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PETITIONER: UNION OF INDIA & ORS.

       Vs.

RESPONDENT: HIND LAMP LTD.

DATE OF JUDGMENT02/05/1989

BENCH: MUKHARJI, SABYASACHI (J) BENCH: MUKHARJI, SABYASACHI (J) RANGNATHAN, S.

CITATION:  1990 AIR  202            1989 SCR  (2)1023  1989 SCC  (3) 181        JT 1989 (3)    11  1989 SCALE  (1)1186

ACT:     Central    Excises    &   Salt    Act,    1944---Section 4(4)(c)--Valuation  of goods for purposes of levy of  excise duty--Whether Customer Companies can be regarded as ’related persons’  as defined in Section 4(4)(c)--Whether the  prices charged  by the assessee company to its  Customer  Companies for  its  products  or the prices charged  by  the  Customer Companies  for further sale to wholesale dealers and  others should be the basis for determination of value of goods  for levy of excise duty.

HEADNOTE:     The  respondent  company,  a  manufacturer  of  electric lamps, fluorescent-lamps and miniature lamps sold its entire products  to five customer companies namely (a) Bajaj  Elec- tricals  Ltd.  (b) Philips India Ltd. (c)  Crompton  Greaves Ltd.  (d) General Electric Co. of India Ltd. and  (e)  Mazda Lamps  Co.  Ltd. after putting the brand names of  the  said Customer  companies  as per their directions.  The  customer companies  in turn sold these lamps under  their  respective names to wholesale dealers and others at prices higher  than the prices charged to them by the Respondent Company.     Excise  duty on electric lamps at first was  a  specific duty but later it was changed to ad valorem duty. After such change there was a controversy between the Respondent Compa- ny  and  the Central Excise authorities as  to  whether  the prices  charged  by the Respondent Company to  its  customer companies  or the prices charged by the  customer  companies when  they  in turn sold to wholesale  dealers  and  others, should be the basis for determination of the value for  levy of excise duty. As the Department insisted that latter shall be the value for levy of excise duty, the Respondent Company moved  a Writ Petition in the High Court of  Allahabad.  The High  Court  by  its order dated 14.5.74  allowed  the  Writ Petition  holding  that the prices at which  the  Respondent Company  sold its products to the Customer companies  should be  the value for levy of excise duty and not the prices  at which the customer companies sold these to wholesale dealers and others. Hence this appeal by the Excise authorities. 874 Dismissing the appeal, this Court,

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   HELD:  The  first part of Section 4(4)(c)  refers  to  a person who is so associated with the assessee that each  had interest,  directly  or indirectly in the  business  of  the other  and  the second part of that definition refers  to  a holding  company,  a subsidiary company, a  relative  and  a distributor of the assessee and any sub-distributor of  such distributor. The sale by the assessee company was on princi- pal to principal basis and the share holding company  (Bajaj Electrical  Ltd.) and so called to associate  companies  .of the foreign share holding companies. Goods were supplied  to the  Customer companies in their brand names as in the  case of  Atic Industries case. In Atic Industries case there  was no  allegation of extra commercial consideration and in  the instant  case  also there was no such  allegation.  In  Atic Industries  case,  same  prices were charged  from  all  the customers,  similar  is the position in  the  instant  case. [876G-H; 877H; 878A-B]     In  view of the ratio of the decision of this  Court  in Atic  Industries  case the Judgment and order  of  the  High Court  is  upheld and the appeal preferred  by  the  Revenue dismissed. [879E]     Union of India v. Bombay Tyre International Ltd., [1984] 1  SCR 347; A.K. Roy v. Voltas Ltd., [1973] 2 SCR  1089  and Union  of India v. Atic Industries Ltd., [1984] 3  SCR  930, referred to.

JUDGMENT:     CIVIL  APPELLATE JURISDICTION: Civil Appeal No. 2858  of 1977.     From  the  Judgment and Order dated 16.12. 1976  of  the Allahabad High Court in Civil Miscellaneous Writ No. 179  of 1976.     A.  Subba Rao, P. Parmeshwaran and Mrs. Sushma Suri  for the Appellants.     H.N. Salve, Ravinder Narain, K.C. Dua, P.K. Ram and D.N. Misra for the Respondents. The Judgment of the Court was delivered by     SABYASACHI  MUKHARJI,  J. This is an appeal  by  special leave  from  the  judgment and order of the  High  Court  of Allahabad dated 16th December, 1976. 875     The question in this case was the valuation of goods for the purpose of levy of excise duty under the Central Excises & Salt Act, 1944 (hereinafter referred to as ’the Act’). The respondent  company had submitted its price list in Form  IV to  the Superintendent, Central Excise containing,the  price at  which five companies to which it sold its entire  output (hereinafter  referred  to as the Customer  Companies)  sold those products. The customer companies thereafter sold their products.  The  respondent challenged the direction  of  the Superintendent  and  had contended that for the  purpose  of levy of excise duty the value of its products should be  the prices  at  which  it sold those products  to  the  customer companies  and  not the prices at which these in  turn  sold those products to wholesale dealers or others. The  respond- ent  company was registered under the Indian Companies  Act, 19 13. At the relevant time, there were five shareholders of the company, namely, Bajaj Electricals Ltd., Bombay,  Cromp- ton  Parkinson Ltd., London, N.V. Philips,  Eindhoven  (Hol- land),  General Electricals Co. Ltd., London and Mazda  Lamp Co. Ltd., Licencester, England. Except M/s Bajaj Electricals Ltd.,  the aforesaid four companies are referred to  as  the foreign companies. The said Bajaj Electricals held  1,80,000

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shares  in the respondent company. It is called  ’A’  share- holder.  The four foreign companies together  held  1,80,000 shares.  These are called ’B’ share holders. The  respondent company was engaged in manufacture of electric lamps,  fluo- rescent lamps and miniature lamps. It sold its entire output of the products exclusively to the following customer compa- nies:    (a) Bajaj Electricals Ltd.    (b) Philips India Ltd.    (c) Crompton Greaves Ltd.    (d) General Electric Co. of India Ltd.    (e) Mazda Lamps Co. Ltd.     On the lamps manufactured by the respondent company,  it put  the  brand names of trade marks  like  Philips,  Osram, Mazda, Crompton and Bajaj of the respective Customer  Compa- nies  according to their directions. The Customer  companies in turn sold these lamps under their names at prices  higher than  the prices charged by the respondent  company.  Excise duty on electric lamps and fluorescent lamps was levied  for the  first time in the year 1965. At first, excise  duty  on lamps  was a specific duty. Later, excise duty on  them  was changed from specific to ad valorem duty. After such change, there  was a controversy between the respondent company  and the  central  excise authorities as to  whether  the  prices charged by the respondent com- 876 pany  to  its  customer companies for its  products  or  the prices charged by the customer companies when they sold them to  wholesale  dealers and others, should be the  basis  for determination  of the value for levy of excise  duty.  Being aggrieved  by the insistance of the Central Excise  authori- ties that the latter prices should be the value for levy  of excise  duty,  the respondent company  approached  the  High Court  of Allahabad by Civil Misc. Writ No. 2 189  of  1973. The  High Court by its order dated 14th May,  1974,  allowed the  writ  petition and held that the prices  at  which  the respondent company sold its products to the customer  compa- nies,  should be the value for levy of excise duty  and  not the  price  at which the customer companies  sold  these  to wholesale  dealers and others. The Central  Excise  authori- ties,  however, had taken the view that the aforesaid  deci- sion  of the High Court which was rendered on the  basis  of the  old section 4 as it stood before it was amended by  the Amendment  Act of 1973 did not apply to the levy  of  excise duty  subsequent to the Amendment Act coming into  force  on 1st  October,  1973. On the other hand,  the  contention  on behalf  of  the respondent company was  that  the  aforesaid amendment  of the Act had not altered the legal position  so far  as  the respondent company was concerned and  that  the decision of the High Court would be binding. It appears that the  Central  Excise Authorities were wrong in view  of  the observations of this Court in Union of India v. Bombay  Tyre International  Ltd.,  [1984]  1 SCR 347,  where  this  Court observed  that  it was not the intention of  the  Parliament while enacting the new section to create a scheme materially different  from  that embodied in the superseded s.  4.  The object and purpose remained the same, and so did the central principle  of  the scheme. The new scheme  was  merely  more comprehensive  and  the language employed more  precise  and definite.  As in the old s. 4, the terms in which the  value was  defined remained the price charged by the  assessee  in the  course of wholesale trade for delivery at the time  and place of removal. See the observations at pages 377 and  378 of the said Report. The High Court referred to the  decision of this Court in A.K. Roy v. Voltas Ltd., [1973] 2 SCR  1089

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and also in Union of India v. Atic Industries Ltd., [1984] 3 SCR 930.     The real question that arose in this case is whether the five customer companies can be regarded as ’related persons’ as  defined in section 4(4)(c). The definition of that  con- sists of two parts. The first part refers to a person who is so  associated  with the assessee that  each  has  interest, directly or indirectly in the business of the other and  the second part of that definition refers to a holding  company, a  subsidiary company, a relative and a distributor  of  the assessee and any sub- 877 distributor of such distributor. The High Court held that in order  for the respondent company to come within  the  first part  of  the  definition, the respondent  company  and  the customer companies must have interest, directly or indirect- ly,  in  the business of each other. Such  of  the  customer companies which held shares in the respondent company, could be  said, according to the High Court, to have  interest  in the business of the respondent company. But only one of  the customers companies, namely, Bajaj Electricals Ltd., Bombay, held  shares in the respondent company. The  remaining  four customer companies did not hold any shares in the respondent company.     It  was  further contended before the  High  Court  that those  four customer companies were respectively  associated companies of the four foreign companies and that hence those four  customer companies must also be held to have  interest indirectly, if not directly, in the business of the respond- ent  company.  The High Court found that in the  absence  of material, it was not possible to accede to the contention of the company. What is ’interest, directly or indirectly’, has been  explained in Union of India & Ors. v. Atic  Industries Ltd.,  (supra).  In that case,  the  respondent-assessee,  a limited company, was engaged in the business of  manufactur- ing  dyes.  Its 50 per cent share capital was held  by  Atul Products  Ltd.  and the remaining 50 per  cent  by  Imperial Chemical Industries Ltd., London which also had a subsidiary company  fully owned by it, called Imperial Chemical  Indus- tries  (India)  Pvt. Ltd. The Imperial  Chemical  Industries (India)  Pvt. Ltd. ceased to be a subsidiary company  wholly owned  by the Imperial Chemical Industries Ltd.,  London  on 13th March, 1978, since 60 per cent of the share capital  of Imperial Chemical Industries (India) Pvt. Ltd., was  offered to  the public in pursuance of the policy of the  Government of  India  requiring that not more than 40 per cent  of  the share  capital  of  an Indian company should be  held  by  a foreign  shareholder. Consequent upon this dilution of  for- eign shareholding, the name of Imperial Chemical  Industries (India) Pvt. Ltd. was changed to Crescent Dyes and Chemicals Ltd.  The assessee in that case at all material  times  sold the  large bulk of dyes manufactured by it in  wholesale  to Atul Products Ltd. and Imperial Chemical Industries  (India) Pvt.  Ltd. which subsequently came to be known  as  Crescent Dyes  and Chemicals at a uniform price applicable  alike  to both these wholesale buyers and those wholesale buyers  sold these dyes to dealers and consumers at a higher price  which inter  alia included the expenses incurred by them  as  also their  profit. The transactions between the assessee on  the one hand and Atul Products Ltd. and Crescent Dyes and Chemi- cals  Ltd. on the other were as principal to  principal  and the wholesale price 878 charged  by the assessee to Atul Products Ltd. and  Crescent Dyes  and Chemicals Ltd. was the sole consideration for  the

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sale  and no extracommercial considerations entered  in  the determination  of such price. In that case, this Court  held that on a proper interpretation of the definition of "relat- ed  person"  in  sub-section (4)(c) of  sec.  4,  the  words "relative and a distributor of the assessee" do not refer to any distributor but these were limited only to a distributor who is a relative of the assessee within the meaning of  the Companies  Act,  1956. It was held that  the  definition  of "related person" is not unduly wide and does not suffer from any constitutional infirmity.     Reliance  was  also placed on the observations  of  this Court in Union of India & Ors. v. Bombay Tyre  International Ltd.,  (supra).  The first part of  the  definition  defined "related person" to mean a person who is so associated  with the assessee that each has interest, directly or indirectly, in  the  business of each other. It is not enough  that  the assessee has an interest, direct or indirect in the business of  the  person  alleged to be a related person  nor  is  it enough that the person alleged to be a related person has an interest,  direct or indirect in the business of the  asses- see.  To attract the applicability of the first part of  the definition,  the  assessee and the person alleged  to  be  a related person must have interest direct or indirect in  the business  of each other. Each of them must have a direct  or indirect interest in the business of the other. The  quality and degree of interest which each must have in the  business of  the other may be different; the interest of one  in  the business  of the other may be direct while the  interest  of the  latter in the business of the former may  be  indirect. After analysing the facts, this Court came to the conclusion that there was no relationship.     Shri  Sibal  placed  before us a  Chart  indicating  the similarity of the facts of Atic Industries’ case (supra) and the facts of the present case. In Atic Industries’ case,  50 per cent of share capital belonged to Atul Products Ltd. and 50  per  cent  to the Imperial Chemicals  (London)  Ltd.,  a foreign  company. In the case of the respondent  herein,  50 per  cent  share capital belonged to the  Bajaj  Electricals Ltd.  (Indian Company) and 50 per cent belonged  to  Philips (17.67%),  Mazda  (14.86%),  G.E.C.  (10.59%)  and  Crompton (6.88%), all foreign companies. In case of Atic  Industries, the sale of goods was on principal to principal basis and to a  share holding company and to another company,  which  was initially  a subsidiary of the foreign shareholding  company and to which subsequently became "associate" company of  the foreign  shareholding company. In the instant case also,  it was  on principal to principal basis and to  a  shareholding company (Bajaj Electricals Ltd.) 879 and  so called to associate companies of the foreign  share- holding companies. Goods were supplied to customers in their brand name in the case of Atic Industries as in the  instant case.  In Atic Industries’ case, there was no allegation  of extra commercial consideration and in the instant case  also there  was no allegation of extra-commercial  consideration. In Atic Industries’ case, same prices were charged from  all the customers, similar is the position in the instant case.     In  the aforesaid view of the matter and in view of  the ratio  of the said decision, Shri Sibal sought to urge  that the  High Court was right in the view it took. In our  opin- ion, Shri Sibal is right. There is a lurking doubt that  the five customer companies were the favoured customers, but  no investigation seems to have been carried out. The High Court while  allowing the writ petition held that it was  open  to the Central Excise Authorities to examine whether or not the

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five  customer  companies were the  favoured  customers  and whether  the price at which the respondent company sold  its products to these were the normal prices at which such goods were  ordinarily  sold by a manufacturer in  the  course  of wholesale trade for delivery at the time and place of remov- al. Apparently, no such scrutiny was done.     In  that view of the matter, the judgment and  order  of the  High Court of Allahabad must be upheld and in  view  of the  ratio  of the decision in Civil Appeal  No.  859,  this appeal must fail without order as to costs. R.N.J.                               Appeal dismissed. 880