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2015 (4) TMI 358 - SC - Central ExciseValuation - normal price - definition of related person/ relative - implications for valuation in the course of wholesale trade - Applicability of Section 4(1)(a) proviso (iii) and Section 4(4)(c) of the Central Excise and Salt Act as they stood prior to the 2000 amendment of Section 4 - Evasion of duty - HELD THAT - The arrangement spoken of in the proviso must be something by which the assessee and the related person arrange that the goods are sold at something below the normal price so that tax is either avoided or evaded by such arrangement. Secondly the expression generally also shows that such goods must predominantly be sold by the assessee to or through the related person - in mathematical terms sales that are to or through a related person must consist of at least 50% of the goods that are manufactured and sold. The expression to or through a related person again goes back to the arrangement and is another way of saying that such sale can be effected directly to or indirectly through such related person. It is only when all three considerations are cumulatively met that proviso (iii) can be said to be attracted. When we come to the definition of related person the legislature has used a well known technique. It first employs the expression means and states that persons who are associated with the assessee so that they have a direct or indirect interest in the business of each other would get covered. The definition then goes on to use the expression and includes thereby indicating that the legislature intends to extend the definition to also include various persons that would not otherwise have so been included. These include a holding company a subsidiary company a relative and a distributor of the assessee and any sub-distributor of such distributor. The necessity for including holding and subsidiary companies as defined under the Companies Act 1956 is to lift the corporate veil in order to get to the economic realities of the transaction. On a reading of the judgment of Voltas s case 1972 (12) TMI 37 - SUPREME COURT it becomes clear that the object of enacting Section 4 is that transactions at arm s length between manufacturer and wholesale purchaser which yield the price which is the sole consideration for the sale alone is contemplated. Any concessional or manipulative considerations which depress price below the normal price are therefore not to be taken into consideration. Judged at from this premise it is clear that arrangements with related persons which yield a price below the normal price because of concessional or manipulative considerations cannot ever be equated to normal price. But at the same time it must be remembered that absent concessional or manipulative considerations where a sale is between a manufacturer and a related person in the course of wholesale trade the transaction being a transaction where it is proved by evidence that price is the sole consideration for the sale then such price must form the basis for valuation as the normal price of the goods. A literal reading of the Section would otherwise lead to an absurdity. Where it is proved that the same price is paid by related persons as well as arm s length purchasers (who are unrelated) for the same goods in the case of the former the higher price paid by purchasers from the related person would be the price on which excise duty would be calculated which would be more than the normal price under Section 4(1)(a). Such a result is not contemplated by the amended Section 4(1) (a) which must therefore be read in the manner indicated above. A reading of the definition of relative would show that the relative need not be a person who is so associated with the assessee that they have mutual interest in each other s businesses. If that were the case the expression relative in the second part would be otiose inasmuch as a relative would be subsumed within person in the first part. Thus relatives would also be persons who are so associated with the assessee that they have a mutual interest in each other s businesses. The legislature by application of a de jure test has extended the meaning of related persons to include the entire list of relatives per se without more as related persons. Similarly holding companies and subsidiary companies by virtue of the exercise of control by a holding company over a subsidiary company are similarly included by application of a de jure test. We have indicated that the assessee argued that the price paid by Shaw Wallace and Company for the same/similar products as was sold by unrelated entities to it was even lower than the price paid by Shaw Wallace to Detergents India Ltd. This being the case it is clear that on facts here there is no arrangement between Shaw Wallace and Detergents India Limited to depress a price which is otherwise at arm s length. Though this fact is pleaded expressly before the Commissioner as pointed out above the Commissioner s order does not contain any finding based on this fact. On the other hand there are copious findings as to how Shaw Wallace and Detergents India Limited are related persons because of a multitude of factors pointed out in the Commissioner s order. The case on facts here Section 4(1)(a) and not proviso (iii) is attracted inasmuch as on facts the presumption of a transaction not being at arm s length has been rebutted. Revenue s comparison of price paid by Hindustan Lever to DIL with price paid by Shaw Wallace to DIL is unwarranted as the products sold and processing charges are wholly different. The basis of the Commissioner s orders thus goes. Further the single most relevant fact namely that Shaw Wallace paid for the same/similar goods to unrelated suppliers at a price lower than the price paid by Shaw Wallace to DIL has not been adverted to at all by the Commissioner. The appeals by Revenue are devoid of merit and are accordingly dismissed. There shall be no order as to costs.
1. ISSUES PRESENTED and CONSIDERED
The primary issues considered in these appeals relate to the interpretation of Section 4(1)(a) proviso (iii) and Section 4(4)(c) of the Central Excise and Salt Act, prior to its amendment in 2000. Specifically, the court examined:
2. ISSUE-WISE DETAILED ANALYSIS Definition of "Related Person"
Assessable Value and Proviso (iii) of Section 4(1)(a)
Penalties Imposed on Shaw Wallace and DIL
3. SIGNIFICANT HOLDINGS
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