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PETITIONER: UNION OF INDIA & ORS.

       Vs.

RESPONDENT: PLAYWORLD ELECTRONICS PVT. LTD. & ANR.

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 and Salt Act, 1944:  Sections  4(1)(a), 4(4)(c)/ Central Excise Rules, 1944: Rule 9B.     Assessee--Manufacturing  wireless receiving  sets,  tape recorders,  tape  players under brand  name  ’Bush’--Selling products  exclusively to the Company (Bush India  Ltd.)  and its  authorised  wholesale  dealers-price   charged--Whether represents correct assessable value for excise duty.     Company   Law--Tax   evasion  or   perpetration   of   a fraud--Duty of Court to lift corporate veil.     Taxation--Tax  planning within the framework of  law  is legitimate--Colourable  devices cannot be part of tax  plan- ning. Words and phrases: ’Related person ’--Meaning of.

HEADNOTE:     The respondent company was engaged in the manufacture of wireless receiving sets, tape recorders, tape players. These products were assessable under Tariff Items 33A and 37AA  of the  Central Excise Tariff. In the classification  list  and price  lists filed by the respondentassessee  company  these goods  were  shown as unbranded goods. Subsequentiy  it  was found that the respondent-assessee company was manufacturing their products in the brand name of "Bush" and were  selling the  same exclusively to M/s Bush India Ltd. or  its  autho- rised wholesale dealers only. The appellants-Revenue alleged that there was wilful suppression of facts by the respondent company  with  intention to evade excise duty  because  this fact  was not mentioned by the company in the price list  or classification list, filed.     A show Cause Notice was issued requiring the  respondent company to show cause as to why, (i) M/s Bush India  Limited should not be treated as .a ’related person’ and a  favoured buyer of the respondent company for the purpose of  determi- nation  of wholesale cash price, (ii) the concessional  rate of duty under notification No. 358/77-CE should 1024 not be denied to the respondent and, (iii) the  differential duty  in respect of the goods cleared should not  be  recov- ered.     Instead  of  executing the surety bond  the  respondent-

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assessee  company  filed a writ petition in the  High  Court praying  for  quashing of the Show Cause Notice  and  for  a mandamus to allow it to clear the goods on the basis of  the price  at  which  the goods were sold by it  to  Bush  India Limited allowing the benefit of the relevant notification.     The High Court following its earlier decision held  that for  the purpose of payment of excise duty the market  value of  the  goods of the respondent-assessee  company  was  the price  charged by it from M/s Bush India Ltd., and  not  the market  value  at which price M/s Bush India Ltd.  sold  the goods.  It further held that there was no misdeclaration  of the  value  by  the assessee  company,  and  it  accordingly quashed  the  Show Cause Notice and the  Demand  Notice  for recovery.     In  this appeal by the Revenue it was contended that  in the  facts  and  circumstances of the case  the  High  Court committed an error in not realising that M/s Bush India Ltd. was  a related person and as such the price charged  by  the respondent  company from M/s Bush India could not  represent the correct assessable value for the purpose of excise duty. Dismissing the appeal,     HELD:  1. Tax planning may be legitimate provided it  is within  the’  framework of the law. But  colourable  devices cannot be part of tax planning and it is wrong to  encourage or  entertain the belief that it is honourable to avoid  the payment  of tax by dubious methods. It is the obligation  of every citizen to pay the taxes honestly without resorting to subterfuges.  In order to create the atmosphere of tax  com- pliance,  taxes must be reasonably collected and  when  col- lected,  should  be utilised in proper expenditure  and  not wasted.  It is too much to expect the legislature to  inter- vene  and  take  care of every device and  scheme  to  avoid taxation  and it is up to the court sometimes to take  stock to  determine  the  nature of the  new  sophisticated  legal devices to avoid tax and to expose the devices for what they really  are  and  to refuse to  give  judicial  benediction. [1034A-B, D]     2. One must find out the true nature of the transaction. Even  though  the corporation might be a  legal  personality distinct from its members, the court is entitled to lift the mask  of corporate entity if the conception is used for  tax evasion, or to circumvent tax obligation perpetrate a fraud. [1034E, 1033G] 1025     3.  It is unsafe to make bad laws out of hard facts  and one should avoid subverting the rule of law. In the  instant case, facts have not been found with such an approach by the lower authorities, and the High Court had no alternative  on the  facts as found but to quash the Show Cause  and  Demand Notices.  It appears that the brand name "Bush" was  affixed to the goods produced by the respondent. For the purpose  of excise  duty, the market value of such goods was  the  price charged from M/s Bush India Ltd. and not the market value at which price M/s Bush India sold the same. [1034E, 1033C, E]     Juggi Lal Kamlapat v. Commissioner of Income-tax,  U.P., [1969]  1 SCR 988; Mc Dowell and Co. Ltd. v. Commercial  Tax Officer,  [1985] 154 ITR 148; Commissioner of Wealth Tax  v. Arvind  Narottam, [1988] 4 SCC 114; Sherdeley v.  Sherdeley, [1987] 2 All E.R. 54 and Greenberg v. IRC. [1971] 47 TC  240 (HL) referred to.     Union  of India v. Bombay Tyre International,  [1984]  1 SCR  347;  Union of India & Ors., v. Atic  Industries  Ltd., [1984] 3 SCR 930; Union of India & Ors. v. Cibatul  Limited, [1985] Supp. 3 SCR 95; Joint Secretary to the Government  of India  & Ors. v. Food Specialities Ltd., [1985] Supp. 3  SCR

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165 and M/s Sidhosons & Ors. v. Union of India & Ors, [1987] 1 SCC 25 relied on.

JUDGMENT:     CIVIL  APPELLATE JURISDICTION: Civil Appeal No.  859(NM) of 1988.     From the Judgment and Order dated 12.1.1987 in the  High Court of Delhi at New Delhi in C.W. No. 355 of 1985.     A.  Subba Rao, P. Parmeshwaran and Mrs. Sushma Suri  for the Petitioners.     M. Chandrasekharan, N.M. Popli and V.J. Francis for  the Respondent. 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 Delhi dated 12th January, 1988.     The  respondent company manufactured wireless  receiving sets,  tape  recorders, tape players which  were  assessable under Tariff Items’ 1026 33A  and 37AA of the Central Excise Tariff and it had  filed classification  list and price lists in respect of the  said goods. On verification of the said lists, it was found  that goods were unbranded and on investigation it was alleged  to have come to the notice of the Department that the  respond- ent  company  was  engaged in the  manufacture  Of  wireless receiving  sets  and  tape recorders in the  brand  name  of "Bush". From the documents filed by the respondent,  accord- ing  to the appellants, it was revealed that the  respondent manufactured  their  entire products in the  brand  name  of "Bush"  from  the very beginning and were selling  the  same exclusively  to  M/s Bush India Limited  or  its  authorised wholesale  dealers only. This fact was nowhere mentioned  by the respondent in its price list or its classification lists and  this, according to the appellants, amounted  to  wilful suppression of facts with the intention to evade payment  of central  excise  duty. Certain enquiries were  made  and  to safeguard  the  interest of revenue the respondent  was  re- quested time and again to observe the provisions of rule  9B of  the Central Excise Rules, 1944 and execute  B-13  surety bond.  However,  it  is stated that  respondent  evaded  the execution  of  the  said bond which was,  according  to  the appellants,  done deliberately. Thereafter, on 4th  January, 1985,  a  Show Cause Notice was issued for  the  period  1st April, 1983 to 30th November, 1984 requiring the  respondent to show cause as to why M/s Bush India Limited should not be treated  as  a related person and a favoured  buyer  of  the respondent  company  for  the purpose  of  determination  of wholesale cash price and as to why the concessional rate  of duty  under notification No. 358/77-CE should not be  denied to  the  respondent and as to why the differential  duty  in respect of the goods cleared during the period should not be recovered.  While the adjudication on the basis of the  Show Cause  Notice was pending, the respondent company was  again requested to execute the surety bond in July, 1984. Respond- ent  company  thereafter filed a writ petition in  the  High Court of Delhi under Article 226 of the Constitution praying for quashing of the Show Cause Notice and the  communication dated 11th July, 1984 and for mandamus to allow it to  clear the goods on the basis of the price at which the goods  were sold  by it allowing the benefit of the  relevant  notifica- tion.  The High Court by the order dated 12th January,  1987 held  that  the value of the goods manufactured by  the  re-

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spondent  company was the price charged by it from M/s  Bush India Ltd. and not the market value at which M/s Bush  India Ltd. sold the goods to its wholesalers. In the premises,  it was  held that there was no misdeclaration of the value  and the Show Cause Notices were quashed. In passing the impugned order, the High Court followed its decision in C.W.  197/85. It is, therefore, necessary to refer to the said decision of the High Court. The said decision challenged 1027 the notice dated 31st December, 1984 and a demand notice  of the same date. It was contended on behalf of the  petitioner in  that case, who is the respondent in the  instant  appeal that  the said respondent merely manufacture  the  aforesaid items for Bush India and after manufacturing those,-it sells those  to M/s Bush India Ltd. It was contended that for  the purpose of finding out the price for payment of excise duty, only the price which was charged by the respondent from Bush India  Limited could be taken into account and the price  at which  M/s Bush India Ltd. further sold those goods  in  the market  was  not  the price which was to be  taken  for  the excise duty. It was contended that Bush India Ltd. was not a related  person  of  the respondent within  the  meaning  of Section  4(4)(c)  of the Central Excises &  Salt  Act,  1944 (hereinafter  referred  to as ’the Act’)  and  reliance  was placed  on the decision of this Court in Union of  India  v. Bombay  Tyre International, [1984] 1 SCR 347. On the  merits of  the case, reliance was also placed on certain  decisions of  this  Court as well as the decision of  the  Delhi  High Court. The High Court found that the case of the  respondent was  directly covered by all these decisions. In  the  prem- ises, the High Court quashed the said Show Cause Notices and the  demand notice. The question, therefore, is whether  the High Court was right in the view it took.     Unfortunately, in the instant case, apart from the facts recorded  hereinbefore,  there  is no  other  fact.  Learned Counsel  appearing for the revenue, Shri A. Subba  Rao  con- tended  before  us that the High Court was in error  in  not realising  that in the facts and the circumstances  of  this case,  it was an arranged affair and really M/s  Bush  India Ltd. was a related person and as such the price charged from it could not represent the correct assessable value for  the purpose of excise duty.     As noted hereinbefore, the events in this case  happened from  1985 onwards. In the premises, the amended  provisions of Section 4 of the Act, as amended by the Amendment Act  of 1973, would be applicable. Section 3 of the said Act enjoins that  there shall be levied and collected in such manner  as might be prescribed duties of excise on all excisable  goods other  than  salt  which are produced  and  manufactured  in India. Section 4(1)(a) of the Act provides:               "4.  (1)  Where under this Act,  the  duty  of               excise  is chargeable on any  excisable  goods               with  reference  to value, such  value  shall,               subject  to the other provisions of this  sec-               tion,  be deemed to be--(a) the  normal  price               thereof, that is to               1028               say,  the price at which such goods are  ordi-               narily sold by the assessee to a buyer in  the               course of wholesale trade for delivery at  the               time and place of removal, where the buyer  is               not a related person and the price is the sole               consideration for the sale:               Provided  that--(i) where, in accordance  with               the normal practice of the wholesale ’trade in

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             such goods, such goods are sold by the  asses-               see  at different prices to different  classes               of  buyers  (not being related  persons)  each               such price shall, subject to the existence  of               the  other circumstances specified  in  clause               (a), be deemed to be the normal price of  such               goods in relation to each class of buyers ;" Proviso (iii) to section 4(1)(a) of the Act enjoins that:               "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  per-               sons) or where such goods are not sold to such               dealers,  to dealers (being  related  persons)               who sell such goods in retail."     According to clause (c) of sub-section (4) of section  4 of the Act, "related person" means a person who is so  asso- ciated  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.  The  Explanation to  Section  4(4)(c)  further provides that in this clause "holding company",  "subsidiary company"  and  "relative" have the same meanings as  in  the Companies Act, 1956( 1 of 1956). It is in this context  that the validity or otherwise of the High Court’s view has to be judged.     In Union of India v. Bombay Tyre International, (supra), this Court had to examine this question. This Court examined the scheme of Section 4(1)(a) before the Amendment Act, 1973 and also the position after the amendment. It was  contended in  that case before this Court that the definition  of  the expression "related person" was 1029 arbitrary and it included within its ambit a distributor  of the assessee. This Court however held that in the definition of "related person" being a relative and a distributor could be  legitimately  read  down and its  validity  upheld.  The definition  of related person should be so read, this  court emphasised, that the words "a relative and a distributor  of the assessee" should be understood to mean a distributor who was  a  relative  of the assessee.  The  Explanation  to  s. 4(4)(c) provides that the expression "relative" has the same meaning  as  in the Companies Act, 1956. The  definition  of "related  person", as being "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  .....  ",  shows  a sufficiently  restricted basis for employing the legal  fic- tion. This Court reiterated that it is well-settled that  in a  suitable  case the court could lift  the  corporate  veil where  the  companies share the relationship  of  a  holding company  and a subsidiary company and also to pay regard  to the  economic  realities behind the legal facade.  The  true position, it was explained by the aforesaid decision,  under the said Act is--the price at which the excisable goods  are ordinarily sold by the assessee to a buyer in the course  of wholesale trade for delivery at the time and place of remov- al as defined in sub-section (4)(b) of section 4 of the  Act is the basis for determination of excisable value  provided,

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of  course,  the buyer is not a related  person  within  the meaning of sub-section (4)(c) of section 4 and the price  is the sole consideration for the sale. This aspect was further examined  by  this Court in Union of India &  Ors.  v.  Atic Industries  Ltd., [1984] 3 SCR 930. This Court  referred  to the  decision of Bombay Tyre International (supra) and  also referred  to  the first part of the definition  of  "related person" in clause (c) of section 4(4) which defines "related person"  to  mean "a person who is so  associated  with  the assessee  that they have interest directly or indirectly  in the business of each other". It was not enough, it was held, that the person alleged to be a related person had an inter- est, direct or indirect in the business of the assessee.  To attract  the applicability of the first part of the  defini- tion,  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 has 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.  That  would not make any difference so long as each has got some  inter- est,  direct  or indirect in the business of the  other.  In that  case,  this Court found that Atul  Products  Ltd.  has interest  in the business of M/s Atic Industries Ltd.  since it held 50% of 1030 the  share  capital  of that assessee and  had  interest  as shareholder in the business carried on by the assessee.  But this  Court was of the view that it could not be  said  that the assessee, a limited company, had any interest, direct or indirect in the business carried on by one of its sharehold- ers, namely, Atul Products Ltd., even though the  sharehold- ing of such shareholder might be 50%. Secondly, it was noted that  Atul Products Ltd. was a wholesale buyer of  the  dyes manufactured by the assessee but even then, since the trans- actions between them were as principal to principal, it  was difficult  to appreciate how the assessee could be  said  by virtue of that circumstances to have any interest, direct or indirect,  in the business of Atul Products Ltd. The  asses- see,  it  was  observed,  was  not  concerned  whether  Atul Products sold or did not sell the dyes purchased by it  from the assessee nor was it concerned whether Atul Products Ltd. sold  such dyes at a profit or at a loss. In  those  circum- stances, the first part of the definition of related persons in clause (c) of sub-section (4) of section 4 of the amended Act  was, therefore, clearly not satisfied both in  relation to  Atul Products Ltd. as also in relation to Crescent  Dves and Chemicals Ltd., a subsidiary company of Atic  Industries Ltd.,  and  neither of them could be said to be  a  "related person"  vis-a-vis  the assessee within the meaning  of  the definition of that term in clause (c) of sub-section (4)  of section  4 of the amended Act. In those  circumstances,  the assessable  value, it was held, of the dyes manufactured  by the  assessee could not be determined with reference to  the selling  price  charged by Atul Products Ltd.  and  Crescent Dyes  and  Chemicals Ltd. to their purchasers  but  must  be determined on the basis of the wholesale case price  charged by the assessee to Atul Products Ltd. and Crescent Dyes  and Chemicals  Ltd. In that case, the assessee at  all  material times  sold  the large bulk of dyes manufactured  by  it  in wholesale to Atul Products and Imperial Chemical  Industries (India)  Pvt.  Ltd. which subsequently came to be  known  as Crescent Dyes & Chemicals Ltd. at a uniform price applicable

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alike  to  both these wholesale buyers and  these  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. It was noted that  the  transac- tions  between  the  assessee  .on the  one  hand  and  Atul Products  Ltd. and Crescent Dyes and Chemicals Ltd.  on  the other were as principal to principal and the wholesale price charged  by the assessee to Atul Products Ltd. and  Crescent Dyes  and Chemicals was the sole consideration for the  sale and no extra-commercial consideration entered in the  deter- mination  of such price. For appreciating how the  wholesale price could be the basis of the determination of the assess- able value, a reference may be made to the decision of  this Court  in Union of India & Ors. v. Cibatul  Limited,  [1985] Supp. 3 SCR 95. In 1031 that  case,  the respondent Cibatul Ltd.  entered  into  two agreements  with Ciba Geigy of India Ltd. for  manufacturing resins  by  the seller. The  joint  manufacturing  programme indicated that the resins were to be manufactured in accord- ance  with the restrictions and specifications  constituting the  buyer’s  standard and supplied at prices to  be  agreed upon  from  time to time. The buyer was entitled to  test  a sample of each batch of the goods and after its approval the goods  were  to  be  released for sale  to  the  buyer.  The products were to bear certain trademarks being the  property of  the  foreign company--Ciba Geigy  of  Basle.  Tripartite agreements were also executed between the buyer, the  seller and the foreign company, recognising the buyer as the regis- tered  or licensed user of the trade-marks, authorising  the seller to affix the trade-marks on the products manufactured "as  an agent for and on behalf of the buyer and not of  his own  account" and the right of the buyer being  reserved  to revoke  the  authority  given to the  seller  to  affix  the trade-marks.  The respondent in that case filed  declaration for the purposes of levy of excise under the said Act  show- ing the wholesale prices of different classes .of goods sold by it during the period May, 1972 to May, 1975. The declara- tion  included the wholesale prices of the different  resins manufactured under the two aforesaid agreements. The Assist- ant Collector of Custom revised those prices upwards on  the basis that the wholesale price should be the price for which the  buyer sold the product in the market. According to  the Assistant Collector the buyer was the manufacturer of  goods and not the seller. The Collector of Central Excise  allowed the appeals of the respondent and accepted the plea that the wholesale price disclosed by the seller was the proper basis for determining the excise duty. The Appellate orders  were, however, revised by the Central Govt. under sub-section  (2) of  s.  36 of the Act and the orders made by  the  Assistant Collector were restored. According to the Central Govt.  the buyer was the person engaged in the production of the  goods and  the  seller merely manufactured them on  behalf  of.the buyer and that under the agreements the seller was  required to  affix the trade-marks of the buyer on  the  manufactured goods  and  that indicated that the goods  belonged  to  the buyer.  There is a ring of similarity between the  facts  of that case and the facts of the instant appeal before us. The orders  of the Central Govt. were challenged  under  Article 226 of the Constitution. The High Court held that the  goods were manufactured by the seller as its own goods, and there- fore,  the wholesale price charged by the seller  must  form the true basis for the levy of excise duty. On appeal.  this Court held that the High Court was right in concluding  that the wholesale price of the goods manufactured by the  seller

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was the wholesale price at which it sold those goods to  the buyer, and it was 1032 not the wholesale price at which the buyer sold those  goods to others. The relevant provisions of the agreements and the other material on  the record showed that the  manufacturing programme  was drawn up jointly by the buyer and the  seller and not merely by the buyer, and that the buyer was  obliged to purchase the manufactured product from the seller only if it conformed to the buyer’s standard. For this purpose,  the buyer  was  entitled to test a sample of each batch  of  the manufactured product and it was only on approval by him that the  product  was  released for sale by the  seller  to  the buyer. It was apparent that the seller could not be said  to manufacture the goods in those facts, it was held, on behalf of  the buyer. It was further found that it was  clear  from the  record  that the trade-marks of the buyer  were  to  be affixed  on those goods only which were found to conform  to the specifications or standard stipulated by the buyer.  All goods not approved by the buyer could not bear those  trade- marks and were disposed of by the sellers without the advan- tage of those trade-marks.     This question was again examined by this Court in  Joint Secretary to.the Govt. of India & Ors. v. Food  Specialities Ltd.,  [1985] Supp. 3 SCR 165. There the respondent used  to manufacture certain goods for sale in India by M/s  Nestle’s Products India Ltd. (for short Nestle’s) under certain trade marks  in respect of which the latter was registered as  the sole  registered user in India. The goods were  supplied  to Nestle’s at wholesale price on rail at Moga or free on lorry at  factory. The respondent disputed the value of the  goods determined by the excise authorities for the purpose of  the levy under the said Act and ultimately the respondent  filed writ petitions in the High Court. The High Court allowed the writ  petitions  holding that the value of the  trade  marks could not form a component of the value of the goods for the purpose  of  assessment of excise duty. In  appeal  to  this Court,  the appellant contended that the value of the  goods sold  by the respondent to Nestle’s should, for the  purpose of levy of excise duty, include the value of the trade marks under  which the goods were sold in the market and that  the value  of such trade marks should be added to the  wholesale price  for  which the goods were sold by the  respondent  to Nestle’s. Dismissing the appeal, it was held that the  value of Nestle’s trade marks could not be added to the  wholesale price charged by the respondent to Nestle’s for the  purpose of  computing  the value of the goods  manufactured  by  the respondent  in the assessment to excise duty. In that  case, it was held that what were sold and supplied by the respond- ent  were  goods  manufactured by it with  the  trade  marks affixed to them and it was the wholesale cash price of goods that must determine the value for the purpose of  assessment of excise duty. It 1033 was  immaterial that the trade marks belonged  to  Nestle’s. What  was  material  was that Nestle’s  had  authorised  the respondent  to affix the trade marks on the  goods  manufac- tured  by it and it was the goods with the trade  marks  af- fixed to them that were sold by the respondent to  Nestle’s. There  could, therefore, be no doubt, it was held, that  the wholesale  price  at which the goods with  the  trade  marks affixed  to them were sold by the respondent to Nestle’s  as stipulated  under the agreements would be the value  of  the goods for the purpose of excise duty. That was the price  at which  the  respondent  sold the goods to  Nestle’s  in  the

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course of wholesale trade.     Similarly in the instant case, it appears that the brand name  "Bush"  was affixed to the goods produced by  the  re- spondent. In M/s Sidhosons and Others v. Union of India  and others,  [1987] 1 SCC 25, it was held that the  excise  duty was payable on the market value fetched by the goods, in the wholesale  market  at the factory gate manufactured  by  the manufacturers, i.e., the price charged by the  manufacturers to  the buyer under the agreement. It could not be  assessed on the basis of the market value obtained by the buyers  who also add to the value of the manufactured goods the value of their own property in the goodwill of the ’brand name’.     In view of the facts that have emerged in this case, the High  Court came to the conclusion that the market value  of the  goods  of the respondent herein was the  price  charged from  M/s Bush India Ltd. and not the market value at  which price M/s Bush India Ltd. sold to its whole-sellers for  the purpose  of payment of excise duty. The High  Court,  there- fore, quashed the Show Cause Notice and the Demand Notice.     Shri  A.  Subba Rao on behalf of the  Revenue  tried  to contend before us that the facts of this case revealed  that it  was a device to under-charge. The respondent herein  was brought  in to divide the sale price of M/s Bush India  Ltd. to be the basis of the assessable value. It is true that the facts of this case do warrant a great deal of suspicion. But it is not possible to hold otherwise than what has been held by the High Court in this case. It is true, as Shri Rao drew our  attention, that even though the Corporation might be  a legal  personality distinct from its members, the  Court  is entitled to lift the mask of corporate entity if the concep- tion  is used for tax evasion, or to circumvent tax  obliga- tion or to perpetrate a fraud. In this connection, reference may  be made to the observations of this Court in Juggi  Lal Kamlapat  v. Commissioner of Income-tax, U.P., [1969] 1  SCR 988. In the background of the facts 1034 found  we, however, need not get ourselves bogged  with  the controversy as to judicial approach to tax avoidance devices as  tax pointed out in McDowell and Co. Ltd.  v.  Commercial Tax  Officer, [1985] 154 ITR 148, where this Court tried  to discourage colourable devices. It is true that tax  planning may be legitimate provided it is within the framework of the law.  Colourable devices cannot be part of tax planning  and it is wrong to encourage or entertain the belief that it  is honourable  to avoid the payment of tax by dubious  methods. It  is  the  obligation of every citizen to  pay  the  taxes honestly  without resorting to subterfuges. It is also  true that  in order to create,the atmosphere of  tax  compliance, taxes  must  be  reasonably collected  and  when  collected, should  be  utilised in proper expenditure and  not  wasted. (See  the  observations  in Commissioner of  Wealth  Tax  v. Arvind Narottam, [1988] 4 SCC 113), It is not necessary,  in the facts of this case to notice the change in the trend  of judicial  approach  in  England:  (Sherdeley  v.  Sherdeley, [1987] 2 AER 54). While it is true, as observed by Chinnappa Reddy,  J. in McDowell and Co. Ltd. v. Commercial Tax  Offi- cer, (supra) too much to expect the legislature to intervene and  take care of every device and scheme to avoid  taxation and it is up to the court sometimes to take stock to  deter- mine  the nature of the new and sophisticated legal  devices to avoid tax and to expose the devices for what they  really are  and  to  refuse to give judicial’  benediction,  it  is necessary to remember as observed by Lord Reid in  Greenberg v.  IRC,   [1971] 47 TC 240(HL) that one must find  out  the true  nature  of the transaction. It is unsafe to  make  bad

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laws  out of hard facts and one should avoid subverting  the rule of law. Unfortunately, in the instant case, facts  have not  been found with such an approach by the lower  authori- ties  and the High Court had no alternative on the facts  as found but to quash the Show Cause and the Demand Notices.     In  that  view of the matter, the appeal  fails  and  is accordingly  dismissed.  But there will be no  order  as  to costs.  We dismiss this appeal with reluctance.  Our  reluc- tance is not to be ascribed to any hesitation to accept  the inference flowing from the facts found but reluctance is due to the fact that the facts were not properly found. T.N.A.                               Appeal dismissed. 1035