1984 (11) TMI 335 - AT - Central Excise

Summary

Issues:
Interpretation of related person under Section 4 of the Central Excises and Salt Act, 1944; Determination of assessable value based on sales to a related person; Allegation of special relationship between the appellants and the buyer; Incorrect calculation of percentage of sales to the buyer; Examination of the agreement governing sales between the parties.

Analysis:
The judgment involved the interpretation of the term "related person" under Section 4 of the Central Excises and Salt Act, 1944, specifically in the context of determining the assessable value for refrigerant gases sold by the appellants to a buyer. The Collector held that the assessable value should be based on prices charged by the buyer to its wholesale customers, considering them as related parties. The appellants argued that the sales were genuine transactions and not to a related person, emphasizing that the equity composition and business associations cited by the Collector did not establish a special relationship. The appellants relied on a Supreme Court judgment emphasizing mutual interest in each other's business for parties to be related persons, which was not present in this case. They contended that the Collector's decision was legally unsustainable, and the Supreme Court's ratio supported their position.

Another issue addressed was the allegation that over 97% of the appellants' product was sold to the buyer, indicating a special relationship. The appellants clarified that the percentage was incorrectly calculated, as the product was sold by a division of the appellant company, not a separate legal entity. They highlighted that other products were also manufactured and sold to different parties, undermining the claim of a predominant relationship with the buyer. The appellants demonstrated that prices were consistent across buyers, further weakening the argument of a special relationship based on sales volume.

Furthermore, the judgment analyzed the agreement governing sales between the parties to ascertain if it indicated a unique relationship. The appellants contended that similar agreements existed with other parties and that the clauses in the agreement did not alter the principal-to-principal nature of the transactions. The appellants presented evidence showing uniform pricing for all buyers, including the buyer in question, reinforcing their argument against a special relationship.

Ultimately, the Tribunal found merit in the appellants' arguments, supported by the Supreme Court decision, and concluded that the Collector's order could not be upheld. The appeal was accepted, and the impugned order was set aside, granting consequential relief to the appellants based on the decision.