2017 (3) TMI 64 - HC - Central Excise

Demand of differential duty - parties are related or not - loan licencee arrangement - The issue at hand is whether the petitioners, the seller and M/s. Boots, the purchaser/buyer are related persons - Medicinal and Toilet Preparations (Excise Duties) Act, 1955 - Held that - M/s. Boots, which was earlier manufacturer of Betonin has now become a so called wholesaler and Borachem, who was earlier paid job work charges has now entered into manufacturing by floating a new company, namely, Biostar - e referred to the definition of the term related person , the binding judgments interpreting it only to emphasise that the foundation or basis of the Commissioner s conclusion is ex-facie contrary thereto. It is wholly unsustainable in law - It is significant that when M/s. Boots surrendered its licence and Biostar obtained it for manufacture of Betonin, four directors were common in Biostar and Borachem Industries Ltd. the licence was possessed by M/s. Boots and when it surrendered the same to Biostar, beyond the relationship of manufacturer and distributor, nothing has been placed on record, which would fulfill the ingredients of clause (c) of sub-section (4) of section 4 of the Central Excise and Salt Act, 1944 - M/s. Boots is not concerned as to whether the Petitioners make a loss or profit in the business and similarly, the petitioners are not concerned whether M/s. Boots makes a loss or profit in the onward sale of Betonin. They are not holding and subsidiary company - The foundation being totally weak and unsustainable in law, we cannot uphold the impugned order - Petition disposed of.

Issues Involved:
1. Legality of the excise duty demand on Betonin.
2. Whether the petitioners and M/s. Boots are "related persons" under the Central Excise and Salt Act, 1944.
3. Validity of the price list and differential duty demand.
4. Authority and jurisdiction of the State Excise Department.
5. Compliance with the Medicinal and Toilet Preparations (Excise Duties) Act, 1955.

Detailed Analysis:

1. Legality of the Excise Duty Demand on Betonin:
The petitioners manufacture Betonin, a sugar-free B-complex Elixir containing alcohol, subject to excise duty under the Medicinal and Toilet Preparations (Excise Duties) Act, 1955. The respondents demanded differential excise duty based on a price list from M/s. Boots, alleging that the petitioners' declared prices were lower. The petitioners contested this demand, arguing that their declared prices were correct as per Section 4(1)(a) of the Central Excise and Salt Act, 1944.

2. Whether the Petitioners and M/s. Boots are "Related Persons" Under the Central Excise and Salt Act, 1944:
The core issue was whether the petitioners and M/s. Boots were "related persons" as defined in Section 4(4)(c) of the Central Excise and Salt Act, 1944. The respondents claimed that the petitioners and M/s. Boots had mutual interests, evidenced by shared directors and commercial arrangements. The petitioners refuted this, stating that they operated independently, with no reciprocal interest in each other's business. The court referred to several Supreme Court judgments, emphasizing that mere commercial transactions or common directors do not constitute a "related person" relationship unless there is mutual interest in each other's business.

3. Validity of the Price List and Differential Duty Demand:
The respondents canceled the petitioners' approved price list and demanded differential duty based on M/s. Boots' prices. The petitioners argued that their transactions with M/s. Boots were on a principal-to-principal basis, and the approved price list was valid. The court found that the respondents' basis for demanding differential duty was flawed, as the petitioners and M/s. Boots were not "related persons." The court held that the approved price list should be treated as final, and there was no basis for the differential duty demand.

4. Authority and Jurisdiction of the State Excise Department:
The court acknowledged the State Excise Department's authority to levy and collect excise duty on medicinal preparations containing alcohol. However, it emphasized that the department must follow legal principles and statutory provisions. The court found that the respondents misinterpreted the law and overstepped their authority by demanding differential duty without a valid basis.

5. Compliance with the Medicinal and Toilet Preparations (Excise Duties) Act, 1955:
The petitioners complied with the Act by submitting the required price list and paying excise duty based on it. The respondents' actions, including canceling the approved price list and demanding additional duty, were found to be unjustified. The court highlighted that the respondents failed to demonstrate any legal or factual basis for their demands.

Conclusion:
The court concluded that the petitioners and M/s. Boots were not "related persons" under the Central Excise and Salt Act, 1944. The respondents' demand for differential duty was based on flawed assumptions and misinterpretations of the law. The court set aside the impugned order and directed the respondents to return the petitioners' bank guarantee. The petitioners were granted liberty to seek further relief from the authorities if necessary.

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