1980 (3) TMI 106 - HC - Central Excise

Summary

Issues:
Central Excise duty assessment based on relationship between manufacturer and purchaser, rejection of price list approval, challenge to Central Excise authorities' decision, interpretation of Notification No. 120 of 1975 conditions, legality of considering related persons for price determination.

Analysis:
The petitioners, engaged in manufacturing leather pickers, appointed M/s. Bhatt Brothers as their sole production purchasers under an agreement. Central Excise authorities required approval of the price list, but the authorities rejected it, citing the relationship between the manufacturing firm and the production purchaser as "related persons." The Assistant Collector directed the petitioners to file a price list under the Central Excises and Salt Act, 1944, and pay duty based on approved prices. The petitioners challenged this order in appeal before the Appellate Collector, who upheld the decision, leading to the current petition.

The Assistant Collector and the Appellate Collector based their decisions on the relationship between the partners of the manufacturing firm and the sole production purchaser, deeming them "related persons." They argued that certain conditions specified in Notification No. 120 of 1975 were not satisfied due to this relationship, thereby rejecting the petitioners' invoice prices as normal prices.

Notification No. 120, dated 30th April, 1975, outlines conditions for price determination, including certifying that the invoice price reflects the actual sale price and is the sole consideration for the sale. It prohibits any influence on the invoice price by relationships between the manufacturer and the buyer, ensuring that subsequent sale proceeds do not benefit the manufacturer or associated persons.

Referring to a previous court decision, it was established that excise duty should be levied on a fully commercial price, comprising manufacturing costs and profits, regardless of the relationship between the manufacturer and the purchaser. The court emphasized that the mere status of being "related persons" does not negate the commercial nature of the price charged by the manufacturer to the purchaser.

The court found the Central Excise authorities' rejection of the petitioners' prices solely based on the relationship with the purchaser as unlawful and incorrect. It directed the authorities to determine whether the prices in the petitioners' list represent fully commercial prices, inclusive of manufacturing costs and profits, and approve them accordingly. The impugned orders were quashed, and a writ of mandamus was issued to the respondents to make the determination within three months.