IMPORTANT POINTS
Proviso (iii) to Section 4(1)(a) is attracted only when the three ingredients viz. ‘arrangement’ between related persons to depress price; sale generally and to or through related persons is established.
Holding company and subsidiary company are related persons.
Proviso (iii) to Section 4(1)(a) is referable only to tainted transactions.

Headnote:(a) Central Excise and Salt Act – Section 4(1)(a) – Normal price – Price at which goods are sold to a buyer in course of wholesale trade – Price being the sole criteria – Sale to related person – Presumption – Price is not sole consideration – Sale to related persons dealt with in Proviso (iii). (Para 9)
       (b) Central Excise and Salt Act – Section 4(1)(a), Proviso (iii) – Normal price – Ingredients – Arrangements for sale – Sale generally – To or through related person – Arrangement leading to lesser price – Sale of at least 50% goods is sale generally. (Para 10, 11)
       (c) Central Excise and Salt Act – Section 4(4)(c) – Related person – Use of ‘means’ and ‘includes’ – Holding company and subsidiary company are related persons. (Para 12)
       (1984) 1 SCC 467; (2003) 2 SCC 86; (2005)190 ELT 3; 2006(193) ELT 16; (2008) 17 SCC 374 – Relied upon
       59 ELT 220 Bombay (1992); (1984) 3 SCC 575 – Distinguished
       (d) Central Excise and Salt Act – Section 4(1)(a) – Normal price – Sale to related person – Presumption u/s 4(1)(a) that price charged from related person is not ‘normal price’ rebuttable – Price sole consideration – Not specially low price – No extra commercial considerations – Such price should be considered for arriving at ‘normal price’ – However, where Proviso (iii) apply, presumption is irrebuttable. (Para 14)
       (e) Central Excise and Salt Act – Section 4(1)(a), Proviso (iii) – Referable only to tainted transactions. (Para 17,
       (f) Central Excise and Salt Act – Section 4(4)(c) – Related persons – De facto test – Relative need not have a mutual interest in the assessee’s business and vice versa – De jure test – Holding companies and subsidiary companies are related persons by virtue of the exercise of control by a holding company over a subsidiary company – Detergents India Ltd. selling products to Shaw Wallace at prices higher than the price charged by other unrelated companies from Shaw Wallace – Apparently no ‘arrangement’ between the two to depress the price – Proviso (iii) to Section 4(1)(a) not applicable. (Para 26, 27, 28)
       Facts of the case:
       These appeals deal with the definition of “related person” and the price at which valuation is to take place if sales are made to “related persons” in the course of wholesale trade.
       Finding of the Court:
       Proviso (ii) to section 4(1)(a) is not attracted.
       Result: Appeals dismissed.

Judgment

R.F. Nariman, J.

1. These four sets of appeals relate to the correct construction of Section 4(1)(a) proviso (iii) and Section 4(4)(c) of the Central Excise and Salt Act as they stood prior to the 2000 amendment of Section 4. In short, these appeals deal with the definition of “related person” and the price at which valuation is to take place if sales are made to “related persons” in the course of wholesale trade.

2. It is important to note that the assessee, M/s Detergents India Limited, is the same in all the appeals, which arise out of different show cause notices for periods ranging from 1.3.1992 to September 1997. Detergents India Limited later changed its name to Henkel Marketing India Limited.

3. The facts of Civil Appeal Nos.9049-9051 of 2003 are as follows:

A show cause notice dated 8.12.1995 was issued demanding an amount of Rs.3,21,450/- for the period 20.7.1995 to 30.7.1995. The demand made under this notice was dropped vide order dated 11.3.1997 by the Deputy Commissioner, Hyderabad. An appeal against this order was dismissed by the Commissioner (Appeals), Hyderabad, by an order dated 5.1.2000. The appeal filed before CEGAT was also dismissed by the impugned judgment dated 22.4.2003.

4. By a separate show cause notice dated 26.3.1997 for the period 1.3.1992 to 31.3.1995, the Commissioner by an order dated 31.8.1999 confirmed a demand of Rs.1,12,42,499/- and also confiscated land, building, plant and machinery, and further ordered redemption of the same in lieu of confiscation on payment of a fine of Rs.5,00,000/-. Penalties of Rs.5,00,000/- each were imposed on the assessee, namely, DIL and on its holding company Shaw Wallace Company Limited. An appeal was filed against the order dated 31.8.1999 by the assessee and by its holding company Shaw Wallace. Three judgments were delivered by CEGAT in the aforesaid appeals. The learned Technical Member on a consideration of the facts came to the conclusion that during search operations goods from the subsidiary company were cleared from the factory premises to the depot of Shaw Wallace at a much lower price as compared to the price at which these goods were sold by the assessee in the market to wholesale purchaser Hindustan Lever and another. The Technical Member, therefore, remanded the matter for a proper adjudication on facts. The Legal Member, on the other hand, found in favour of the assessee finding that the issue in the present appeals was covered by the judgment of Union of India v. Atic, (1984) 3 SCC 575 and Raliwolf Limited v. Union of India, 59 ELT 220 Bombay (1992). In view of the difference of opinion between the members, the points of difference were placed before a third Member, who then decided in favour of the assessee in the following terms:

“6. Having thoroughly compared the facts of the present case with that of the above case, I am of the view that the ratio of the Apex Court’s decision can squarely be followed in the instant case. Accordingly, it has to be held that the price at which the goods were sold by DIL to SWCL should be the basis for determination of the assessable value of the goods, and not the price charged by the latter to their dealers. SWCL cannot be said to be “related” to DIL within the meaning of this expression as used in Section 4(1)(a) as no “mutuality of interest” between the two companies has been established in this case. None of the “commonalities” suggested by the Ld. SDR in his bid to set up a “relation” between the two companies would, individually or collectively, amount to “mutuality of interest” expounded by the Apex Court. The decisions cited by him are easily distinguishable. On the other hand, the decisions cited by the counsel are largely supportive of the assessee’s stand in this case. I do not think it necessary to elaborate this aspect as a detailed discussion has already been made in this behalf by Ld. Member (J). I am in full agreement with him on the issue.

7. As DIL and SWCL have already been found not to be

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2015 Supreme(SC) 304

Cases Referred (6)