,19,223.40 on February 8, 1973 for the period commencing from February 14, 1972 to December 21, 1972. This claim for refund was also one the basis that the assessable value for the purpose of excise duty on the manufacture of the tractors should be the price at which the tractors are sold to Voltas. The Assistant Collector, by an order dated July 31, 1976 rejected the claim on the ground that the transaction between the petitioners and Voltas was not at arms, length as ....
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....turer to be regarded as the assessable value. 7. On behalf of the respondents, return sworn on August 30, 1983 by Shri A.R. Mirchandani, Assistant Collector of Central Excise, Bombay Division `R' is filed to resist the reliefs sought by the petitioners. It is claimed in the return that the agreement between the petitioners and the Voltas though styled as distributorship agreement is really an agreement of agency under which the Voltas were carrying out certain activities which are really the activities connected with manufacture. Though the return raises some other contentions about the petitioners' failure to exhaust the legal remedies provided by way of appeal and revision against the impugned order, Shri Dalal, learned counsel appearing on behalf of the respondents, has restricted his submissions only to one point and that is, that the agreement between the petitioners and Voltas is not at arms length. 8. Section 4(a) of the Central Excises and Salt Act, 1944 prior to its amendment in October 1975 read as under :- "Where under this Act, any article is chargeable with duty at a rate dependent on the value of the article, such value be deemed to be - (a) the wholesale ....
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....acturing cost and manufacturing profit and it must not be loaded with post-manufacturing profit arising from post-manufacturing operation. The price charged by the manufacturer for sale of the goods in wholesale would, therefore, represent the real value of the goods for the purpose of assessment of excise duty. With this background, it is necessary to consider whether the agreement between the petitioners and Voltas is at arms length. 9. The first and the foremost thing to be noted is that on the date of the agreement i.e. March 17, 1970, the tractors manufactured by the petitioners were not liable to payment of excise duty and the excise duty was levied for the first time on May 29, 1971 under Tariff Item No. 34A(3) of the Central Excise Tariff. The agreement was for a duration of 5 years and under the distributorship agreement, it was the duty of the Voltas to assess the market conditions for the sale of tractors, to place orders in advance, to promote sales and the Voltas were obliged to purchase tractors as per the orders placed by them in advance. It was further agreed that regardless the time that might lost till the Voltas received payment from the dealers, they would pa....
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....in the goods passes to such a buyer. The submission of Shri Dalal, therefore, that as the agreement between the petitioners and the Voltas was described as a distributorship agreement, it should be treated as an agreement of agency cannot be accepted. 11. Shri Dalal then submitted that under the agreement, the Voltas were required to carry out the activities of the manufacturers and, therefore, want the petitioners intended to do was to transfer some of the activities of the manufacturers to Voltas with a view to reduce the assessable value for the purpose of excise. In support of this submission, reliance is placed on three or four conditions under the agreement. It was urged that the Voltas were required to maintain a Sales Organisation and such a condition was not necessary in the agreement if the petitioners had sold the tractors to Voltas because then it was wholly irrelevant to provide as to how the Voltas should dispose of those tractors to the consumers. The condition under the agreement which provides that Voltas were to store the tractors till they are sold to the consumers was also relied upon to claim that the agreement was not at arms length. The provision which req....