1992 (2) TMI 86 - HC - Central Excise

Summary

Issues Involved:
1. Interpretation of Section 4 of the Central Excises and Salt Act, 1944.
2. Deductibility of post-manufacturing expenses.
3. Determination of "related person" under the Act.
4. Refund of excise duty paid under mistake of law.

Summary:

1. Interpretation of Section 4 of the Central Excises and Salt Act, 1944:
The writ petition under Article 226 of the Constitution of India pertains to the interpretation of Section 4 of the Central Excises and Salt Act, 1944, as amended by Act No. 22 of 1973 effective from 1st October 1975. The petitioners, a company manufacturing portable electrical tools and fractional H.P. motors, contended that their sales were on a principal-to-principal basis, at arm's length, and prices included post-manufacturing costs and profits.

2. Deductibility of Post-Manufacturing Expenses:
The petitioners sought deductions for post-manufacturing expenses such as marketing, distribution, advertising, secondary packing, and interest charges. Initially, their price lists included these expenses, but they later claimed this was an oversight and requested refunds. The second respondent rejected these claims, stating that Section 4 did not allow for such deductions. The Supreme Court in Union of India v. Bombay Tyres International clarified that expenses enriching the value of the article up to the date of sale should be included in the sale price. The High Court directed the second respondent to reassess the petitioners' claims in light of this judgment.

3. Determination of "Related Person":
The petitioners challenged the classification of their holding company, Rallis India, as a "related person" under Section 4(4)(c). The second respondent had concluded that sales to Rallis India should be assessed under the third proviso to Section 4(1)(a) due to their special relationship. The High Court, referencing the Supreme Court's decisions in Union of India v. Atic Industries Ltd. and Dawn Apparels Ltd. v. Union of India, held that mutual interest and extra-commercial considerations must be proven to classify as related persons. The matter was remanded to the second respondent for reassessment.

4. Refund of Excise Duty Paid Under Mistake of Law:
The petitioners claimed refunds for excess duty paid due to the inclusion of post-manufacturing expenses. The second respondent allowed deductions for freight and sales tax but only from 10th July 1983 onwards, citing time-barred claims for earlier periods. The High Court, referencing Rallis India Ltd. v. Union of India, ruled that the refund should not be denied on grounds of limitation. The petitioners were granted another opportunity to substantiate their claims for deductions on packing, commission, and interest on book debts, considering subsequent Supreme Court judgments.

Conclusion:
The High Court set aside the impugned orders dated 24th August 1984 and 30th October 1984, remanding the matter to the second respondent for fresh consideration in accordance with the guidelines provided. The petitioners were directed to present their evidence, and the second respondent was instructed to complete the inquiry expeditiously. The bank guarantee furnished by the petitioners was to remain in effect pending the final disposal of the inquiry.