Valuation (Central Excise) - Related persons vis-a-vis brand name owner - Central Excise - 13/89-CX.1

Valuation (Central Excise) - Related persons vis-a-vis brand name owner Circular No. 13/89-CX.1 Dated 20-9-1989 [From F. No. 15/31/85-CX.1] Government of India Ministry of Finance (Department of Revenue) Central Board of Excise Customs, New Delhi Subject : C. Ex. - Valuation - Related persons vis-a-vis manufacturer and brand name owner. I am directed to say that recently the Hon'ble Supreme Court of India had an occasion to examine "whether the real manufacturer and the brand name owner are related persons" in the context of fixing assessable value under Section 4, in the case of Union of India Others v. M/s Playworld Electronics Pvt. Ltd. and Another. 2. M/s. Playworld Electronics Pvt. Ltd. a manufacturer of wireless receiving sets, tape records etc. was found to be manufacturing the goods in the brand name of "Bush" and the entire production in the brand name of Bush was sold exclusively to M/s. Bush India Limited or its authorised wholesale dealers only. In these circumstances a case was made out against the manufacturer alleging that M/s. Bush India Limited was a "related person" and the price at which M/s. Bush India Ltd. sold these goods in the market would form the basis of assessable value under Section 4 for charging duty from M/s. Playworld Electronics Pvt. Ltd. 3. The Hon'ble Supreme Court has dismissed the Dept's appeal with the following observations : "We dismiss this appeal with reluctance. Our reluctance is not to be ascribed to any hesitation to accept the inference flowing from the facts found but reluctance is due to the fact that the facts were not properly found. 4. According to section 4, related person means a person who is so associated with the assessee that they have interest, directly or indirectly, in the business of each other. Therefore, if the department has to prove that the transaction is not from principal to principal basis and that the buyer and the seller have interest in each other, the department has to unearth certain more evidence than to merely affixing brand name. Such evidence could be Supplying free of cost certain machines, technical know how, design, etc. Supply of raw-material free of cost or/and suppressed price. The huge difference between the selling price of the brand owner and the real manufacturer which is more than that of a profit accruing to an ordinary dealer in the course of wholesale trade, etc. The observations of the Hon'ble Supreme Court that the investigation has not brought out evidence to tilt the scale from suspicion to fact is a pointer to the department to make proper investigation in all such cases. In the instant case the Supreme Court also observed that "it is true that the facts of this case do warrant a great deal of suspicion. But it is not possible to hold otherwise than what has been held by the High Court in this case. It is true .......... that even though the corporation might be a legal personality distinct from its members, the court is entitled to lift the mask of corporate entity, if the conception is used for tax evasion, or to circumvent tax obligation or to perpetrate a fraud." 4. In view of the above, the Board has directed that the field formations should carry out the investigations properly to establish the mutuality of interest between the manufacturer and the brand name owner, if they are to be treated as related persons for the purpose of Sec. 4. 5. Field formations may be suitably informed. The receipt of this letter may be acknowledged.