1980 (8) TMI 88 - HC - Central Excise

Valuation - Concept of distributor in Section 4 - Scope - Price List approved - Revocation of

Issues Involved:
1. Withdrawal of approval of the price list by the Assistant Collector.
2. Definition and scope of "related person" under Section 4(4)(c) of the Central Excises and Salt Act, 1944.
3. Validity of Section 4(1)(a) and the third proviso to that section.

Detailed Analysis:

Issue 1: Withdrawal of Approval of the Price List

The manufacturer filed price lists in the prescribed forms for the goods sold by it, which were initially approved by the Central Excise Authorities. However, the Assistant Collector, Central Excise, Kalyan, withdrew the approval on the grounds that the goods were generally not sold by the manufacturer in the course of wholesale trade except to or through related persons, as indicated in the manufacturer's letter. The Assistant Collector directed the manufacturer to file a revised price list in Part IV under protest, which the manufacturer complied with but challenged the action legally.

Issue 2: Definition and Scope of "Related Person"

The court examined the definition of "related person" under Section 4(4)(c) of the Act, which includes a person who is so associated with the assessee that they have interest, directly or indirectly, in the business of each other. This definition also includes a holding company, a subsidiary company, a relative, and a distributor of the assessee, and any sub-distributor of such distributor. The court focused on whether the distributors to whom the manufacturer sold goods were "related persons" as defined under the Act.

The court noted that a distributor in the commercial world is understood to be a person who distributes goods of the manufacturer to the consumers, acting for and on behalf of the manufacturer, typically as an agent. However, in this case, the transactions between the manufacturer and the distributors were found to be transactions of sale as between principal and principal, and not as agent and principal. The court referred to the agreements which clearly indicated that the distributors were buyers in a wholesale transaction, responsible for the payment and risk of the goods once they left the manufacturer's premises.

Issue 3: Validity of Section 4(1)(a) and the Third Proviso

The manufacturer contended that Section 4(1)(a) read with the third proviso, which determines the value of excisable goods for the purpose of charging duty, was ultra vires the powers of the Parliament. The argument was that the provision sought to levy excise duty on a price that included post-manufacturing expenses and profits of the distributor, which was contrary to the basic concept of excise duty being a duty on the manufacture of goods. The court referred to the Gujarat High Court's decision in Cibatul Limited v. Union of India, which had struck down the third proviso to Section 4(1)(a) as ultra vires.

However, the court in the present case did not find it necessary to address the constitutional validity of these provisions, as it concluded that the distributors were not "related persons" under the Act. Therefore, the manufacturer's transactions with the distributors fell within the main part of Section 4(1)(a), and the manufacturer's price lists should not have been withdrawn.

Conclusion:

The court quashed the direction dated 8th October 1975 issued by the Assistant Collector, Central Excise, Kalyan Division, withdrawing the approval of the price lists. The manufacturer was entitled to a refund of any excess amount paid due to the revised price list, with interest at 6% per annum from the date of filing the petition. The court also refused leave to appeal to the Supreme Court.

This judgment underscores the importance of understanding the precise nature of commercial relationships and the scope of statutory definitions in determining tax liabilities.

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