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TMI Blog1986 (7) TMI 112X X X X Extracts X X X X X X X X Extracts X X X X ..... nd that if the aforesaid distributors fall in the category "related person" within the meaning of Section 4(4)(c) of the Act, the assessee will be liable to excise duty not on the price at which it sells its products to the distributors but on the price at which the distributors in turn sell the products to their constituents. The Assistant Collector, Central Excise and Customs, Pune (hereinafter referred to as the 'Assistant Collector') was once prima facie of the view that the distributors were "related person" and had issued show cause notice dated 23rd March 1978 in this regard. However, on going through the assessee's reply dated 5th July 1978, discussions he had with the assessee's representative during the course of personal hearing and a note on the arguments dated 24th November 1978, the Assistant Collector was satisfied that the assessee's distributors were not "related person" within the meaning of Section 4(4)(c) of the Act as the sales were at arm's length and on principal to principal basis. His order to this effect is dated 28/29th June 1979. The Collector felt that the order dated 28/29th June 1979 passed by the Assistant Collector was erroneous in law. Accordingly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is also a "related person". The Collector, it was stated, has not even suggested that the distributors are the persons who are so associated with the assessee that they have interest directly or indirectly in the business of each other or that they constitute a holding company, a subsidiary company, or relative within the meaning of the provisions of the Companies Act. The only ground given by the Collector for holding the distributors to be 'related person" within the meaning of clause (c) of sub-section (4) of Section 4 of the Act is that they are distributors both in nomenclature and in substance. 4. Reiterating that the assessee's distributors are distributors only in name but also in the real sense of the term, Shri Talyarkhan invited our attention to the Supreme Court decision in the case of Union of India and Others v. Bombay Tyre International Ltd. and etc. - 1983 E.L.T. 1896 = A.I.R. 1984 (SC) 420 (relevant observations being at page 439 paras 43 to 46) for the proposition that the term "related person" does not include a distributor simpliciter. The term will include a distributor only if the said distributor is also a holding company, a subsidiary company or a relative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the distributors in the event of certain direct sales. This, according to Shri Desai, meant that in respect of other sales the distributors were entitled to commission. If the distributors are entitled to commission on sales, Shri Desai contended, sales to them cannot be treated as sales at arm's length or on principal to principal basis. 7. We have heard the parties and have carefully gone through the material in record including the sample agreement and the decisions relied on. The word 'distributor' has not been defined in the Act. Having regard to the nature and the manner in which the agreements are entered into by the assessee with the distributors, however, the distributors can be said to be the distributors in reality and not merely in name as understood in common parlance. However, nothing will turn on this conclusion inasmuch as the agreements entered into between assessee and the distributors are the usual type of agreements entered into by any manufacturer of repute with his stockists, dealers or distributors on purely commercial considerations. 8. We may briefly refer to the objections taken by the Collector to the different clauses in the agreement. The first ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions made by Shri Desai particularly on the basis of clauses 11 and 12 of the agreement, we are not satisfied that in terms of the agreement relationship between the distributors and the assessee is of a type that it can fall within the first part of clause (c). We do not agree with Shri Desai that merely because a provision is made in the two clauses that the distributors will not be entitled to any commission on direct sales it would follow that on all other sales they are entitled to commission. In fact, the agreements do not provide for payment of any commission and it is not possible for us to infer a provision for payment of commission on the basis of converse of the preposition. It appears that classes 11 and 12 in the agreements are by way of abundant precaution. Accordingly, we have no difficulty in holding that the first limb of clause (c) is not applicable to this case. 10. The second limb might have presented some difficulty. However, the legal position has now been settled by the Supreme Court by decision in the case of Union of India v. Bombay Tyres International (supra), where their Lordships read the second limb as meaning distributors who are a holding company, a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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