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TMI Blog1987 (3) TMI 213X X X X Extracts X X X X X X X X Extracts X X X X ..... the 60 and odd retailers whose statements were relied on by the department against them were not produced for cross examination by the appellants even though asked for at the stage of adjudication, and (2) the demand for differential duty, though made under Rule 9(2), was, in fact, a demand for the duty allegedly short-paid for the recovery of which a specific provision existed under Section 11A of the Central Excises and Salt Act, 1944 and hence Rule 9(2) was inapplicable; under Section 11A, the Assistant Collector alone was competent to adjudicate upon a demand for short levy and the impugned adjudication order passed by the Collector, in so far as it related to the demand for short levy, was out of jurisdiction. However, in the same breath, the appellants added that they did not desire a remand of the matter. They requested that we should decide the case on merits. 4. Thereupon, we took up consideration of the merits of the case and heard both sides on merits. We have since given our earnest consideration to the submissions made by both sides and the record of the case. The material facts, on which the decision of the point in dispute depends, have come out as under:- ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch the Collector has issued the duty demand. In the Show Cause Notice, besides the vans, two other grounds of mutual business interest had been set out, namely, (i) employment of three agents by M/s Gulati Traders for procuring sales orders for the appellants medicines, and (ii) expenses incurred by M/s Gulati Traders on advertisements of the appellants medicines. However, during the adjudication the Collector dropped these two other grounds holding that these two activities promoted the sales of M/s Gulati Traders also with a view to giving them larger profits. The Collector further held that the second part of the definition of related person was also proved because, all the partners of M/s Gulati Traders being close relatives of the partners of the appellant firm, M/s Gulati Traders were both a relative and a distributor of the assessee . The Collector rejected the argument of the appellants that the two firms should have been related to each other and not the individual partners of the firm. The Collector held that a partnership firm was nothing but a sum total of its partners and that it was not a legal person like a limited company. Secondly, the Collector held, the firm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s buyer should be a related person and (b) the assessee should be selling his goods generally to or through such related person. As regards the first condition, the Act itself defines as to who is a related person. We reproduce below the relevant section 4(4)(C) and also the definition of relative as in the Companies Act, 1956:- (c) 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 and includes a holding company, a subsidiary company, a relative and a distributor of the assessee and any sub-distributor of such distributor. Explanation. - In this clause holding company , subsidiary company and relative have the same meanings as in the Companies Act, 1956 (1 of 1956)." EXTRACTS FROM THE COMPANIES ACT, 1956 2. In this Act, unless the context otherwise requires x x x x (41) relative means, with reference to any person, any one who is related to such person in any of the ways specified in section 6, and no others; x x x x 6. MEANING OF RELATIVE - A person shall be deemed to be a relative of another if, and only if, (a) they are members of a Hindu Undivide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there was financial involvement of the two firms in the business of each other. The appellants had given their two Matador vans to M/s Gulati Traders for which, even according to the appellants themselves, no rental was charged for atleast two out of the five years under dispute. On the other side, M/s Gulati Traders incurred expenses on advertisement of the appellants products. Advertisement and publicity are activities which rightly belong to the manufacturer as they make his goods marketable and promote their sales. On that ground, the Supreme Court have held that advertisement expenses are includible in the assessable value of the goods [1983 E.L.T. 1896 (SC) - Bombay Tyre International]. Mutuality of interest between the two firms was there, beyond doubt. 12. Coming to the second condition of proviso (iii) to Section 4(1)(a) now, the Collector has found that 99% of the appellants goods were sold to or through M/s Gulati Traders. He has held after investigations that the gate passes and invoices made by the appellants in the name of 60 and odd retailers were fake and were a feverish attempt on the part of the appellants to create a facade of independent sales at the factory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not to be liable for any losses. The Supreme Court concluded that the two firms could not said to be at arm s length or independent parties and the prices at which the goods were sold by the manufacturing firm to the chief distributor firm could not be taken to be the real value of the goods. In the case before us also, not only the partners of the distributor firm were closely related to the partners of the manufacturing firm but there were additional circumstances also in the form of the manufacturing firm giving its motor vehicles free to the distributor firm and the distributor firm incurring expenses on advertisement of the goods produced by the manufacturing firms. 14. While we confirm the basis of valuation as adopted by the Collector, the calculations of the demand for duty would appear to require another look by the Collector. The appellants stated before us that such obvious deductions as central excise duty and sales tax had not been allowed from the gross sale price of M/s Gulati Traders. If it is really so, it is a violation of the specific provision of Section 4(4)(d)(ii) and the Collector should set it right immediately. 15. While imposition of the penalty on the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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