1989 (5) TMI 57 - SC - Central Excise

Whether Bush India Ltd. was not a related person of the respondent within the meaning of section 4(4)(c) of the Central Excises and Salt Act, 1944? Held that - 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 Bush India Ltd. and not the market value at which price Bush India Ltd. sold to its wholesalers for the purpose of payment of excise duty. The High Court, therefore, quashed the showcause notice and the demand notice. It is unsafe to make bad 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 authorities and the High Court had no alternative on the facts as found but to quash the show cause and the demand notices. Appeal dismissed.

Issues Involved:
1. Classification and valuation of goods for excise duty.
2. Determination of "related person" under Section 4 of the Central Excises and Salt Act, 1944.
3. Allegation of wilful suppression of facts and evasion of excise duty.
4. Validity of the High Court's decision to quash show-cause and demand notices.

Issue-Wise Detailed Analysis:

1. Classification and Valuation of Goods for Excise Duty:
The respondent company manufactured wireless receiving sets and tape recorders under the brand name "Bush." The goods were assessed under Tariff items Nos. 33A and 37AA of the Central Excise Tariff. The company filed classification and price lists, but the Department alleged that the goods were branded and sold exclusively to Bush India Ltd. The High Court held that the value of the goods should be the price charged by the respondent to Bush India Ltd., not the market value at which Bush India Ltd. sold the goods to its wholesalers. This was based on the principle that the price charged by the manufacturer in the course of wholesale trade should be considered for excise duty purposes.

2. Determination of "Related Person" under Section 4 of the Central Excises and Salt Act, 1944:
The Department contended that Bush India Ltd. should be treated as a related person under Section 4(4)(c) of the Act, which would affect the assessable value of the goods. The High Court, however, found that Bush India Ltd. was not a related person within the meaning of the Act. The Court relied on precedents like Union of India v. Bombay Tyre International Ltd. and Union of India v. Atic Industries Ltd., which clarified that a related person must have a direct or indirect interest in the business of each other. The Court concluded that the transactions between the respondent and Bush India Ltd. were on a principal-to-principal basis, and no extra-commercial considerations were involved.

3. Allegation of Wilful Suppression of Facts and Evasion of Excise Duty:
The Department alleged that the respondent wilfully suppressed the fact that the goods were branded and sold exclusively to Bush India Ltd. to evade excise duty. The respondent was requested to execute a surety bond under rule 9B of the Central Excise Rules, 1944, but allegedly evaded this. The High Court quashed the show-cause notice and demand notice, finding no misdeclaration of value by the respondent. The Court noted that the price charged by the respondent to Bush India Ltd. was the correct assessable value and there was no evidence of wilful suppression.

4. Validity of the High Court's Decision to Quash Show-Cause and Demand Notices:
The High Court's decision was based on its interpretation of Section 4 of the Act and relevant case law. The Court held that the price charged by the respondent to Bush India Ltd. was the correct assessable value for excise duty purposes. The Supreme Court, while dismissing the appeal, noted that the facts of the case warranted suspicion but upheld the High Court's decision due to the lack of properly found facts by the lower authorities. The Supreme Court emphasized that it is the obligation of every citizen to pay taxes honestly and discouraged the use of colourable devices for tax evasion.

Conclusion:
The Supreme Court dismissed the appeal, upholding the High Court's decision to quash the show-cause and demand notices. The Court reiterated the principles for determining the assessable value for excise duty and the definition of a related person under the Act. The judgment emphasized the importance of proper fact-finding by lower authorities and discouraged tax evasion through dubious methods.

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