K.L. Rekhi, Member (T)

1. The appellants manufacture branded chewing tobacco, an excisable item. Prior to their incorporation on 12.8.1985, they were a partnership firm. Another partnership firm, M/s. Ratna Zarda Supply Company, were their sole selling agents/distributors. The two firms had no common partners. But 7 (out of 11) partners of Ratna were related to one or the other of 8 (out of 9) partners of Prabhat. The main point of dispute to be decided in this appeal is whether Ratna was a 'related person' of Prabhat within the meaning of Section 4(4)(c) of the Central Excises and Salt Act, 1944. If the answer to this question is in negative, the other point to be looked into is whether Ratna was really a consignment agent of Prabhat, working on commission agency basis. The period of the controversy started from 1.10.1975, the date on which the new Section 4 of the Act with its concept of 'related person' came into force.

2. The legislative provision in the new Section 4(4)(c) on 'related person' read as under :-

"related persons means 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, a relative a distributor of the assessee, and any sub-distributor of the such distributor".

Proviso (iii) to Section 4(1)(a) provided for as under :-

"where the assessee so arranges that the goods are generally not sold by him in the course of wholesale trade except to or through a related person, the normal price of the goods sold by the assessee to or through such related person shall be deemed to be the price at which they are ordinarily sold by the related person in the course 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".

3. The department's contention is that Ratna was a 'related person' of Prabhat because of mutuality of interest between the two, i.e., under the first part of Section 4(4)(c). This is the finding of the lower authorities also. In the alternative, the department's contention, now raised for the first time before us on the facts already available on the record, is that Ratna was "a relative and a distributor" of Prabhat within the meaning of the second part of Section 4(4)(c). In either case, if Ratna is held to be a related person of Prabhat, the implication would be, as per proviso (iii) to Section 4(1)(a), that Ratna's re-sale price for the goods to their dealers would become the basis for assessing the Central Excise duty and not Prabhat's initial sale price charged to Ratna. As regards the department's second proposition, if it is established that Ratna was only a consignment agent working on commission agency basis, the amount of commission given by Prabhat to Ratna would become inadmissible for exclusion from the assessable value vide Supreme Court judgment in the case of M/s. Coromandel Fertilisers Limited - 1984 (17) E.L.T. 607 (S.C.). In that event, the assessment here too would have to be made on Ratna's sale price to their dealers.

4. The appellant's main proposition as pressed for before us is that Ratna was not a related person of Prabhat and that Prabhat's price to Ratna should be accepted as the one being from principal to principal and at arm's length. If this is not acceptable, the appellants claim the following two deductions from Ratna's sale price to their dealers :-

(i) equalised freight included in the published list prices for dealers which were uniform all over India.

(ii) cost of additional packing done by Ratna over and above Prabhat's packing in which the goods were cleared from the appellant's factory.

No other relief is pressed for by the appellants before us.

5. The law regarding the concept of 'related person1 has been well settled by the Hon'ble Supreme Court in their following two judgments :-

(1) 1984 (17) E.L.T. 323 (S