1998 Supreme(SC) 418

1998(3) Supreme 403
Supreme Court of India
(From Customs Excise & Gold (Control) Appellate Tribunal, New Delhi)
Sujata V. Manohar & D.P. Wadhwa, JJ.
Calcutta Chromotype Ltd. -Appellant
versus
Collector of Central Excise, Calcutta -Respondent
Civil Appeal Nos. 241-42 of 1991
Decided on 31-3-1998
Counsel for the Parties :
For the Appellant : Dushyant Dave, Sr. Advocate, Ms. Manju Mishra and K.J. John, Advocates.
For the Respondent : S.D. Sharma, Advocate for V.K. Verma, Advocate.

Important Point
Appellate Tribunal was partly right in giving the direction to ascer­tain the break up of the shares of each member of the family in the two companies viz. Appellant/Manufacturer and his sole distributor. But due to peculiar subsequent event, no purpose will be served to inquire into the break up of the shares of each member and so the impugned judgment of the appellate Tribunal is set aside.

Headnote:Central Excise and Salt Act, 1944-Section 4(4)(c) - Question whether a person is a related person within the meaning of this section-Appel­lant making playing cards-Sold to M/s. Ganga Saran & Sons (P) Ltd. its sole distributor-Excise duty-Whether be levied on price sold by appellant to his sole distributor or at the price charged by sole distributor from third parties-Authorities levied on the later -Appeal to Supreme Court-Whe­ther Appellate Tribunal erred in holding that in order to determine that the appellant and M/s. Ganga Saran & Sons Pvt. Ltd. were related persons or that there was an identity of interest between the two break up of shares of each member of the two families be seen?-(No) (Companies Act, 1956-Lifting of cor­porate veil)-Whether this inquiry is now needed?-(No).

       Held : The principle that a company under the Companies Act, 1956 is a separate entity and, therefore, where the manufacturer and the buyer are two separate companies, they cannot, than anything more, be ‘related persons’ within the meaning of clause (c) of sub-section (4) of Section 4 of the Act is not of universal application. Law has traveled quite a bit after decision of the House of Lords in the case of Saloman v. Saloman (1897 AC 22). (Para 11)

       It is, however, difficult to lay down any broad principle to hold as to when corporate veil should be lifted or if on doing that, could it be said that the assessee and the buyer are related persons. That will depend upon the facts and circumstances of each case and it will have to be seen who is calling the shots in both the assessee and the buyer. When it is the same person the authorities can certainly fall back on the third proviso to clause (a) of Section 4(1) of the Act, to arrive at the value of the excisable goods. It cannot be that when the same person incorporates two companies of which one is the manufacturer of excisable goods and other is the buyer of those goods, the two companies being separate legal entities, the excise authorities are barred from probing anything further to find out who is the person behind these two companies. It is difficult to accept such a narrow interpreta­tion. True that shareholdings in a company can change but that is the very purpose to lift the veil to find out if the two companies are associated with each other. Law is specific that when duty of excise is chargeable on the goods with reference to its value than the normal price on which the goods are sold shall be deemed to be the value provided (1) the buyer is not a related person and (2) the price is the sole consideration. It is a deeming provision and the two condi­tions have to be satisfied for the case is to fall under clause (a) of Section 4(1) keeping in view as to who is the related person within the meaning of clause (c) of Section 4(4) of the Act. Again if the price is not the sole consideration, then again clause (a) of Section 4(1) will not be applicable to arrive at the value of the excisable goods for the purpose of levy of duty of excise. (Para 13)

       In the present case, we do find that the authorities of and the Appellate Tribunal did address themselves to the basic question as to the shareholdings of both, the assessee and the buyer, inasmuch as they found that the Managing Director of both the companies was the same and one more director was common. It was also found that the shares of both the companies were held by the members of the ‘Sharma family’ but that is quite a vague expression and, therefore, in our view, the Appellate Tribunal was partly right in giving the direction to ascertain the break-up of the shares of each member of the family in the two companies. To lift the veil the actual shareholding of both the companies and the persons in control of the management of both the companies needed to be ascertained to consider the identity of inter­est of both the companies in the business of each other. No presump­tion of such mutuality of interest in the business of each other could have been drawn without the factual data. (Para 14)

       However, in the present case, we are told that for subsequent years, the authorities have not treated M/s. Ganga Saran & Sons Pvt. Ltd., the sole distributor of the appellant, as a related person which fact has not been controverted by the respondent and have accepted the price at which the goods are sole by the assessee to the sole distrib­utor as the sole consideration for sale. The matter pertains to the year 1976. Order of the Assistant Collector is of the year 1978. We do not think at this late stage any purpose will be served to inquire into the shareholders of the assessee, the appellant and its sole distributor as directed by the Appellate Tribunal. We are, therefore, inclined to hold that no effect be given to the judgment of the Appel­late Tribunal. (Para 15)

       Accordingly, the appeals are allowed and the impugned judgment of the Appellate Tribunal is set aside. There will be no order as to costs. (Para 16)