Bombay High Court
Ralliwolf Ltd. vs Union Of India on 7 February, 1992
Equivalent citations: 1992(2)BOMCR262, (1992)94BOMLR91, 1992(59)ELT220(BOM)
Bench: S.H. Kapadia, S.P. Kurdukar
JUDGMENT Kapadia, J.
1. The question involved in this writ petition under Article 226 of the Constitution of India relates to the true scope and interpretation of Section 4 of the Central Excises and Salt Act, 1944 as duly amended by Act No. 22 of 1973, which came into force with effect from 1st October, 1975.
2. The first petitioner is a company registered under the Companies Act, 1956. It carries on business inter alia of manufacture of portable electrical tools, machines, fractional H.P. motors etc. At the relevant time, the first petitioner company was a subsidiary company of the holding company by the name Rallis India Ltd. (hereinafter referred to for the sake of brevity as Rallis India). It is the case of the petitioners that they have been selling the fractional H.P. Motors in course of wholesale trade directly to the consumers. It is pleaded on behalf of the petitioners that the sales of the said H.P. Motors by the petitioners are on principal to principal basis and are at arm's length. It is also pleaded that the price charged for the said H.P. motors by the petitioners is the normal price and it is the sole consideration for the sale. It is the case of the petitioners that as far as the said H.P. motors, they are charging, from the buyers, prices which not only include the manufacturing costs and manufacturing profits but also post-manufacturing cost, expenses and profits such as (i) marketing and distribution expenses, (ii) advertising attributable to selling operation, (iii) packing (secondary packing), and (iv) interest charges incurred on selling and distributing the finished goods. It is the case of the petitioners that as regards other products viz. portable electrical tools, machines, stands and attachments (hereinafter referred to as "the other products") the petitioner company is selling the same to Rallis India who were their distributors for these products at the relevant time. It is the case of the petitioners that as regards the said "other products" the petitioner company is a subsidiary company of the said Rallis India but the prices which the petitioner company is charging are fully commercial prices and the said prices are not concessional prices as the said prices are not affected by extra-commercial consideration. In other words, according to the petitioners, in respect of their other products, their transactions with Rallis India are at arm's length and the prices charged are the sole consideration for such sales. The said Rallis India, according to the petitioners, at the relevant time sold the said goods to their respective consumers. It is the case of the petitioner company that the prices charged by Rallis India include their post-manufacturing costs, expenses and sales-tax payable on petitioner company's sales to Rallis India and selling profits.
3. It may be mentioned at this stage that on or about 10th July, 1990 the petitioner company ceased to be a subsidiary company of Rallis India.
4. According to the petitioners, in or about 1988, the first respondent herein introduced "self removal procedure" under Chapter VIIA of the Central Excise Rules, 1944. On the introduction of the amendment to Section 4 of the Central Excises and Salt Act, 1944 and on the introduction of new Section 4 from 1st October, 1975 the Superintendent of Central Excise required the petitioner company to submit fresh price lists in the prescribed proforma for the period from 1st October, 1975 onwards. It is the case of the petitioner company, that the petitioner company charges only one price to their wholesale dealers for its manufacturing activity. The wholesale dealers in turn sell the said products in the market at a price arrived at by adding sales tax payable on such sale, freight, selling and distribution expenses as well as their profit margin. Therefore, according to the petitioners, the said prices include elements of post-manufacturing expenses and selling profits namely, the freight from the factory to the distributors' area office, sales depot expenses, sales promotion expenses, interest charges incurred on selling and distribution of finished goods, sales tax payable by Rallis India, and trading/selling profit. Since the elements of the above items are included in the prices which the goods are sold, it is the case of the petitioners that they are entitled to deduct the above items as post-manufacturing expenses.
4. Till March 1978 the petitioners submitted their price lists to the Excise Authorities in which, through oversight as alleged, the petitioners included expenses for sale, sales tax payable on the first sale, freight, trading profits etc. According to the petitioner company, towards the end of March 1978, the petitioner company realised the said mistake and therefore by letter dated 30th March, 1978 addressed to the second respondent, the petitioner company referred to the aforestated alleged mistake and pointed out that the excise duty paid by the petitioners was under mistake of law and the same be refunded. Along with said letter dated 30th March, 1978 the petitioners enclosed its price lists showing the assessable value including the post-manufacturing expenses from 1st April, 1978 and requested respondent No. 2 to approve the same. It also claimed refund of duty erroneously collected for the period 1st March, 1977 to 28th February, 1978. The petitioners thereafter filed refund applications for the period 1st March, 1977 to July 1978 (the particulars of which are given in paragraphs 9 and 11 of the writ petition).
5. On 5th October, 1978 the second respondent approved the price list Nos. 17 and 18 submitted by the petitioner company without allowing deduction of the post-manufacturing costs and non-manufacturing costs.
6. Similarly on 13th October, 1978, the second respondent approved the petitioner company's price list Nos. 16 and 19 without allowing the deduction on account of post-manufacturing expenses. However, the petitioner company continued to pay the excise duty as directed by respondent No. 2 under protest and they filed further refund applications for the period August 1978 to November 1980 as mentioned in paragraphs 15 and 18 of the petition.
7. On 18th July, 1980 the second respondent issued show cause notice to the petitioner company by which the petitioner company was informed that under Section 4 of the Central Excises and Salt Act, 1944 there was no provision to exclude the post-manufacturing expenses for arriving at excise duty. But the second show cause notice dated 4th November, 1980 issued by the second respondent, the second respondent once again informed the petitioners as to why 27 refund applications filed during June 1978 till May 1980 should not be rejected in view of the fact that the post-manufacturing expenses cannot be excluded under the provisions of Section 4 of the said Act for arriving at the excise duty.
8. Appropriate replies were given by the petitioners to the said show cause notices as also the petitioners were subsequently heard by the second respondent.
9. By this orders dated 9th March, 1981, 19th March, 1981 and 20th March, 1981, the second respondent held that under the Central Excises and Salt Act, 1944 there was no provision to give deduction on account of post-manufacturing expenses while calculating excise duty and he rejected accordingly the above refund applications.
10. In the circumstances, on 22nd May, 1981 the present writ petition came to be filed by the petitioners seeking to challenge validity of the said orders in the light of the judgments of this Court which held the field at the relevant time. It may also be mentioned that during the period when the petitioners paid the excise duty under protest, the petitioners were asked to treat their sale of their said other products as the sale to or through a related person, namely, Rallis India and accordingly they were asked to file their price lists under Section 4(1) read with the third proviso to the said section. Accordingly the petitioner company under protest filed their price lists from time to time under Part IV of the proforma and the 2nd respondent approved the same without deduction on account of PME. In the circumstances one of the contentions raised by the petitioners in the said petition was whether the said other products sold by the petitioners to Rallis India would fall in the category of the third proviso to Section 4(1)(a) of the Central Excises and Salt Act, 1944, as being sold to or through the related person.
11. This petition came to be admitted on 18th June, 1981. By interim order the respondents were required to deposit in Court Rs. 54,00,748.90 representing excess duty amount refundable for the period from 1st March, 1977 to 31st August, 1981. This interim order came to be passed in view of several judgments of this Court at the relevant time which held that the post-manufacturing expenses cannot be included in the price for the purposes of levy of excise duty. Pursuant to the orders passed by this Court, the respondents deposited Rs. 54,00,748.90 and the petitioners withdrew the said amount on furnishing the bank guarantee.
12. In the meantime, the Supreme Court of India declared the law regarding the post-manufacturing expenses in the case of Union of India v. Bombay Tyres International - 1983 (14) E.L.T. 1896. In the said judgment the Supreme Court of India inter alia laid down that the sale price of an article is related to its "value" and that value has several factors including those which enrich its value and has given to the article its marketability in the trade and, therefore, expenses incurred on account of the said factors, which increase its value, and which expenses are incurred upto the date of the sale (which apparently would be the date of delivery) are liable to be included in the sale price. Applying the above tests it was held that freight, sales tax, transit insurance, and excise duty, trade discount, additional sales tax, costs of insurance, etc. were to be deducted from the sale price of the article.
13. On 14th December, 1983 the above writ petition came up for final hearing before this Court. In view of the decision of the Supreme Court in the case of Bombay Tyres (supra) the said writ petition was kept pending in this Court and on the question of deductibility of certain items the matter was sent back for fresh decision in view of the judgement of the Supreme Court in the case of Bombay Tyres (supra). Accordingly the petitioners were given an opportunity to revise their statement of deductions in respect of the price lists submitted by them to the second respondent. The petitioners were directed to file revised statement on or before 9th January, 1984. They were also directed to file relevant documents in respect of their claim for deductions. Respondent No. 2 herein was directed to finalise the price lists and decide the question of deductibility of various heads claimed in respect of the refund claim which constituted the subject matter of the petition. Respondent No. 2 was accordingly directed to decide the matter de novo as per the time schedule mentioned in the order dated 14th December, 1983. As per the said order dated 14th December, 1983 the second respondent was also directed to file in this Court the orders of assessment passed on the basis of the revised price lists. As per the said order dated 14th December, 1983, the petitioners were given liberty to move this Court after respondent No. 2 once again decided the matter. In view of the above, the legality of the earlier orders passed by the second respondent on 9th March, 1981, 19th March, 1981 and 20th March, 1981 referred to hereinabove is not required to be gone into.
14. Accordingly, in view of the said order of this Court dated 14th December, 1983, the petitioners filed their revised statement of claim on or about 9th January, 1984 claiming the deductions from the sale price on account of the following heads :-
(a) Freight
(b) Packing
(c) Commission
(d) Interest on Book Debts
(e) Sales Tax.
15. Pursuant to the notice dated 23rd January, 1984, clarifications were called for by the second respondent from the petitioner company. A personal hearing was also given to the petitioners and they were directed to produce documentary evidence in support of their claim including deduction of equalised freight and sales tax. By his order dated 24th August, 1984 the second respondent allowed the petitioners' entire claim on account of equalised freight and sales tax but only from 10th July, 1983 onwards. In effect it was held that claim for the prior period was time-barred. However, the second respondent rejected the deduction in respect of remaining three of the abovementioned items, namely, commission, packing and interest on book debts on the ground that the said three items were not valid because the petitioner company had not produced any evidence entitling them to claim the said deductions as it was contended by them that the claims regarding above three items may be kept in abeyance presently until the final decision of the Supreme Court on the above three heads.
15. In the circumstances, this writ petition came to be amended. By the said amendment the petitioner company sought to challenge the impugned order dated 24th August, 1984. By the amended writ petition the petitioner company sought refund of the excess amount charged for the period from 1st October, 1975 upto 30th September, 1984 on the basis that the petitioner company was compelled to file the price lists in proforma No. IV instead of proforma No. I on the ground that Rallis India are a related person and thus the petitioners sought refund of an amount of Rs. 1,21,60,708/- for the above period i.e. 1st October, 1975 to 30th September, 1984. In the alternative, the petitioner company submitted that it was entitled to recover an amount of Rs. 31,94,320/- being the differential duty in respect of the disallowed deduction under the said order dated 24th August, 1984 passed by the second respondent.
16. In the meantime in view of the judgement of the Supreme Court in the case of Union of India v. Atic Industries Ltd. reported in 1984 (17) E.L.T. 323, the petitioner company filed their price lists in proforma No. I and not in proforma No. IV as was done earlier.
17. On 21st September, 1984 the second respondent issued show cause notice calling upon the petitioner company as to why the price lists filed by the petitioners should not be rejected on the ground that the petitioner company was a subsidiary of Rallis India which was related person to or through whom the said "other products" were sold.
18. By its reply dated 26th September, 1984, the petitioner company submitted that in the light of the judgement of the Supreme Court in the case of Atic Industries Ltd. (supra), the said Rallis India could not be said to be a related person under the third proviso to Section 4(1)(a) read with Section 4(4)(c) of the said Act.
19. By his order dated 30th October, 1984 the second respondent rejected the submissions of the petitioner company and came to the conclusion that the ratio of the judgement in Atic Industries Limited (supra) did not apply to the facts of the present case.
20. In the circumstances, in the present petition, the petitioners have sought to challenge broadly two orders of the second respondent, namely, (i) order dated 24th August, 1984 by which respondent No. 2 rejected the claim of the petitioner company seeking deduction of the above three items of post-manufacturing expenses namely, packing, commission and interest on book debts; (ii) the order dated 30th October, 1984 passed by the second respondent holding that at the relevant time Rallis India being the holding company of the petitioner company was a related person under Section 4(1)(a) read with third proviso thereto and accordingly the second respondent directed the petitioner company to file their price lits in accordance with the said third proviso to Section 4(1)(a). In other words, as the Rallis India has been held to be a related person of the petitioner company the duty charged was on the basis of the price charged by Rallis India and not on the basis of the price charged by the petitioner company. Both the abovementioned orders dated 24th August, 1984 and 30th October, 1984 are the subject matters of challenge in this amended writ petition.
21. Before dealing with the contentions raised by the learned counsel appearing for the parties, it would be relevant to discuss the true scope of Section 4 of the said Act.
22. Prior to the amendment to Section 4 of the Central Excises and Salt Act, 1944, before 1st October, 1975 Section 4 as then stood read as follows :
"4. Determination of value for the purposes of duty. - Where, under this Act, any article is chargeable with duty at a rate dependent on the value of the article, such value shall be deemed to be -
(a) the wholesale cash price for which an article of the like kind and quality is sold or is capable of being sold at the time of the removal of the article chargeable with duty from the factory or any other premises of manufacture or production for delivery at the place of manufacture or production, or if a wholesale market does not exist for such article at such place, at the nearest place where such market exists, or
(b) where such price is not ascertainable, the price at which an article of the like and quality is sold or is capable of being sold by the manufacturer or producer, or his agent, at the time of the removal of the article chargeable with duty from such factory or other premises for delivery at the place of manufacture or production, or if such article is not sold or is not capable of being sold at such place, at any other place nearest thereto.
Explanation - In determining the price of any article under this section, no abatement or deduction shall be allowed except in respect of trade discount and the amount of duty payable at the time of the removal of the article chargeable with duty from the factory or other premises aforesaid."
23. By Amending Act No. XXII of 1973 the said Section 4 referred to above came to be substituted by the new section which reads as under :-
"4. Valuation of excisable goods for purposes of charging of duty of excise :-
(1) Where under this Act, the duty of excise is chargeable on any excisable goods with reference to value, such value shall, subject to the other provisions of this section be deemed to be -
(a) the normal price thereof, that is to say, the price at which such goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and place of removal, where the buyer is not a related person and the price is the sole consideration for the sale :
Provided that :
(i) where 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 (not being related persons) each such price, shall, subject to the existence of the other circumstances specified in clause (a), be deemed to be the normal price of such goods in relation in each such class of buyers;
(ii) where such goods are sold by the assessee in the course of wholesale trade for delivery at the time and place of removal at a price fixed under any law for the time being in force, or at a price, being the maximum fixed under any such law, then, notwithstanding anything contained in cl. (iii) of this proviso the price or the maximum price, as the case may be, so fixed shall, in relation to the goods so sold, be deemed to be the normal price thereof;
(iii) 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;
(b) where the normal price of such goods is not ascertainable for the reason that such goods are not sold or for any other reason, the nearest ascertainable equivalent thereof determined in such manner as may be prescribed.
(2) Where, in relation to any excisable goods the price thereof for delivery at the place of removal is not known and the value thereof is determined with reference to the price for delivery at a place other than the place of removal, the cost of transportation from the place of removal of the place of delivery shall be excluded from such price.
(3) The provisions of this section shall not apply in respect of any excisable goods for which a tariff value has been fixed under sub-section (2) of Section 3.
(4) For the purposes of this section -
(a) "assessee" means the person who is liable to pay the duty of excise under this Act and includes his agent;
(b) "place of removal" means -
(i) a factory or any other place or premises of production or manufacture of the excisable goods; or
(ii) a warehouse or any other place or premises wherein the excisable goods have been per permitted to be deposited without payment of duty, from where such goods are removed;
(c) "related person" means a person who is 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 and a distributor of the assessee, and any sub-distributor of such distributor.
Explanation. - In this clause "holding company", "a subsidiary company" and "relative" have the same meanings as in the Companies Act, 1956;
(d) "value", in relation to any excisable goods, -
(i) where the goods are delivered at the time of removal in a packed condition, includes the cost of such packing except the costs of the packing which is of a durable nature and is returnable by the buyer to the assessee.
Explanation. - In this sub-clause "packing" means the wrapper, container, bobbin, pirn, spool, reel or warp beam of any other thing in which or on which the excisable goods are wrapped, contained or wound;
(ii) does not include the amount of the duty of excise, sales tax and other taxes, if any, payable on such goods and, subject to such rules as may be made, the trade discount (such discount not being refundable on any account whatsoever) allowed in accordance with the normal practice of the wholesale trade at the time of removal in respect of such goods sold or contracted for sale;
(e) "wholesale trade" means sales to dealers, industrial consumers, Government, local authorities and other buyers, who or which purchase their requirements otherwise than in retail."
24. As stated above Section 4 of the said Act (before and after amendment) came to be interpreted by the Supreme Court in the Bombay Tyres (supra). In the said case it was laid down as follows :
(i) that there was not material difference between the old Section 4 and new Section 4 of the Central Excises and Salt Act, 1944;
(ii) that for the purposes of excise duty the assessable value was fixed with reference to the price of the article. The said price provided a measure by reference to which excise duty is assessed;
(iii) that the price charged by the manufacturer for the sale of the goods in wholesale is the price which represents the real value of the goods for the purposes of assessment of excise duty and such price would mean not only the manufacturing cost and the manufacturing profit of the manufacturer but also the price which the manufacturer receives from the sale to the first wholesale dealer (that is to say, when the goods first enter the stream of trade);
(iv) that the expenses incurred by the manufacturer in relation to factors which lead to increase in the value of the article in terms of its marketability in the trade and which expenses have been incurred upto the date of the sale are liable to be included in the sale price of the article;
(v) that there are three provisos to Section 4(1)(a) of the said Act (as it now stands). The said three provisos deal with three different situations. While deciding the question of a related person in the context of third proviso to Section 4(1)(a) of the said Act, it was observed by the Supreme Court that in every case falling under the third proviso, it was the duty of the department to decide on evidence whether the normal price stands reduced by extra-commercial considerations and if so what should be the price to be taken as the assessable value for the purposes of excise duty.
25. On the question of "related person" at this stage it would also be relevant to refer to the judgment of the Supreme Court in the case of Union of India v. Atic Industries Ltd. reported in 1984 (17) E.L.T. 323. In the said case it was held that in order to treat the customer as a "related person" the first part of the definition of "related person" as given in Section 4(4)(c) requires 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 was laid down, therefore, that it is not enough that the assessee has an interest directly or indirectly in the business of the person alleged to be a related person, but to attract the applicability of the first part of the definition the assessee and the person alleged to be a related person must have interest direct or indirect in the business of each other. The quality and degree of interest may be different, the interest of one in the business of the other may be direct while the interest of the latter in the business of the former may be indirect but that would not make any difference so long as each has some interest in the business of the other. The facts of Atic Industries Ltd. (supra) indicate that the goods were purchased by Atul Products Limited and Crescent Dyes (i.e. the shareholders of the Assessee) from the assessee and therefore, it was held by the department that the wholesale buyers of the goods were related persons of the said Atic Industries Ltd. Despite the above facts, it was held by the Supreme Court that the agreement between the assessee and the buyers showed that they were on principal to principal basis and extra-commercial considerations were taken into account in fixing the normal price and accordingly the order passed by the Revenue was set aside.
26. Similar view was followed also by this Court in the case of Dawn Apparels Limited v. Union of India reported in 1989 (43) E.L.T. 401 (Bom.). In the said case, it was found that the petitioner Dawn Apparels Ltd. was subsidiary company of Dawn Mills. The petitioner manufactured items of apparel and under an agreement with Dawn Mills the entire stock of apparels manufactured by the petitioner at an ex-factory rate came to be purchased by the Dawn Mills. The Department took the view that since the petitioner Dawn Apparels Ltd. were the subsidiary company of Dawn Mills ipso facto, the said Dawn Mills was a related person to the petitioner/assessee under Section 4(4)(c) of the said Act and accordingly the Department proceeded to charge excise duty on the price fixed by Dawn Mills and charged by Dawn Mills to its customers. This Court in the above judgment took the view that there was special relationship between Dawn Apparels Limited - the petitioner on the one hand and Dawn Mills on the other hand. But the existence of special relationship ipso facto did not mean that there was a favoured treatment in the sense that a lower price was charged. In other words, in order to attract the third proviso to Section 4(1)(a) read with Section 4(4)(c) of the said Act, it must be proved and established that a low price was charged in relation to the normal price because of the special relationship between the parties. It was found in the said case that the Department had proceeded to fix excise duty ipso facto only on the basis of a special relationship between the petitioner/assessee and the Dawn Mills and no attempt was made to establish that the price fixed or charged was on the basis of extra-commercial considerations. Therefore, the orders passed by the Department came to be quashed. With respect we agree with the ratio laid down by the said judgment in the case of Dawn Apparels Ltd. (supra) particularly in view of the fact that the impugned order in the present case dated 30th October, 1984 also proceeds on the same basis as in the case of Dawn Apparels Ltd.
27. As mentioned hereinabove, in the present petition, the challenge is to the two orders passed by the second respondent. The first order is dated 24th August, 1984. It deals with the question of deduction in respect of the above certain items, namely, packing, commission, interest on book-debts etc. The second order is dated 30th October, 1984, which deals with issue of related person.
28. For the purposes of deciding this petition, it would be first necessary to take into account the challenge to the impugned order dated 30th October, 1984. The said order has been passed by the second respondent as mentioned hereinabove solely on the basis that a special relationship existed between the petitioner/assessee on the one hand and Rallis India on the other hand. It was held by the second respondent that the third proviso to Section 4(1)(a) of the Act was ipso facto applicable since Rallis India is the holding company and the petitioner company is subsidiary company under the Companies Act, 1956 and on that basis alone the respondent No. 2 rejected the revised price lists filed by the petitioner company. The petitioner company was further directed to file their price lists in proforma IV which will indicate the prices at which the goods are sold by Rallis India Ltd. The impugned order proceeds on the basis that the facts of Atic Industries (supra) were quite different and that in the case of Atic Industries there was no question of holding company and subsidiary company and therefore according to the second respondent the decision in Atic Industries did not apply.
29. Mr. Bharucha, the learned counsel appearing on behalf of the petitioner company submitted that in order to attract the third proviso to Section 4(1)(a) read with Section 4(4)(c), three conditions are required to be satisfied :-
(a) mutuality of interest;
(b) normal price is not the sole consideration and that the extra-commercial consideration has reduced the normal price;
(c) the alleged related person should be related to the assessee as defined under Section 4(4)(c) of the said Act.
According to the learned counsel for the petitioner company, the test of mutuality of interest as well as extra-commercial consideration must be applied even in the case of special relationship between the parties like that of holding company and subsidiary company. According to Mr. Bharucha, a bare perusal of Section 4(4)(c) shows that it is divided into two parts, namely, a related person should mean a person having mutuality of interest in the business of each other and secondly that it includes certain categories like a holding company, a subsidiary company etc. According to Mr. Bharucha both the parts of the said Section 4(4)(c) should be read together and that the second part which is an inclusive part of the definition is an extension of the first part of the said section and joined by word 'and'.
30. Mr. Sethna, the learned counsel appearing on behalf of the Department, however, contended that once a special relationship was in existence between the parties, namely, that of a holding company and a subsidiary company, then ipso facto the Department would be justified in invoking the third proviso to Section 4(1)(a) inasmuch as the case would fall in the tainted category of persons as defined under Section 4(4)(c). According to Mr. Sethna, the first part of the definition of the related person is independent of the second part which is an inclusive part of the definition. According to Mr. Sethna, the learned counsel for the Department, in the case of holding company and subsidiary company, the definition of a related person should start with the statement "a related person includes a holding company, subsidiary company, a relative and a distributor of the assessee etc". In effect, it amounts to saying that the two parts should be read disconjunctively and not conjunctively. On the other hand the submission of the petitioner company is that both the parts of the definition of a "related person" should be read conjunctively and not disconjunctively. Mr. Sethna, the learned counsel for the respondents, submitted that the interpretation which he has placed on the said section finds support from paragraph 42 of the judgment of the Supreme Court in the case of Bombay Tyres (supra). Accordingly to Mr. Sethna an irrebuttable presumption will arise in the case of holding company and subsidiary company, inasmuch as according to Mr. Sethna it has been laid down by the Supreme Court in the case of Bombay Tyres (supra) that where the relationship of a holding company and subsidiary company exists, the relationship falls in the category of a tainted relationship and therefore wherever there is relationship of an assessee and the wholesale buyer falling in the category of a holding company and subsidiary company then such relationship automatically falls in the category of a related person as defined under Section 4(4)(c).
31. We are not inclined to accept the contention of the Department as submitted by Mr. Sethna, the learned counsel appearing for the respondents for the following reasons :-
(a) that Section 4(4)(c) is a defining section of the expression "related person" and the said section must be read and seen in the context of third proviso to Section 4(1)(a). If one, therefore, reads the entire section, it is clear that three conditions are required to be satisfied before invoking the third proviso :
Firstly, there should be mutuality of interest.
Secondly, the price charged should not be normal price but the price lower to the normal price, and that extra-commercial considerations have reduced the normal price.
Thirdly, the alleged related person should be related to the assessee as defined in Section 4(4)(c) of the said Act. It is only if the above three conditions are satisfied, then alone it can be said that the third proviso to Section 4(1)(a) is applicable.
(b) The first part of the definition of related person as mentioned in Section 4(4)(c) of the said Act lays down that a 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. The inclusive part of the definition is merely an extension of the first part. Both the parts must be read conjunctively. If the argument of the learned counsel for the respondent is accepted, then the word "and" which joins the two parts of the definition would be rendered meaningless. It is well-settled rule of interpretation that the Legislative mandate should be so read that no word used by the Parliament should be rendered nugatory. Reading the section as a whole it is clear that merely because a company is the subsidiary of holding company, ipso facto, it cannot attract Section 4(4)(c). It must be further established that each has interest in the business of the other. It must be further established that the transaction in question is not based on principal to principal and that extra-commercial considerations have lowered the normal price. It is only then the third proviso to Section 4(1)(a) is attracted. The view which we have taken is also supported by the judgment of the Supreme Court in the case of Atic Industries (supra) as well as the judgment of the Supreme Court in the case of Moped India Ltd. v. Collector of Central Excise reported in 1986 (23) E.L.T. 8.
32. In view of what is stated hereinabove, we find that the impugned order dated 30th October, 1984, which proceeds on the basis of ipso facto basis of a holding company and a subsidiary company is unsustainable and is accordingly set aside.
33. In the circumstances, we set aside the impugned order dated 30th October, 1984 and remand the matter to the second respondent to consider afresh the question of "related person" in the light of the guidelines laid down hereinabove.
34. As regards the validity of the impugned order dated 24th August 1984, the above facts indicate that the petitioners initially claimed deduction of five items namely, freight, packing, commission, interest on book-debts and sales tax. As mentioned above, the said impugned order dated 24th August, 1984 came to be passed in view of the order of this Court in the present writ petition dated 14th December, 1983 by which leave was granted to the petitioners to amend the price lists and seek deduction in the light of the judgment of the Supreme Court in the case of Bombay Tyres (supra).
35. In the matter of averaged freight and sales tax, the second respondent held by the impugned order that the petitioner company was entitled to claim deduction in respect thereof. It was found by the second respondent that the deduction of the freight claimed by the petitioner company was checked by taking into account the freight bills issued by the transport company. It was also found that where the freight is paid by the dealers it is deducted from the Invoice value in the invoices raised by Rallis India and therefore when the freight is paid by the Rallis India it is not deducted in the invoices by the petitioner. The second respondent accepted the claim of the petitioner company in respect of the item freight and granted relief in that behalf.
36. On the question of sales-tax, the second respondent granted deduction on account of sales tax but the same was granted only with effect from 10th July, 1983 inter alia on the ground that the company had not claimed the refund on account of sales-tax in time and that the claim of the company for a period from 1977 to 1983 was clearly barred by Section 11B of the said Act. It is the case of the company that they had made a claim for deduction on account of sales-tax right from March 1977 onwards which period has been covered by the present writ petition. In this connection the petition company placed reliance on the judgment of this Court in the case of Rallis India Ltd. v. Union of India reported in 1991 (55) E.L.T. 493 (Bom.) where this Court ruled that the Department had erred in rejecting the deduction on account of cash discount beyond the period of six months. In the said case it was also observed that in view of the judgment of this Court in Shalimar Textile Manufacturing Pvt. Ltd. v. Union of India, reported in 1986 (25) E.L.T. 625 (Bom.), it was not possible to accept the contention raised on behalf of the Revenue refusing grant of refund on the ground of limitation. In the present case, therefore, the second respondent having accepted the contention of the petitioners regarding deduction on account of sales-tax paid ought not to have refused the same on the ground that it was beyond the period of limitation prescribed in the Act. It may also be mentioned that the second respondent in the impugned order dated 24th August, 1984 has observed that within the short span of time, it was not possible to verify the company's claim for the entire period and that he had decided the matter by taking a sample period, namely, period from September 1982 to August 1983 which period was taken for verification and for the remaining period, the claim made by the company on account of equalised freight was verified by checking the freight bills issued by transport companies without prejudice to the Department's right to verify the claim for the entire period.
37. As regards the other three items mentioned above, namely, packing, commission and interest on book-debts we find same justification in the impugned order that despite several opportunities being given to the petitioner company to lead evidence in terms of the order of this Court dated 14th December, 1983 and despite the fact that ample opportunities were given to the petitioner company to produce their record in support of their claim of the said three items, the petitioner company did not avail of the said opportunities and that the claim of the petitioner company regarding the said three items, therefore, stood rejected.
38. Mr. Sethna, the learned counsel for the Department vehemently argued that no indulgence should be shown to the petitioner who despite repeated opportunities being given failed to produce any evidence either oral or documentary in respect of its claim for deduction on these three items and that if any indulgence is shown to the petitioner/assessee, it would be impossible for the Department to verify the record, assess and recover the revenue if the matter is remanded time and again. Mr. Sethna further submitted that the petitioner/assessee having failed to avail of an opportunity the impugned order cannot be faulted. Mr. Sethna also submitted that at this length of time if the assessee is permitted to adduce any evidence once again despite repeated opportunities being given to them, it would be impossible for the Department to procure witnesses and evidence in support of their case, and it would defeat the ends of justice.
39. Mr. Bharucha, the learned counsel appearing on behalf of the petitioner company, submitted that even after the judgment of the Supreme Court in Bombay Tyres (supra), certain new tests have been laid down by subsequent judgments of the Supreme Court which will be required to be considered by respondent No. 2 afresh as applicable to the facts of the case. By way of illustration Mr. Bharucha submitted that in the case of "packing" the Honourable Supreme Court has laid down various other tests, which constitute refinements to the tests laid down by the Hon'ble Supreme Court in the case of Bombay Tyres (supra). In support of the said submission Mr. Bharucha placed reliance on the following judgments of the Supreme Court, namely, Union of India & Ors. v. Godfrey Philips India Ltd. reported in 1985 (22) E.L.T. 306 and Collector of Central Excise v. Pond's India Ltd. reported in 1989 (44) E.L.T. 185. These two cases deal with the item of packing. It is the submission of Mr. Bharucha the learned counsel appearing for the petitioner company that certain additional tests have been laid down by the Supreme Court which warrant an opportunity to be given to the company. As regards the item of "interest on book debts" Mr. Bharucha referred to the judgment of the Supreme Court in the case of Assistant Collector of Central Excise v. Madras Rubber Factory Ltd. reported in 1987 (27) E.L.T. 553. According to Mr. Bharucha, the said judgment was subsequently recalled by the Supreme Court. The submission of Mr. Bharucha, therefore, is that in view of the new tests laid down by the Supreme Court, the petitioner company may be given an opportunity to lead evidence in the light of the subsequent judgments of the Supreme Court referred to hereinabove. This argument of Mr. Bharucha is, however, not correct. We have gone through at length the compilation of the letters exchanged between the parties and we find that the second respondent repeatedly called upon the company to produce evidence in support of their claim for deduction in respect of the above items. Despite ample opportunities being given to the petitioner company they did not avail of the same. The only contention raised by the petitioner company was that until final decision of the Supreme Court, the claims as regards commission, cost of packing and interest on book-debts be kept in abeyance without prejudice to their rights. Ultimately, out of sheer exasperation the second respondent passed the impugned order dated 24th August, 1984 and by paragraph 23 of the said order he rejected the case of the petitioner company and in our opinion, he was to some extent justified in so doing.
40. In normal circumstances, however, we would have dismissed the writ petition to the extent of the above three items, namely, packing, commission and interest on book-debts. However, after giving due consideration to the matter, we are of the opinion that since we are setting aside the impugned order dated 30th October, 1984 and since the second respondent will have to decide as to whether Rallis India is a related person to the petitioner and that whether the goods are sold by the petitioner company on the principal to principal basis or not, we think it fit to remand the matter, not only with regard to the question of the related person, to the second respondent but also one more opportunity be given to the petitioner company to prove its case on the above three items, namely, packing, commission and interest on book-debts before the second respondent. This will also be necessary in the light of the subsequent tests laid down by the Supreme Court in the cases of Pond's India Ltd., Dawn Apparels Ltd. and any other decision on which the petitioner company as well as the respondents would like to place reliance. We are persuaded to take this view because we find that both the questions of deductibility and related person are interconnected. For example, in the matter of commission, as well as in the matter of interest on book-debts as also in the matter of packing much will depend on the decision of the second respondent with regard to the question of related person. In this connection, we find from the affidavit filed on behalf of the petitioner company on 9th December, 1991 that the commission is paid to the distributors by Rallis India Limited for advancing business and collecting outstanding and it is said to be in the nature of discount given by Rallis India Limited to its dealers. The nature of the said discount or commission is known prior to the removal of the goods. Since the commission is paid by Rallis India to its distributors, the question whether Rallis India is a related person to the petitioner company assumes importance. So also in the matter of item of interest on book-debts, the petitioners are allowed free credit by Rallis India Limited upto 60 days and the said interest is claimed by the petitioner company as deduction. This issue will also be dependent upon whether Rallis India Limited is a related person to the petitioner company. These two illustrations are only to show that since the second respondent has erred in deciding the matter of related person and since he has not examined in depth the question of a related person, which he is now directed to decide, we are of the opinion that it would be appropriate to remand the entire matter to the second respondent. We cannot separate the issue of a related person from the issue of deductibility. We make it clear that the remand which we have ordered is only in view of the peculiar facts of this case as mentioned above.
41. Mr. Bharucha at the very threshold submitted to the Court the draft amendment seeking to challenge the constitutional validity of the Central Excise and Customs Laws (Amendment) Act, 1991 (Act No. 40 of 1991) on the ground that the Act is violative of the fundamental rights of the petitioners and it is ultra vires of the Constitution. He submitted that the petitioners are entitled for refund of duties paid under mistake of law and that in view of the said Act No. 40 of 1991, his clients were deprived of the recovery of the said amount. In view of our above order remanding the matter back to the second respondent, the question of refund at this stage of the matter does not arise. We, therefore, did not permit the petitioner company to amend the petition at this point of time. However, we make it clear that in the event of the petitioner subsequently proving its case of refund and in the event of the petitioner company succeeding in their claim for refund of duty which if it is denied to them on the ground of the provisions of the said Act No. 40 of 1991, then the petitioners would be at liberty to challenge the constitution validity of the said Act at such future point of time.
42. We would, however, like to make certain directions which the second respondent will bear in mind while passing the orders :
(a) That the second respondent will intimate to the petitioners the date of hearing giving reasonable opportunity to the petitioners to put forth relevant evidence which they desire to produce at the enquiry before the second respondent in respect of their claim for deduction for the aforestated three items, namely, packing, commission and interest on book-debts.
(b) That the petitioner company will not seek postponement on the basis that the matter is pending either in the High Court or in the Supreme Court with regard to any of the items of deduction which they claim and if they seek postponement of the decision, then the second respondent would be at liberty to proceed with the matter in accordance with law.
(c) The second respondent will examine the question of grant of deduction in respect of averaged freight as well as sales tax, as also commission, packing and interest on book-debts in view of our observations mentioned above, in the context of "related person". However, it is made clear that if after examining all the questions in accordance with law, the second respondent finds that in law the petitioner company is entitled to refund of the duty paid on the sales tax, the same will not be refused on the ground of limitation under the said Act.
43. In view of our conclusions above the petition succeeds to the extent mentioned hereinabove. The impugned orders dated 24th August, 1984 and 30th October, 1984 are hereby set aside with the direction to the second respondent to decide the matter in accordance with law in the light of above directions and to complete the enquiry as expeditiously as possible and preferably within six months from the date of the receipt of this order.
44. The above petition was admitted on 18th June, 1981. By an interim order of the same date, the respondents were directed to deposit in this Court Rs. 54,00,748.00 representing the differential duty for the period 1-3-1977 upto 31-5-1981 and liberty was given to the petitioner company to withdraw the said amount on furnishing a bank guarantee of 25%. This interim order came to be modified subsequently when the matter reached final hearing as stated above on 14th December, 1983 when the above interim order was modified and the petitioner company was directed to pay to the first respondent a sum of Rs. 35,00,000/- with interest at 12% per annum from 14th December, 1983 till payment and accordingly the bank guarantee to the extent of 25% of Rs. 54,00,748.00 initially furnished by the petitioner company was reduced to the extent of the amount paid by the petitioner company to the first respondent. It is hereby directed that the bank guarantee of Rs. 20,35,748.90 furnished by the petitioner company to the first respondent will continue pending the hearing and final disposal of the enquiry before respondent No. 2. Petitioners through Mr. Bharucha undertakes also to keep the said bank guarantee alive during the above period and four weeks thereafter. It is agreed between the parties that the Petitioners/Advocates will appear before Respondent No. 2 on 24th February, 1992 at 11 A.M. for fixing the date of hearing of the matter.
45. Rule is accordingly made absolute as aforesaid.
46. In the circumstances, there will be no order as to costs.