1990 (1) TMI 90 - HC - Central Excise

Issues Involved:
1. Whether the petitioner and respondent No. 4 are covered under the expression 'related persons' as defined in Section 4(4)(c) of the Central Excises and Salt Act, 1944.
2. Whether there is any mutuality of interest between the petitioner and respondent No. 4 regarding the production and sale of the product.
3. Whether the amount of Rs. 750/- per tractor retained by the distributor respondent No. 4 is a post-manufacturing expense or part of the cost of the tractor.
4. Whether the transaction between the parties is from principal to principal and the effect of the sale of the entire production being sold through respondent No. 4.

Detailed Analysis of the Judgment:

1. Related Persons:
According to clause (c) of sub-section (4) of Section 4 of the Act, 'related person' means a person who is so associated with the assessee that they have an interest directly or indirectly in the business of each other. The Supreme Court in Union of India v. Atic Industries Ltd. held that a person is considered 'related' if they have a direct or indirect interest in each other's business. In this case, it was observed that even though Atul Products Ltd. held 50% of the share capital of Atic Industries Ltd., it did not mean that Atic Industries Ltd. had any interest in the business of Atul Products Ltd. Similarly, in the present case, it is not the respondent's case that respondent No. 4 had any direct or indirect interest in the petitioner's company, except for holding 45% share capital. Therefore, the petitioner and respondent No. 4 cannot be considered 'related persons.'

2. Mutuality of Interest:
The court noted that there was no evidence of mutuality of interest between the petitioner and respondent No. 4, except for the shareholding. The Supreme Court's decisions in Union of India v. Playworld Electronics Pvt. Ltd. and Union of India v. Hind Lamp Ltd. were cited, which emphasized that mere shareholding does not establish mutuality of interest. The transactions between the petitioner and respondent No. 4 were conducted at arm's length and were not influenced by any mutual interest.

3. Post-Manufacturing Expense:
The amount of Rs. 750/- per tractor retained by respondent No. 4 was for expenses related to sales, promotion, advertising, and servicing of the tractors. The court referred to the case of Joint Secretary to the Government of India v. Food Specialities Ltd., where it was held that the value of goods for excise duty purposes should not include post-manufacturing expenses. The court concluded that the Rs. 750/- retained by respondent No. 4 was indeed a post-manufacturing expense and should not be included in the assessable value of the tractors.

4. Principal to Principal Transaction:
The court determined that the transactions between the petitioner and respondent No. 4 were on a principal-to-principal basis. The petitioner sold the tractors to respondent No. 4 at a fixed price, and respondent No. 4's subsequent sale of the tractors, including the Rs. 750/- for additional services, did not affect the assessable value for excise duty purposes. The court emphasized that the only valid basis for levy of excise duty is the price at which the petitioner sells the tractors to respondent No. 4.

Conclusion:
The court concluded that the petitioner and respondent No. 4 are not 'related persons,' there is no mutuality of interest, the Rs. 750/- retained by respondent No. 4 is a post-manufacturing expense, and the transactions were on a principal-to-principal basis. Consequently, the impugned order was set aside, and the petition succeeded with costs. The respondents were directed to refund the excess excise duty collected, along with interest at the rate of 12% per annum from the date of collection until the date of actual payment, within three months from the date of the order.

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