Customs, Excise and Gold Tribunal - Delhi
Weikfield Products Co. (India) vs Collector Of Central Excise on 28 September, 1989
Equivalent citations: 1990ECR351(TRI.-DELHI), 1993(63)ELT672(TRI-DEL)
ORDER G.A. Brahma Deva, Member (J)
1. Revision filed by the appellants before the Government of India against the Order-in-Appeal No. 1877/80 dated 1-1-1981 passed by the Collector of Central Excise (Appeals), Bombay has been statutorily transferred to this Tribunal as an appeal under Section 35P(2) of the Act.
2. Brief facts of the case are that appellants M/s. Weikfield Products Company (India) Private Limited are manufacturers of Prepared or Preserved Foods which fall under the Tariff Item 1(B) of the Central Excise Tariff. During the relevant period i.e. from 1-10-1974 to 30-8-1975 they had sold their goods through two broad channels viz. directly to the Canteen Stores Department (hereinafter called CSD) and to the Weikfield Central Marketing Organisation (hereinafter called the CMO), allowing 20% and 30% discount to CSD and CMO respectively. According to the appellants higher discount was allowed to CMO because they were sole selling agents for civil sales in India and they have to incur cost of freight for transporting the goods from Pune to outside markets and to incur a sizeable expenditure on their sales. Originally the appellants paid duty at the assessable value determined in accordance with discount given to CSD but subsequently after pronouncement of the judgment in the famous case of Voltas by the Supreme Court, they came to know that they were entitled to the deduction of higher discount under the old Section 4 in respect of their sales in the past. Accordingly, they filed a refund claim on 14-11-1975 amounting to Rs. 32,958.28 paise on the excess duty paid by them in respect of the goods sold to the CMO during the previous 12 months, under the old Rule 11 read with the old Rule 173J. Their refund claim was rejected by the Assistant Collector on the ground (i) assessable value was determined without any protest nor duty was paid under protest prior to 14-11-1975 and (ii) the transaction between the appellants and the CMO cannot be treated as at arm's length in view of the fact that most of the partners in the firm CMO are close relatives of the President and Directors- of the Appellant Company. In the appeal, the first Appellate Authority held that though the refund claim was made in time but rejected the appellant's appeal on the ground that the value of identical goods was otherwise determinable. Hence, this appeal.
3. Shri N.D. Khosla, learned Consultant, appeared for the appellants and submitted that the appellant is a Public Ltd. Co. incorporated under the Companies Act, whereas the CMO is a registered partnership firm having separate legal entity. CMO cannot be considered as a related person under Section 4(4)(c) of the Act even if the partners and the Directors in these two concerns are relatives in view of the ruling given by this Tribunal in the case of G.D. Industrial Engineers v. Collr. of Cus. & Central Excise, Chandigarh, reported in 1984 (3) ETR 39 and in the case of Meteor Satellite Ltd., Kathiuada, Ahmedabad and Telstar Electronics, Ahmedabad v. Collr. of Central Excise, Baroda, reported in 1984 (4) ETR 359. Further, he brought to our notice where the Collector (Appeals) in his Order No. 510/PN-47/85 dated 14-5-1985 has taken the same view in the appellant's case for the subsequent period holding that CMO is not a related person on the similar facts and circumstances. He argued that CMO cannot be considered as a special or favoured buyer as the appellants have sold for the same price to other Distributor CSD and it is not the case of the Department also that the appellants have charged an unduly low price from CMO. He contended that the Assistant Collector has held that transactions are not at arm's length without any authority for such findings and the appellate authority rejected the appeal on the ground which is clearly extraneous to the order of the learned Assistant Collector. He submitted that duty on the goods in question introduced on 1-3-1970, whereas the CMO had been appointed as their Distributors since 1963. Hence, a stigma of colourable device or corporate veil created to evade Central Excise Duty, cannot be attached to this transaction in view of the decision of this Tribunal in the case of Aroma Apparels v. Collector of Central Excise, Bombay, reported in 1986 (25) E.L.T. 90. He stated that the CMO is neither a related person nor a favoured buyer as the transactions between the appellants and the CMO were at arm's length and former has charged fair price from them. The actual discount allowed should be deducted out of the assessable value as the lowest price was the assessable value and highest rate of discount was permissible under old Section 4 of the Act when there were different prices and different rates of discount. In support of his contention, he cited a decision of Voltas case reported in 1977 (1) E.L.T. (J 177).
4. Shri Krishnamurthy, learned S.D.R. appearing for the respondent justified the action of the authorities below in rejecting the refund claim of the appellants on the ground that the same was not at arm's length as the partners of the CMO were closely related with that of the appellants and hence, the excess discount cannot be allowed as the CMO was a favoured buyer.
5. We have considered the submissions and perused the records. The issues to be decided in this case are (i) whether CMO is a related person or favoured buyer, and (ii) whether the discount allowed by the appellant's firm to CMO is permissible, if so to what extent?
6. Both the authorities below have gone on the footing that sale between two concerns was not at arm's length and the price was determinable otherwise on the ground that the partners of the CMO were close relatives of the Directors of the Appellant Co. Now this position is clear that one being a corporate concern and the other a partnership concern, the CMO could not be called a relative of the appellants as settled by Allahabad H.C in the case of Hind Lamps Ltd. v. U.O.I., reported in 1977 Cen-Cus. 1983-D and the same was followed by the Tribunal. The decisions cited by the appellant's counsel and in various cases accordingly, CMO cannot be considered as related person. To consider the CMO as a favoured buyer, as held in the case of Voltas, there must be a sufficient proof to show that specifically low price was charged. As there were mainly two buyers in this case and the price was one and the same in both the cases and it is not even a case of Department that low price was charged in the case of CMO, the CMO cannot be considered as a favoured buyer. In this view, we hold that CMO is neither a related person nor a favoured buyer. When once we have come to the conclusion that CMO is neither a related person nor a favoured buyer, then the question of admissibility of allowing discount as claimed by the appellant company arises, for our consideration. In view of the Voltas case and Bombay Safe and Steel Works Pvt. Limited v. A.K. Bandopadhyay and Ors., reported in 1978 (2) E.L.T. (J 224), it is clear that under old Section 4 as it stood prior to 1-10-1975, there had to be one price for the manufactured article computed in the manner contemplated either by clause (a) or clause (b) of Section 4 of the Act. Trade discount generally comes out of post-manufacturing profits. Therefore, where a manufacturer has allowed various rates of trade discounts it is the maximum rate of discount which will be allowable abatement in such cases. Following this principle and in view of the fact that in the instant case, the goods were not sold at an unduly low price to CMO and in view of the submission of the counsel that excess discount allowed to the CMO, the CMO was bound to pass to their wholesale dealers as per agreement and excess is only 10% in this case compared to CSD and after taking all the facts into consideration, we hold that the appellant's claim is justified.
7. In the result, we set aside the orders passed by the authorities below and allow the appeal with consequential relief to the appellants.