9911796707
TMI Blog1987 (1) TMI 102X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant company to State Transport undertakings on what is known as rate contract. There is no dispute that there is a direct privity of contract between the Transport undertakings and the appellant-company so that the transactions are commercial transactions at arms length. The other transactions are through independent wholesale buyers. These wholesale buyers are of two kinds. There are four companies namely, Messrs Central Automobiles, Messrs Associated Auto Parts, Messrs Jullunder Motor Agency and Messrs Howrah Motor Company. These four wholesale buyers are described by the appellant as independent wholesale buyers. To these buyers the appellant company offers a discount of 32-1/2 per cent on the list price. In addition to this discount, at the end of each year the performance of these wholesale buyers in promoting sales of company's products is reviewed and the Board of Directors of the company approves payment of specific amounts towards the sales promotion expenses incurred by these wholesale buyers. The other set of wholesale buyers are described by the appellant-company as associated wholesale buyers. It is this phraseology which seems to have landed the appellant in tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt in a writ petition in this Court. The prayer made in the writ petition was that the order of the Assistant Collector should be quashed and the ground taken in the writ petition was that the Assistant Collector was in error in holding that the wholesale dealers were related persons within the meaning of the Act. In the counter affidavit filed on behalf of the department, a bald averment was made that the so-called wholesale dealers were certainly distributors in whose business the appellant has interest and vice versa and this was fortified by the following facts :- 1. Whenever a buyer approaches them for goods, they are being directed to approach the Distributors. 2. In respect of sales to State Transport Undertakings, the distributors got overriding commission, which showed that the distributors took active interest in the appellant's goods. 3. To cater to the needs of the replacement market the goods are channeled only through M/s. Ashok Leyland who happened to be one of the appellant's major domestic customers. 4. At the end of each year, the dealers (distributors) were paid specific amounts towards sales promotion expenses. In other words, each of the ground relied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed persons' and, unless the shareholding was such that the person which included the company constituted a holding company or a subsidiary company, that shareholding had to be ignored. 4. Mr. Somasundaram, appearing for the Department has contended before us, firstly, that the remuneration which is paid to the wholesale dealers in the areas in which the public transport undertakings were located clearly indicated that these wholesale dealers were really acting in the capacity of an agent and that there was a relationship of agent and principal between the wholesale dealers and the appellant. It has also contended that the payment of fixed amounts by way of sales promotion expenses would also show that the relationship between the wholesale dealers and the appellant was one of agency. Then with regard to M/s. T.V.S. Sons it was contended that, since M/s. T.V.S. Sons held 21 per cent of equity shareholding of the appellant-company, it must be deemed to be interested in the business of the company and the appellant-company must conversely be deemed to be interested in the business of M/s. T.V.S. Sons with the result that the test of mutuality is satisfied. Similarly, it was al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... butor of such distributor". 6. Now it is well established that insofar as the levy of excise duty on a manufacturer is concerned, except in the case of a related person, the value is the normal price of the excisable goods, which means that the price at which the goods are sold by the assessee to the buyer in the course of the wholesale trade for delivery at the time and place of removal. Clause (i) of the proviso takes note of the fact that goods are sold at different prices to different classes of buyers and it provides that, 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 each such price being 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 buyers. 7. Insofar as transactions with the related persons are concerned, the valuation of the goods for the purpose of excise is governed by Clause (iii) of the proviso. Under that clause, where the assessee so arranges that the goods are generally not sold by him in the course of wholesale trade except to or throug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty of interest in the business of each other and, unless this mutuality of interest in the business of each other is established, it would not be possible to describe, the person as being a related person. Though the definition of 'related person' itself clearly spells out the concept of this mutuality of interest, the controversy is also now settled by the decision of the Supreme Court in Union of India v. Atic Industries 1984 (17) E.L.T. 323 (S.C.) = AIR 1984 S.C. 1495. That decision was in an appeal from the decision of the Gujarat High Court in Atic Industries Ltd. v. Union of India, 1979 E.L.T. (J 513) Guj. We are not concerned with that part of the decision of the Gujarat High Court in which the provision relating to the related person was declared to be unconstitutional and it may be stated that that part of the decision has been overruled by the Supreme Court. In that decision, the Gujarat High Court was dealing with the question whether the Company, Atul Products Ltd., which held 50 per cent share in the equity holding of Atic Industries Ltd., could be said to be a related person. In construing the words 'related person' in Section 4(4)(c) of the Act, the Gujarat High Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Supreme Court in Atic Industries Ltd., case AIR 1984 S.C. 1495. These observations are as follows- "On a proper interpretation of the definition of 'related person' in sub-section (4)(c) of Section 4, the words 'relative and a distributor of the assessee' do not refer to any distributor but they are limited only to a distributor who is a relative of the assessee within the meaning of the Companies Act 1956." 10. What is, however, important is that on the test of mutuality in the context of determining the question whether Atul Products Ltd., which had 50 per cent shareholding in the assessee company Atic Industries Ltd., could be said to be a 'related person' the Supreme Court observed as follows - "What the first part of the definition requires is that the person who is sought to be branded as a 'related person' must be a person who is so associated with the assessee that they have interest, directly or indirectly, in the business of each other. It is not enough that the assessee has an interest, direct or indirect, in the business of the person alleged to be a related person nor is it enough that the person alleged to be a related person has an interest, direct or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s T.V.S. Sons. The test of mutuality was clearly not satisfied. 12. The same appears to be the case with regard to Impal. Merely because some shareholders of the appellant company happened to be holding equity shares in Impal and they are Directors for the time being in the assessee company, the two companies cannot themselves be said to have any interest in the business of each other. A shareholder and a company are two different entities in law. An incorporated company is itself an independent entity in law. Thus, though a member of an incorporated company may have some shareholding in some other company with which the incorporated company has business dealings, that by itself would never indicate that the two companies have interest in the business of each other. 13. Now so far as the four other companies are concerned, the learned counsel appearing on behalf of the department has taken a stand before us that the four companies must be treated as agents of the assessee company. This argument is self-defeating and cuts at the root of the case of the department. If the four companies are to be treated as agents of the assessee company as now argued, then the transactions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mal commercial dealings and at arms length, are not hit by Section 4(4)(c) of the Act. It was also pointed out that, even though a product was being advertised by the wholesaler and the wholesaler had undertaken to give after-sales services and comply with the normal warranties, such sales could not be considered as sales to favoured buyers. In Paragraph 16 of the judgment, it is observed as follows - "It is also difficult to appreciate how merely because the product was being advertised by the wholesaler and the wholesaler had undertaken to give after-sales services and comply with the normal warranties, Messrs. Philips India Ltd., could be considered as favoured buyers. It is common knowledge that when a consumer purchases an article from a dealer, in the case of service facilities, he looks to the dealer and not to the manufacturer. In cases of replacements of defective parts also he will look to the dealer from whom he has purchased and notwithstanding the fact that the wholesale dealer may ultimately have the parts replaced by them reimbursed from the manufacturer, the service facilities are provided by the wholesaler with a view to earn the goodwill and attract customers." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aborately dealt with after taking into account the relevant authoritative pronouncement by Courts. An executive approach merely having an eye on collecting revenue has no place in dealing with a matter which has to be decided by a quasi-judicial orders. He would be perfectly justified in expecting the authorities under the Act to decide the relevant questions, having regard to the settled law of the land, rather than by summary decisions in such matters. It is to be realised that such decisions rendered without full application of mind, most of the time with an executive approach, cause serious harm and prejudice to the citizens apart from contributing to the increase in the number of cases in the courts. These observations we think, are enough to dispose of the contention raised before us by the learned counsel for the appellant. 17. Having regard to what we have said earlier, the appeal has to be allowed. 18. Accordingly, the appeal is allowed, the order of the learned Judge dismissing the writ petition is set aside and the impugned order of the Assistant Collector dated 21-4-1979 is quashed. In the circumstances, we make no orders as to costs. - - TaxTMI - TMITax - C ..... X X X X Extracts X X X X X X X X Extracts X X X X
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