1985 (12) TMI 270 - AT - Central Excise

Issues Involved:

1. Whether the appellants and the 'Buyers' (Ciba-Geigy of India Ltd.) are 'related persons' within the meaning of Section 4(4)(c) of the Central Excises and Salt Act, 1944.
2. Whether the show cause notice issued by the Assistant Collector was without jurisdiction.

Detailed Analysis:

Issue 1: Whether the appellants and the 'Buyers' (Ciba-Geigy of India Ltd.) are 'related persons' within the meaning of Section 4(4)(c) of the Central Excises and Salt Act, 1944.

The department issued a show cause notice to the appellants on 6-8-1976, questioning why the prices charged by the 'Buyers' to their customers should not be taken as the assessable value for excise duty purposes. The Assistant Collector confirmed this notice on 2-7-1977, and subsequent appeals were dismissed by the Appellate Collector on 17-10-1978.

The appellants argued that the lower authorities made their decision based on two grounds: (i) the appellants sold their entire S.D. 24 dyes to the 'Buyers', and (ii) the appellants and the 'Buyers' were interconnected undertakings under Section 2(g) of the MRTP Act, 1968. Section 4(4)(c) of the Central Excises and Salt Act, 1944, defines "related person" as someone who is so associated with the assessee that they have interest directly or indirectly in each other's business.

The appellants clarified that they had a 10% shareholding in the 'Buyers', while the latter had no shareholding in the appellants. There were no common directors, and the appellants sold their products to other buyers as well. The sales to the 'Buyers' were at arm's length, with no extra-commercial considerations.

The agreements between the appellants and the 'Buyers' contained standard commercial terms, safeguarding interests and maintaining secrecy of technical know-how, which did not indicate any clandestine arrangement to evade duty. The sales were commercial transactions at arm's length, and the 'Buyers' were bulk buyers, receiving normal trade discounts.

The Tribunal referred to several rulings, including the Supreme Court's decision in 1984 (17) E.L.T. 323 (Union of India & Others v. Atic Industries Ltd.), which emphasized that mutual interest in each other's business is essential to be considered "related persons." The Tribunal concluded that the appellants and the 'Buyers' did not have mutual interest in each other's business, and the 'Buyers' were not given any special treatment beyond normal trade discounts.

The Tribunal also addressed the argument that interconnected undertakings under the MRTP Act do not automatically become "related persons" under the Central Excises and Salt Act, as per rulings in 1979 (4) E.L.T. (J 513) (Atic Industries Ltd., Bulsar v. Union of India and Others) and 1980 (6) E.L.T. 197 (S.M. Chemicals & Electronics and Another v. R. Parthasarathy and Others).

Issue 2: Whether the show cause notice issued by the Assistant Collector was without jurisdiction.

Shri Soli Sorabjee argued that Rule 10 of the Central Excise Rules, 1944, was deleted on 6-8-1977, making the show cause notice issued on 6-8-1976 lapse. However, the Tribunal referred to 1984 (17) E.L.T. 331 (Atma Steels (Pvt.) Ltd. and Others v. Collector of Central Excise, Chandigarh and Other), which stated that proceedings could continue based on the provisions existing at the time of the notice issuance.

Shri Sorabjee also contended that the Assistant Collector had no power to review his own order and direct the appellants to amend the classification list, citing several rulings, including AIR 1966 S.C. 641 (Harbhajan Singh v. Karam Singh), which held that in the absence of express power, review is not permissible.

The Tribunal agreed that the Assistant Collector's action was effectively a review of the earlier order, which the statute did not authorize. Therefore, the show cause notice was not permissible in law.

Conclusion:

The Tribunal set aside the impugned orders, concluding that the appellants and the 'Buyers' were not "related persons" under the Central Excises and Salt Act, and the show cause notice issued by the Assistant Collector was without jurisdiction. The appeals were allowed.

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