Bombay High Court
Centron Industrial Alliance Ltd. vs Union Of India And 2 Others on 1 January, 1800
Equivalent citations: 1989(25)ECR524(BOMBAY), 1980(6)ELT622(BOM)
ORDER
1. The petitioners carry on business as manufacturers of Razor Blades. The petitioners entered into an agreement on May 29, 1970 with a Company known as "Union Carbide India LImited" for the supply of sale of certain quantities of razor blades for a period of 5 years from January 1, 1970. The agreement, inter alia, provides that the petitioners would manufacture and supply certain quantities of razor blades in accordance with the specifications set out in the agreement. The Company had agreed to pay to the petitioners an amount of Rs. 10.50 per hundred blades inclusive of cost of packaging and transportation to the destinations mentioned by the Company.
2. It is required to be stated that under Section 6 of the Central Excises and Salt Act, 1944 (hereinafter referred to as the "Act"), no person is permitted to engage in the production or manufacture of excisable goods except under the authority of a license granted under the Act. Under the provisions of the said Act, the petitioners submitted the price-list to the respondents on July 23, 1970 and in the said price-list, the value of the blades manufactured and supplied by their under the agreements was shown. The price list was approved by the appropriate authorities and the goods were cleared by the petitioners on the basis of the said price-list and upon payment of excise duty.
3. The petitioners received a show cause notice dated March 14, 1971 from the 3rd respondent stating that the correct assessable value of the blades sold by the petitioners to the Union Carbide was Rs. 21.73 per box of hundred blades, being the price at which the said blades were sold by the Union Carbide. The 3rd respondent called upon the petitioners to show cause why the differential excise duty amounting to Rs. 49,402/- should not be recovered from the petitioners. The petitioners gave their reply setting out various reasons to indicate that they are not agents for the Union Carbide and the agreement between the parties was at arms length. The reply given by the petitioners was not accepted and by an order dated July 3, 1971. the 3rd respondent held that the petitioners are manufacturing the blades for and on behalf of M/s. Union Carbide and the excise duty is recoverable on the selling price of the said Company. The Superintendent of Customs relied upon the letter dated July 23, 1970 addressed by the petitioners to the Excise authorities to come to that conclusion. The petitioners carried an appeal before the Appellate Collector, Central Excise, Bombay, but the same ended in dismissal by an order dated June 27, 1974. The Appellate Collector held that since the entire production is sold to the Company and the Company was entitled to supervise on the quality control of the blades, it cannot be held that the sales are independent, in normal course of business or at an arms length. The orders passed by the two authorities are under challenge in this petition filed under Article 226 of the Constitution of India.
4. Mr. Taraporewala, the learned counsel appearing in support of the petition, contended that the agreement between the petitioners and the COmpany was an ordinary commercial transaction entered into at arms length and was similar to agreements entered into by the petitioners with other customers. The learned counsel submitted that the price recovered from the Company was not a specially low price and the finding of the authorities below the petitioners were only manufacturing the blades for and on behalf of the Union Carbide is entirely erroneous. The learned counsel further submitted that the petitioners were not acting as the agents of the Union Carbide were acting as independent parties. The submission of the learned counsel bears to be correct and requires to be upheld.
5. The agreement between the petitioners and the Union Carbide is produced on record No. A to the petition. Clause 7 of this agreement provides that any tax received or duties including sales tax and excise duty shall be paid by the Company. Clause 8 of the agreement provides for price adjustment and the price received between the parties could be increased if there is any increase in extremely or in the import duty on stainless steel. Part B of clause 8 provides that the price of the product will be received every year, while Part C of the clause provides that if any difficulty in obtaining raw materials within the counted arises and the petitioners are required to import the raw materials, then any premium paid for procuring import entitlement shall be reimbursed by the Company. Clause 12 of the agreement provides for short delivery, rejection and replacement of the product and that indicates that the petitioners were not the agents of the Company but were independent manufacturers. From the term of this contract, I have no hesitation in holding that the petitioners were not the agents of the Union Carbide but were independent manufacturers. Apart from this consideration, Mr. Taraporewala rightly submitted the show cause notice issued by the respondents nowhere indicates that the agreement between the parties was not genuine or there was certain mate in the custody of the respondents to hold that the petitioners were merely sent of the the Union Carbide. The show cause notice merely indicates that time is a variation between the price at which the petitioners sold the blades to the Union Carbide and the sales effected by the Company in open market. The orders of the two authorities do not carry the case any further and the superintendent of the Central Excise has merely relied upon the letter dated July 23, 1970 to hold that the petitioners were mere agents of the Company.
6. Mr. Dalal, the learned counsel appearing on behalf of the respondents, also placed strong reliance upon the letter dated July 23, 1970 annexed as Ex. C to the petition. By this letter, the petitioners submitted the price list for the blades manufactured for the Union Carbide. The petitioners also stated that they are unable to state the price at which the blades are sold by Union Carbide to their customers as the said had not yet been determined by the Company. From this letter, it is difficult to appreciate how the petitioned have conceded that they are merely the agents of the Company and are no independent manufacturers. The reliance upon this letter by the Superintendent of Central Excise and the learned counsel to content that the petitioners are not the manufacturers is entirely inappropriate. Mr. Dalal then submitted that the clause of the agreement indicate that the Company is a favourable party and the agreement is not at arms length.
7. Mr. Dalal relied upon the decision of the Supreme Court in the case of A. K. Roy and another vs. Voltas Ltd. and contended that the reading of the entire agreement would leave no doubt that it was not at an arms length. The main reliance by the learned counsel is on the fact that the Union Carbide are selling the blades at a price which is far in excess of what the petitioners are charging them. It is impossible to conclude from this fact that the petitioners are merely the agents of the Company. It is well-known that the products are sold by the Company at a higher rate because of the reputation of their branch and that would not necessarily reflect the true value of the articles. In Voltas case, the Supreme Court observed:-
"If a manufacturer were to enter into agreements with dealers wholesale sales of the articles manufactured on certain terms and conditions, it would not follow from that alone that the price for the sales would not be the 'wholesale cash price for the purpose of Sec. 4(a) of the Act if the agreements were made at arms length and in the usual course of business."
The agreement in the present case clearly establishes that it is at arms length and is entered into in the usual course of business.
8. Mr. Dalal then submitted that the petitioners have not exhausted the remedy provided under the Act and ought to have preferred revisional application before the Government of India before approaching this Court. Technically, the submission of the learned counsel is correct but I am not inclined to drive the petitioners to that remedy after a lapse of more than 6 years. Mr. Dalal also submitted that the authorities below have recorded in finding on the material available before them and I should not disturb that finding while exercising jurisdiction under Article 226 of the Constitution of India. I find no merit in this submission as I have found that the two authorities below have not at all, taken into consideration any of the relevant facts but by cryptic orders have disposed of the proceedings before them. The Superintendent of Central Excise has relied upon the letter which has no relevance, while the order passed by the Appellate Collector shows no application of mind and does not indicate any reasons to come to that conclusion. In these circumstances of the case, in my judgment, this is a fit case which requires interference of this Court.
9. Mr. Taraporewala has placed reliance upon the decision of the Gujarat High Court in the case of Cibatul Ltd. P. O. Atul vs. Union of India others reported in 1978 Excise Law Times (J 68), and also on my judgment in Miscellaneous Petition No. 729 of 1974 decided on July 20, 1979 in support of his submission that the petitioners are not the agents but independent manufacturers of razor blades supplied to Union Carbide. Both these decisions undoubtedly support the contention of the learned counsel. In these circumstances of the case, the petitioners are entitled to the relief sought for.
10. Accordingly, the rule is made absolute in terms of prayer (a) of paragraph 19 of the petition. In the circumstances of the case, there will be no order as to costs. The Bank guarantee furnished by the petitioners to stand discharged.