1988 (3) TMI 63 - SC - Central Excise

Whether the sales pattern of the respondents that the distributors were related persons as per Section 4 of the Act and the price at which the distributors sold the goods should, therefore, be the assessable value? Held that - Where the sale in the course of wholesale trade is effected by the assessee through its sales organisation at a place or places outside the factory gate, the expenses incurred by the assessee upto the date of delivery under the aforesaid heads cannot, on the same grounds, be deducted. The assessee will be entitled to a deduction on account of the cost of transportation of the. excisable article from the factory gate to the place or places where it is sold. The cost of transportation will include the cost of insurance on the freight for transportation of the goods from the factory gate to the place or places of delivery.The new Section 4(4)(d)(i) has made express provision for including the cost of packing in the determination of value for the purpose of excise duty. Tribunal s upholding the order of the Appellate Collector, was right and correct.

Issues Involved:
1. Determination of assessable value for the levy of duty under Section 3 of the Central Excises and Salt Act, 1944.
2. Whether the distributors were 'related persons' under Section 4 of the Act.
3. Inclusion of expenses incurred for maintaining showrooms, advertisements, etc., in the assessable value.

Issue-Wise Detailed Analysis:

1. Determination of Assessable Value:
The primary issue was whether the price charged by the respondents from buyers at the factory gate should be accepted as the assessable value for the levy of duty under Section 3 of the Central Excises and Salt Act, 1944. The Assistant Collector initially found that the distributors were 'related persons' as per Section 4 of the Act, and thus, the price at which the distributors sold the goods should be the assessable value. However, the respondents argued that the price charged at the factory gate should be considered the assessable value.

2. Whether the Distributors Were 'Related Persons':
The Appellate Collector held that the distributors could not be considered 'related persons' in the absence of mutual business interests promoting each other's business. Section 4(c) of the Act defines 'related person' as someone associated with the assessee with direct or indirect business interests. The Supreme Court, referencing the judgment in Union of India v. Atic Industries Limited, clarified that both parties must have mutual business interests for the relationship to qualify under this definition. The Tribunal upheld this interpretation, stating that the relationship between the respondents and their distributors did not meet the criteria for 'related persons.'

3. Inclusion of Expenses in Assessable Value:
The Government of India argued that expenses incurred for maintaining showrooms, advertisements, and other related activities should be included in the assessable value. The Tribunal referred to the Supreme Court's decision in Union of India v. Bombay Tyre International Ltd., which held that expenses incurred up to the date of delivery, including storage charges, outward handling charges, and advertisement expenses, should be included in the assessable value. However, the Tribunal found that the expenses in question were not deductible from the assessable value when the sale was effected at the factory gate.

Conclusion:
The Supreme Court ultimately upheld the Tribunal's decision, agreeing that the distributors were not 'related persons' under Section 4 of the Act and that the assessable value should be determined based on the price charged at the factory gate. The Court found no cause for interference with the Tribunal's order, thereby declining to admit the appeals.

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