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TMI Blog1976 (12) TMI 179X X X X Extracts X X X X X X X X Extracts X X X X ..... Customer Companies) sell those products. The petitioner company has challenged the direction of the Superintendent and has contended that for the purpose of levy of excise duty the value of its products should be the prices at which it sells those products to the Customer Companies and not the prices at which they in turn sell those products to wholesale dealers or others. 3. We shall set out certain material facts which are not in controversy. The petitioner company was registered in India under the Indian Companies Act, 1913. At present there are only five shareholders of the Company. They are: 1. Bajaj Electricals Limited, Bombay. 2. Crompton Parkinson Ltd., London. 3. N. V. Philips, Eindhoven (Holland). 4. General Electric Co. Ltd., London. 5 Mazda Lamp Co. Ltd., Liecester, England. 4. For the sake of convenience the last four of the above companies will hereinafter be referred to as the Foreign Companies. The first of the above companies, namely Bajaj Electricals Ltd., Bombay, holds 1,80,000 shares in the petitioner company. It is called 'A' shareholder. The four foreign companies together hold 1,80,000 shares. They are called 'B' shareh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of the Act has not altered the legal position so far as it (the petitioner company) is concerned and that the decision of this court would still govern the determination of value of its products for the purpose of levy of excise duty. 8. ln order to appreciate the rival contentions of the parties, it is necessary to set out the relevant provisions of the Act and Section 4, as it stood before, and as it stands after, the amendment by the Amendment Act. Clause (d) of Section 2 of the Act defines `excisable goods' as goods specified in the First Schedule to the Act as being subject to a duty of excise. Clause (f) of Section 2 of the Act defines `manufacture' as including any process incidental or ancillary to the completion of a manufactured product. Clause (k) of Section 2 of the Act defines `wholesale dealer' as person who buys or sells excisable goods wholesale for the purpose of trade or manufacture. Sub-section (1) of Section 3 of the Act which is the charging section, reads: "3. (1) There shall be levied and collected in such manner as may be prescribed duties of excise on all excisable goods other than salt which are produced or manufactured in India and a duty o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the course of wholesale trade for delivery at the time and place of removal, where the buyer is not a related person and the price is the sole consideration for the sale : Provided that: (i) <|><|><|><|><|><|>where, in accordance with the normal practice of the wholesale trade in such goods, such goods, are sold by the assessee at different prices to different classes of buyers (not being related persons) each such price shall, subject to the existence of the other circumstances specified in clause (a), be deemed to be the normal price of such goods in relation to each such class of buyer; (ii) <|><|><|>where such goods are sold by the assessee in the course of wholesale trade for delivery at the time and place of removal at a price fixed under any law for the time being in force or at a price, being the maximum, fixed under any such law, then, notwithstanding anything contained in clause (iii) of this proviso the price or the maximum price, as the case may be, so fixed, shall, in relation to the goods so sold, be deemed to be the normal price thereof; (iii) <|><|><|>where the assessee so arranges that the goods are generally not sold by him in the course of wholesale trade exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of excise, sales tax and other taxes, if any, payable on such goods and, subject to such rules as may be made, the trade discount (such discount not being refundable on any account whatsoever) allowed in accordance with the normal practice of the wholesale trade at the time of removal in respect of such goods sold or contracted for sale: (e) <|><|><|>"wholesale trade" means sales to dealers, industrial consumers, Government local authorities and other buyers, who or which purchase their requirements otherwise than in retail." 9. The nature of excise duty has been explained in several decisions of the Privy Council and the Supreme Court. Suffice it to refer to the following observations of the Privy Council in Governor General in Council v. Province of Madras (A I.R. 1905 P.C. 98) which were quoted with approval by Sinha, C.J. speaking for the Supreme Court in In re Bill to amend S. 20 of the Sea Customs Act (A.I.R. 1963 S.C. 173. "Excise duty is primarily a duty on the production or manufacture of goods produced or manufactured within the country........... ... ... & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ost and selling profits and that the real value can include only the manufacturing cost and the manufacturing profit. The section makes it clear that excise is levied only on the amount representing the manufacturing costs plus the manufacturing profit and excludes post-manufacturing cost and the profit arising from post-manufacturing operation, namely, selling profit. The section postulates that the wholesale price should be taken on the basis of cash payment thus eliminating the interest involved in wholesale price which gives credit to the wholesale buyer for a period of time and that the price has to be fixed for delivery at the factory gate thereby eliminating freight, octroi and other charges involved in the transport of the articles." 11. The enunciation of law in Voltas Ltd's case was reiterated and amplified by the Supreme Court in Atic Industries Ltd. v. B.H. Dave, Assistant Collector of Central Excise (A.l.R. 1975 S.C. 960). There, the Supreme Court observed thus at pages 967 and 968: "The value of the goods for the purpose of excise must take into account only the manufacturing cost and the manufacturing profit and it must not be loaded with post-manufacturing c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice, it would load the price with a post-manufacturing element, namely, selling cost and selling profit of the wholesale dealer. That would be plainly contrary to the true nature of excise as explained in the Voltas case (supra). Secondly, this would also violate the concept of the factory gate sale which is the basis of determination of value of the goods for the purpose of excise." 12. As submitted by the learned Chief Standing Counsel who appeared for the respondents, the Amending Act was enacted mainly to overcome the effect of the decision of the Supreme Court in Voltas Ltd's case. The concept of `related person' was introduced by the Amendment Act. Clause (iii) of the proviso to Section 4(1)(a) of the new Section provides that where an assessee sells through a related person, the normal price of goods sold by the assessee to or through such related person, shall be deemed to be the price at which they are ordinarily sold by the related person in the course of wholesale trade at the time of removal of such goods. The expression `related person' has been defined in clause (c) of sub-section (4) of new Section 4. 13. The learned Chief Standing Counsel contended that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, holds shares in the petitioner company. The remaining four customer companies do not hold any shares in the petitioner company. 17 However, the learned Chief Standing Counsel submitted that these four Customer Companies are respectively associated companies of the four Foreign Companies and that hence these four Customer Companies must be held to have interest indirectly, if not directly, in the business of the petitioner company. 18. The actual relationship between each of the four Foreign Companies and the corresponding Customer Companies bearing, similar names, has not been placed before us. ln the absence of such material, it is not possible to accede to the contention of the learned Chief Standing Counsel that these four Customer Companies must be regarded as having indirect interest in the business of the petitioner company. 19. Even assuming that all these four Customer Companies have interest in the business of the petitioner company, it is not shown that the petitioner company has any interest directly or indirectly, in the business of these four Customer Companies. 20. Even in regard to Bajaj Electricals Ltd., which holds shares in the petitione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d company is any other company, holds <|><|><|><|><|><|><|>more than half in nominal value of its equity share capital; or (c) <|><|><|><|>the first mentioned company is a subsidiary of any company which is that other's subsidiary. (2) For the purposes of sub section ( l ) the composition of a company's Board of directors shall be deemed to be controlled by another company if, but only if, that other company by the exercise of some power exercisable by it at its discretion without the consent or concurrence of any other person, can appoint or remove the holders of all or a majority of the directorship: (3) ... ... ... … (4) <|>For the purposes of this Act, a company shall be deemed to be the holding company of another if, but only if, that other is its subsidiary. (5) ... ... ... <|><|><|><|><|><|><|><|>… (6) <|><|><|><|><|>In the case of a body corporate which is incorporated in a country outside India, a subsidiary or holding co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rticle 105A." "I05A. All the Directors of the Company shall be elected by the Company according to the system of proportional representation so that the Company shall elect: (i) <|><|><|><|><|>No less than 3 and no more than 4 directors to be proposed by and representing the holders of `A' shares of the Company. (ii) <|><|><|><|>An equal number of directors to be proposed by and representing the holders of 'B' shares of the Company". 30. It is seen from these Articles that neither Bajaj Electricals Ltd. nor any Foreign Company has the right to appoint or to remove a majority of the directors. Hence neither Bajaj Electricals Ltd., nor any of the Foreign Companies can be regarded as a holding company with respect to the petitioner company, nor can the petitioner company be regarded as the subsidiary company of Bajaj Electricals Ltd., or any of the Foreign Companies. Much less can any of the Customer Companies be regarded as a holding company in regard to the petitioner company nor can the petitioner company be regarded as a subsidiary company of any of the Customer Companies. 31. However, the learned Standing Counsel contended that Bajaj Electricals Ltd., and all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o not satisfied in the present case. It follows that clause (iii) of the proviso to sub-section (1)(a) of new Section 4 of the Act, has no application to the sales by the petitioner company of its products to the five Customer Companies and that the Central Excise authorities cannot regard the prices at which they (the five Customer Companies) sell such products to wholesale dealers and others, as the value of those goods for the purpose of levy of excise duty. 35. To say that the sales by the petitioner company to the Five Customer Companies, cannot be regarded as sales to related persons, is not to say that the transactions between the petitioner company and those five Customer Companies, are necessarily transactions at arms length and that the Central Excise authorities must accept without scrutiny the prices at which the petitioner company sells its products to the five Customer Companies as the real value of goods for the purposes of levy of excise duty. 36 It is open to the Central Excise authorities to examine whether or not the five Customer Companies are favoured customers and whether the prices at which the petitioner company sells its products to them are the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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