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TMI Blog1984 (9) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... e price lists submitted by the petitioner as also the earlier approved price lists commencing from 1-10-1975 on the basis of the manufacturing cost and manufacturing profit of the petitioner company and also to grant consequential relief of refund of duty that may accrue to the petitioner company. 2. The Mopeds India Limited manufactures Mopeds under the name of Suvega Standard, Suvega Deluxe, Suvega Samrat excisable under the Central Excise Tariff No. 34 as two-wheeler motor vehicles designed for use on the road for which it has been granted a Central Excise Licence L. 4 No. 1/65 (M.V.). The company also manufactures "Motor Vehicle Parts" and "Accessories, of motor vehicles" falling under Tariff Item No. 34-A under the L. 4 Licence No. 1/75 and certain other parts of motor vehicles falling under the Tariff Item No. 68 with effect from 1-3-1979 under Central Excise Licence L. 4 No. 1/78-79. The three items of manufacture viz., Suvega Standard, Suvega Deluxe and Suvega Samrat are assessable to duty under the Central Excises and Salt Act, 1944. The petitioner Company is giving a commission of Rs. 110/- for Suvega Standard, Rs. 145/- for Suvega Deluxe and Rs. 165/- for Suvega Samrat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, 1944. It is stated in the notice dated 15-5-1979 that M/s. Mopeds India Limited, Tirupathi, manufacturers of motor vehicles i.e., motor cycles, have been filing price lists from 1-10-1975 onwards for determination of normal price under Section 4 (1) (a) of the Central Excises and Salt Act, 1944 and the values so declared by them were approved by the Competent Authority from time to time. While approving the said assessable value, a dealer's commission of Rs. 110/-, Rs. 145/-and Rs. 165/-in respect of each type of vehicle i.e., Suvega Standard, Suvega Deluxe and Suvega Samrat respectively were considered as trade discount and allowed to its dealers and deducted from the price lists shown under column (3) of the price lists for arriving at the price on which the Central Excise duty is leviable. But on a perusal of the terms and conditions of the dealerships allowed by the petitioner company, it is seen that the sales to the dealers under the above conditions cannot form sales to independent buyers in the open market conditions and it appeared that the sales are only sales through distributors, who are called as authorised dealers. These distributors are related persons within the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s are related persons within the meaning of Sec. 4 of the Central Excises and Salt Act, 1944. Since these distributors have no wholesale sales, the price at which they are selling in retail should form the normal price and the commissions thereby allowed previously i.e., the amount of commission of Rs. 110/-, Rs. 145/- and Rs. 165/- given to the distributors and deducted from the price quoted in column (3) of the price lists, would not be liable to be deducted as such. It is on this ground that the differential duty at the appropriate rates on the commission amount has been demanded from the petitioner company. 4. Before embarking upon a detailed consideration of the respective claims of the parties herein, it would be appropriate to consider the conditions stipulated in the agreements entered into between the petitioner company and their dealers. The relevant conditions stipulated in the said agreements are in the following terms :- "5. (a) Unless otherwise agreed specifically to, all deliveries to the dealer shall be ex-factory in unpacked condition and the bills/RR/LR/PWB shall be sent through their bankers and all bank charges thereon shall be borne by the dealer. In case t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... defined in the section or the Act and the dealers of the company cannot be termed as 'distributors' as there are no territorial restrictions and no over-right commission paid to them. The normal trade discount for organising sales and providing facilities are paid to the distributors and the deposits taken from them are towards the guarantee for organising sales and rendering service facilities. The re-inbursement of Rs. 4/- is for actual free servicing to be rendered by the dealer to the owners of the mopeds. The restrictions imposed on the dealers on exhibiting their products is not with a view to curtail their activity but only to ensure their reputation and to maintain brand name and quality. In any case it is not a blanket restriction as only prior approval is required so that a good piece can be exhibited without affecting their brand name. The clause relating to the company's obligation arising out of the contracts prior to the termination of the dealership is explained as a normal contractual obligation which does not create any financial or commercial relationship and the clause restricting the dealers from entering into agreements with any other party which may prevent h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urse of wholesale trade at the time of removal, to dealers (not being related persons) or where such goods are not sold to such dealers; to dealers (being related persons)who sell such goods in retail; (b) where the normal price of such goods is not ascertainable for the reason that such goods are not sold or for any other reason, the nearest ascertainable equivalent thereof determined in such manners may be prescribed. (2) Where, in relation to any excisable goods the price thereof for delivery at the place of removal is not known and the value thereof is determined with reference to the price for delivery at a place other than the place of removal, the cost of transportation from the place of removal to the place of delivery shall be excluded from such place. (3) The provisions of this section shall not apply in respect of any excisable goods for which a tariff value has been fixed under sub-section (2) of Section 3. (4) For the purposes of this section, (a) "Assessee" means the person who is liable to pay the duty of excise under this Act and includes his agent ; (b) "place of removal" means : (i) a factory or any other place or premises of production or manufactu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act which gives the definition of a "related person". A 'related person' within the meaning of Section 4(1) (c) is one 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. In the explanation it has been provided that the clause holding company, subsidiary company and relative have the same meaning as in the Company's Act, 1956. It is evident that the duty of excise is chargeable on excisable goods with reference to its value and the value is deemed to be the normal price as mentioned above. The term 'value' itself has been explained in Section 4, sub-section (4)(d) of the Central Excises and Salt Act, 1944. The concept of the term 'value' given in Sec. 4(4)(d)(ii) of the Act is apt to be considered for the purposes of this case. Under the said provision the concept of value in relation to any excisable goods does not include the amount of duty 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 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce is the sole consideration for the sale. This proposition is subject to the terms of the three provisos to sub-section (1) (a) of Section 4; (ii) where the price of excisable goods in the course of wholesale trade for delivery at the time and place of removal cannot be ascertained for the reason that such goods are not sold or for any other reason, the nearest ascertainable equivalent thereof determined in the manner prescribed by the Central Excise (Valuation) Rules, 1975 should be taken as representing the excisable, value, of the goods; (iii) where wholesale price of any excisable goods for delivery at the place of removal is not known and the value thereof is determined with reference to the wholesale price for delivery at a place other than the place of removal, the cost of transportation from the place of removal to the place of delivery should be excluded from such price; (iv) of course, these principles cannot apply where the tariff value has been fixed in respect of any excisable goods under sub-section (2) of Section 3; (v) On a proper interpretation of the definition of "related person" in sub-section (4)(c) of Section 4, the words "relative and a distributor o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... understood to mean a distributor who is a relative of the assessee. It will be noticed that the explanation provides that the expression 'relative' has the same meaning as in the Companies Act of 1956. As regards the other provisions of the definition of 'related person' that is to say "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, etc." It was held that the expression holding company and subsidiary company have the same meaning as in the w. t-bc. Companies Act, 1956. Moreover, the principle of 'lifting the veil of incorporation' was held to be applicable in terms of the decision in Tata Engineering and Locomotive Co. Ltd. v. State of Bihar - AIR 1965 SC 40 and Juggilal Kamlapat v. Commissioner of Income Tax, U.P. - AIR 1969 SC 932. Therefore, the veil of corporate entity could be lifted to pay regard to the economic realities behind the legal facade, for example, where the corporate entity was used for tax evasion or to circumvent tax obligation. In other words, the question, whether a particular dealer or distributor is a related person within th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the person alleged to be related person nor is it enough that the person alleged to be a related person has an interest, direct or indirect, in the business of the assessee. It is essential to attract the applicability of the first part of the definition that the assessee and the person alleged to be a related person must have interest, direct or indirect, in the business of each other. In this case it is clear that the discount of Rs. 110/-, Rs, 145/- and Rs. 165/- for the different varieties of mopeds are being given for organising sales and providing facilities. This is clearly an example of the mutual interest with the related persons and the assessees that are having in the business of each other. 10. In the case of Union of India v. Bombay Tyre International Ltd. (supra) another question that came up for consideration before the Supreme Court was whether the value of an article for the purposes of levy of excise must be determined by reference exclusively to the manufacturing cost and the manufacturing profit of the manufacturer or should be represented by the entire wholesale price charged by the manufacturer. The wholesale price actually charged by the manufacturer co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (4)(1) (a) of the Central Excises and Salt Act, 1944 cannot be confined to the manufacturing cost and the manufacturing profit only. In other words, the normal price is deemed to be the price at which the goods are sold by the assessee in the course of the wholesale trade. In the matter before us also, Sri Y.G. Rama Murthy, learned Counsel for the petitioner, placed great reliance on the principle that the value of the goods for the purpose of levy of excise must be determined by reference exclusively to the manufacturing cost and manufacturing profit of the manufacturer. However, as stated above, the normal price mentioned in Section 4(1) (a) of the Central Excises and Salt Act, 1944 is deemed to be the price at which the goods are ordinarily sold by the assessee in the course of wholesale trade. It is in fact the wholesale price charged by the manufacturer which is deemed to be the normal price. In this view of the matter the concept of normal price cannot be confined to the manufacturing cost and the manufacturing profit alone. 11. Sri Y.G. Ramamurthy, the learned Counsel appearing for the petitioner company in this case has further argued that the term 'wholesale trade' mean ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase is not by way of addition to a certain price of the goods but it is subtracted from the price holding. The wholesale cash price has to be ascertained only on the basis of the transactions at arms length if there is a special or favoured buyer to whom a special low price is charged, because of extra commercial considerations, for example because he is a relative of the manufacturer, the price charged for those sales would not be the wholesale cash price for levying excise under Section 4 of the Central Excises and Salt Act, 1944. 13. It is evident that the price quoted by the petitioner company in column (3) of the price lists are for one piece at which they are selling the goods in retail sales. According to the terms of the agreement between the petitioner company and their dealers the commission which the manufacturer is paying to its dealers is only towards the services done by them for organising sales and providing facilities. It is not a transaction on principal to principal basis. Moreover, a perusal of the terms and conditions of the agreement clearly reveals that it is not a normal trade discount entitling it for abatement from the price quoted under column (3) of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lear that the petitioner company has voluntarily and wilfully suppressed the fact of their being a mutual interest in business between the related distributors and the petitioner company. The dealers are being given a commission for organising the sales and providing facilities. In such a situation the time-limit prescribed under Rule 10(a) of the Central Excise Rules, 1944 is five years from the relevant date to serve a notice on the person chargeable with duty which has not been levied or paid or which has been short-levied, as such. Therefore, there is no substance in the argument of the learned Counsel for the petitioner that the demand now raised is barred by time. 15. In view of the foregoing discussion, this writ petition is dismissed, but in the circumstances of the case, there will be no order as to costs, 16. Mr. Y.G. Rama Murthy learned Counsel for the petitioner, has made an oral application for leave to appeal to the Supreme Court. 17. In view of the fact that a substantial question of law of general importance is involved in this matter we grant leave to the petitioner to appeal to the Supreme Court. 18. It is stated by the learned Counsel for the petitioner t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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