Customs, Excise and Gold Tribunal - Delhi
International Computer India Mfg. Co. ... vs Collector Of C. Ex. on 30 December, 1988
Equivalent citations: 1989(21)ECR297(TRI.-DELHI), 1989(41)ELT287(TRI-DEL)
ORDER V.P. Gulati, Member (T)
1. These nine appeals in respect of the same appellants were listed together for hearing. These pertain to the two units of the appellants - one situated at Bangalore and the other, at Pune. The appeals before us are against the orders of Appellate Collectors of Central Excise, Bombay & Madras. Common issue involved in all these appeals relates to the acceptance of assessable value of the goods as declared by the appellants. In some of the appeals, the question of limitation in respect of the demand raised beyond the normal limitation period of six months has also been agitated. The issues posed in some of the appeals are under old Section 4 of Central Excises & Salt Act, 1944 i.e. Section 4 as it stood upto 1-10-75 while in others the issue is in the context of new Section 4.
2. The facts regarding manufacturing activity, sales pattern are the same in all the cases. Briefly stated, the facts are that the appellants are manufacturer of Data Processing Machines (Computers) in their factories at Bangalore and Pune and sell their production to M/s. International Computers India Ltd. (buying firm). At the relevant time, they had an agreement with the buying firm and sold all their machines to them in terms of this agreement. The appellants were despatching the machines on the instructions of the buying firm to various customers and the invoices for the goods to the customers were raised by the buying firm. The price shown in the gate passes and other excise documents was price which the appellants were charging the buying firm and which was lower than the price charged by the buying firm. Some of the sales effected were on outright basis to the ultimate customers while other were on lease basis. In respect of the sales made on lease basis, the Central Excise authorities worked out the assessable value based on the life of the machine, lease charges, etc. In regard to the machines sold on outright sales basis, the Revenue has held the buyers to be related persons in terms of Section 4 and taken the assessable value as price at which the buying firm sold the goods to the customers. The appellants before the lower authorities also sought the abatement of some of the charges like packing charges, service charges before the lower authorities and this plea was also turned down by the authorities.
3. The learned advocate for the appellants made his pleas separately in respect of case pertaining to old Section 4 and separately for those under new Section 4 and also in regard to limitation and common arguments were adduced in respect of the issues common in different appeals for different periods. We, therefore, propose to deal with appeals together issuewise. The question of assessable value has to be examined in the context of old Section 4 and also new Section 4 and taking into account the mode of sale i.e. outright sale basis or on lease basis.
4. As seen from the case title, the appellant firm is described as International Computers India Manufacturing Ltd. and the buying firm is described as International Computers India Ltd. Facts on record show that both these companies are subsidiaries of International Computers Ltd. U.K. The U.K. firm holds 60% shares of the appellant firm and 100% shares of the buying firm. For the sake of brevity, the appellants firm hereunder will be referred to as ICIM and the buying firm as ICIL.
5. The arguments were first adduced in A.No. 34/79 which relates to Pune Unit of the appellants and the issue involved is as to what would be the assessable value in terms of new Section 4. For convenience of reference, relevant provisions of Section 4 of Central Excises and Salt Act, 1944 are reproduced below :-
"2(4)(1) Where under this Act, the duty of excise is chargeable on any ex- cisable 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) xxxxx (ii) xxxxx
(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;
(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 to the place of delivery shall be excluded from such price.
(4)(c) "related person" 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 and a distributor of the assessee, and any sub-distributor of such distributor.
Explanation. - In this clause "holding company", "subsidiary company" and "relative" have the same meanings as in the Companies Act, 1956;
(d) "value" in relation 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 cost 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 or any other things 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 goock 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 retain.)"
6. It is seen from the impugned order that the Assistant Collector held the appellants - M/s. ICIL as related persons in terms of Section 4 and the price at which the goods were sold by ICIL was taken for the purpose of assessment. The value of the goods sold on lease basis was arrived based on a separate formula. The appellants before the Appellate Collector pleaded that the appellants and the ICIL could not be considered related persons in terms of Section 4 and in any case, if the two were to be held to be related persons, such deductions towards selling profit, etc. should have been allowed. They also challenged the basis of arriving at the assessable value in respect of the sale made on lease basis and made a grievance that in respect of the same machines sold on outright basis and on lease basis, there was no warrant in law for the authorities to adopt two separate prices and that, in any case, the inclusion of maintenance charges in respect of the sales made on lease was not maintainable in law. They also specifically contested the inclusion of the value of the cost of the wooden crates in the value of the goods which were claimed to be in the nature of secondary packing intended for the purpose of transport and also pleaded against the inclusion of the cost of the accessories of the equipment supplied in the assessable value. The Appellate Collector negatived the appellants' pleas that (i) the sales made by them to ICIL were on principle to principle basis (ii) the two firms had no interest in the business of each other (iii) no extra commercial consideration was involved in the sale of goods and that price was the sole con- sideration of sale and (iv) that they did not fall within the mischief of the definition of related person as defined in Section 4 of the Central Excises and Salt Act The Collector (A) held that in view of the fact that the appellants sold the full production only to ICIL, M/s. ICIL were, therefore, distributor of the appellants and hence were a related person for the purpose of Section 4. He also disallowed any deductions from the sale price at which ICIL sold the goods to the ultimate customers. In regard to the goods sold on lease basis, he has also held that the distinction between the machines sold on outright sale basis and lease basis has been correctly drawn by the lower authorities.
7. The points which arise for consideration in all these appeals are :-
(1) Whether in terms of new Section 4, M/s. ICIM and ICIL are related persons by virtue of being having been held as distributors?
(2) Whether M/s. ICIL are favoured on account of any special relationship between the two?
(3) Whether the sales made by the appellants to ICIL were at arms length and the price was the sole consideration of sale?
(4) The other issue involved in the appeals relates to the determination of the assessable value in case of goods sold on lease basis and also whether the basis adopted by the lower authorities was correct in law?
8. We propose first to deal with the main issue whether ICIM and ICIL are related persons under new Section 4 and also whether the sales made were at arms length and the price was the sole consideration.
9. The learned advocate for the appellants pleaded that the Appellate Collector of Central Excise, Bombay has held that the appellants were related persons ICIL, being distributor of the appellants for the reason that all their goods manufactured by the appellants were being sold by the appellants to them, he pleaded that the lower authority in the impugned order has not gone into the aspect of price charged by the appellants and the price at which the goods were ultimately sold by the buyer company and the nature of any special relationship having bearing on the price between the two companies. He has also not gone into the various services rendered by the buyer company in relation to the manufacture of the goods and in relation to the after sales service. The learned advocate pointed out that in view of the judgment of Hon'ble Supreme Court in the case of Bombay Tyre International (1983 ELT 1896), it is now settled position in law that the distributor, unless he is a relative of the assessee, cannot be a related person. On this short ground alone, according to him, the impugned order of the lower authority deserves to be set aside. He, however, pleaded that in view of the settled position in law, by the various pronouncements of Hon'ble Supreme Court on the concept of related person as also judgment in the case of Bombay Tyre International referred to supra, the decision on this point should be given by the Tribunal on the basis of facts on record in favour of the appellants and the case should not be remanded. The learned departmental representative for the Revenue was for remand of the matter for examination in the light of the position in law as set out in the judgments of the Hon'ble Supreme Court on the point at issue.
10. We observe that the position in regard to the modalities of the sales, various factors involved for ruling as to whether the ICIL & ICIM were related persons or not, have been dealt with at length in some of the appeals before us. The learned advocate was asked to proceed with his pleas in this regard. The learned advocate pleaded that so far as ICIM & ICIL are concerned, both are subsidiaries of the UK firm and UK firm was the holding company. He pleaded that neither of the two companies held any share of the other company and so far as these two companies were concerned, they had no connection other than that of a seller and buyer of goods on principal to principal basis. He conceded, no doubt, that for some time, there was a common Managing Director also and there were also common directors between the two companies. This he pleaded, did not detract from the fact that the two are separate juridical entities. He pleaded that in terms of the Hon'ble Supreme Court judgment in the case of Bombay Tyres International [1983 (14) ELT 1896 (S.C.)] and also the judgment in the case of Atic [1984 (17) ELT 323 (S.C.)], unless it can be shown that the two companies have interest, direct or indirect, in the business of each other, these two cannot be treated as related persons in terms of Section 4. He also pleaded that neither of the two companies are a holding or subsidiary company of the other. He pleaded that in the absence of that, their sales did not fall within the ambit of Section 4.1(a) proviso (3). He pleaded that the common Managing Director was a professional manager and it does not make any difference for the purpose of Section 4 if a Managing Director is a common one.
11. He pleaded that no doubt the sales between the two were made based on agreements and referred to the agreement between the two in 1968 and 1970 and pleaded that the two agreements were normal trade agreement in the course of normal trade and were entered into at arms length and no commercial advantage was conferred by these agreements on the buyers. He pleaded that no ground has been laid in the impugned orders, nor in any one of the orders passed by the original authority in these appeals that M/s. ICIL, the buyers had any extra commercial consideration shown to them. He pleaded that no such allegation had been made in any of the show cause notices. He pleaded that Hon'ble Supreme Court in the case of Voltas Judgment (1977 ELT J-177) has clearly held that unless it can be shown by the Revenue that a specially low price has been charged for some extra commercial consideration, the whosesale price at which goods had been sold should be accepted notwithstanding the quantum of the sales made in the wholesale market. He pleaded that it does not matter for the purpose of Section 4 if 100% of the sales of the appellants are made to a single buyer so long it is not established that special low price has been charged by the appellants.
12. He pleaded that the profit made by the ICIL is low and not unusually high and there was no reason for the Department not to accept the assessable value as-the price at which the goods were sold to ICIL.
13. The learned Sr. Departmental Representative for the Department, pleaded that in fact it cannot be said that there was any sale of the goods from the factory gate to the buying company as the goods were not being sold by the appellants to ICIL as these were not despatched to M/s. ICIL and at best the so-called sale of the goods at factory gate could be treated as stock transfer. He pleaded no doubt, the law as it stands now settled by the Hon'ble Supreme Court, the buying Company M/s. ICIL who has been held as the distributor by the lower authorities, cannot be considered as a related person of the appellants by reason of being or distributor. He however, pleaded that in terms of the main definition of the term "related person", they are so associated, that they have got interest in the business of each other by virtue of the ICIM & ICIL being the subsidiaries of the same UK firm. He pleaded that all aspects of sales transactions were not examined by the lower authorities. He stated that it has to be gone into as to whether the price was the sole consideration of sale between the two companies and this he pleaded, was not examined by the lower authority as the Appellate Collector had after holding the appellants buyers ICIL as related persons based on the law as it was understood them by virtue of being a distributor, without going into any other aspects. He ordered the assessment at the price at which M/s. ICIL sold the goods to ultimate customers. He pleaded that inasmuch as the lower authority did not go into the other aspects, the examination of the same is now relevant for ascertaining whether the assessee's sale price to M/s. ICIL was acceptable under Section 4. l(a) main provision or not. He pleaded that the lower authorities should be directed to go into this aspect in the light of law as set- tied by the Hon'ble Supreme Court and various other judgments of the Hon'ble High Courts. He pleaded that while the appellants have taken the plea that they have made normal profits, they have not given any information as the normal profits earned in respect of these goods by others in the trade. He pleaded that the appellants basis of pricing of the goods and also those of ICIM should be gone into and in the interest of justice corporate veil must be lifted for finding out the facts. In this regard, he cited the judgment of the Hon'ble Supreme Court in the case of Mec Dowell & Co. [1985 (15) I.T.R. 159].
14. He pleaded that the appellants and the buyers were so inter-connected that the appellants sales were not on principle to principle basis. He pleaded that the price of the appellants should be worked on the price at which ICIL sold the goods and in case this did not find favour with the Tribunal the case may be remanded to the lower authorities to examine as to whether the price was the sole consideration for sale of goods. It was further pleaded on behalf of the Revenue that once it can be held that the price was not the sole consideration, Section 4(i)(a) will not apply. It was pointed out that in terms of the agreement between the two companies one of the clauses showed the ICIM were to sell all their products to M/s. ICIL and this agreement entered between the two stood terminated if either of the two ceased to be the subsidiary company in UK. The plea is that sale made was not in free market conditions. This was also pointed out that buying company, ICIL gave a huge loan to the appellants for Rs. 35.37 lakhs interest free. He further pleaded that as seen from the balance sheet of 1983-84 Rs. 1.72 crores was given by the holding company in London to the manufacturing company as unsecured loan as deferred payment credit. He pleaded the loan given was not a normal trade transaction. He pleaded that in case of ICIL full profits and in the case of ICIM most of the profits from the operations in India, went to the holding company UK and that in view of this, the sales made to ICIL and the credit given could not be treated as normal commercial transactions at arms length.
15. It was pleaded that there was interest direct or indirect between the buyer and seller and they were related persons in terms of sale. His plea is that through the holding company M/s. ICIL & ICIM functioning as they do through one person, they can be taken to be having interest in the business of each other. The advocate for the appellants in reply conceded that while it can be said that two parties were close to each other, they could not be treated as related persons in terms of new Section 4 or even in terms of old Section 4. He pleaded that the sales were at arms length. It cannot be said that the lower authorities have established in law based on the facts of this case that in fact the relationship between ICIL & ICIM was such that the price at which the appellants sold the goods could not be accepted under Section 4. He pleaded that the judgments of the Supreme Court in the case of Bombay Tyres International and Atic judgment cited by him, rule out any inference attempted to be drawn by the Revenue. He pleaded that merely for the reason that ICIL & ICIM were subsidiaries of the UK firm did not make them related persons under Section 4 inasmuch as neither of the two was either a holding or subsidiary company of the other. He pleaded that while the loans were given by the holding company and also by ICIL to the appellants no loans were given by the manufacturing company to ICIL and therefore, it cannot be said that by virtue of loans given any mutuality of interest was created. He pleaded that ICIL gave the appellants loan only once in 1978 and that was done because in respect of one equipment imported by the ICIL for LIC which was not taken delivery of by LIC, they were allowed to sell it and since sales proceeds were not allowed to be repatriated abroad, these were advanced as loan to ICIM & ICIL gave this amount as loan to appellants as one time-transactions. He pleaded the reference of Mec Dowell's judgment of the Hon'ble Supreme Court cited by the Revenue is not relevant to the facts of their case. He pleaded that the ICIL was established in 1951 and ICIM was set up in 1963 and both the companies entered into the agreements referred to supra before the Central Excise levy was introduced on the goods manufactured by the appellants. He pleaded that the appellants had no prescience about the levy and it is wrong to say that the two companies entered into agreements with a view to avoid payment of duty. He pleaded that the transactions of the two companies were at arms length.
16. It was also pleaded, on behalf of the Revenue, that the appellants were using the trade mark of the buying firm and that in view of this, the buying firm has to be held to be related person and cited the judgment of Delhi High Court in the case of Hind Lamps Ltd. Shikohabad v. Union of India, New Delhi and Ors. [1977 ELT (J-53)]. In view of this, price to be adopted whether under the new Section 4 and old Section 4 at which the ICIL sells the goods to the customers could not be accepted for assessment purposes. He also cited the judgment of the Tribunal in the case of Television Factory, Solan v. Collector of Central Excise, Chandigarh [1986 ELT (26) 317]. The paras cited are reproduced below :-
"The learned counsel for M/s. Television Factory argued that this was a principal to principal deal and that Television Factory had no relation with M/s. ECIL, Hyderabad except one of a buyer and a seller. The 1976 price list was approved provisionally; none of the warranty/service charges recovered by ECIL per set from customers flowed back to them and, therefore, this cannot be in addition to their price which is a price charged by them independent of any consideration except market price charged by them independent of any consideration except market consideration. It is a principal to principal sale. The learned counsel read the order in original of the Assistant Collector and said that he based his decision on his understanding of the two persons being related. He then read the order in appeal; this he said is not a case that is covered by the Supreme Court judgment in Bombay Tyre International case 1983 ELT 1890. He then proceeded to read Notification 96/80-CE., dated 19-6-1980 amended by Notification No: 144/80-C.E. He said that the Supreme Court judgment in Cibatul 1985 (22) ELT 302 covered his case completely and he did not have to say much more."
"We will examine the judgment of the Hon'ble Supreme Court in Cibatul case 1985 (22) ELT 303 quoted by the learned counsel for M/s. Television Factory, according to which, they say the value of their goods should be assessed at the price at which they sell the goods to ECIL and that nothing should be added to it out of a price charged by ECIL from its customers. An agreement was signed between three parties for the manufacture of synthetic resins in accordance with the manufacturing programme drawn up jointly by the seller and the buyer. The resins were to be manufactured in accordance with the restrictions and specifications constituting the buyer's standard and they were supplied on the prices agreed upon by the seller and the buyer from time to time. The buyer authorised and seller to affix his trade mark on the products and the seller did so as an agent for and on behalf of the buyer and not on his own account. The seller also agreed to refrain from selling, dealing in directly or indirectly, the goods bearing the said trade marks or any other marks similar thereto save and except for the explicit purpose of fulfilling the seller's obligations under the first agreement. M/s. Cibatul filed a price list showing the wholesale price of different resins manufactured under the agreements. The Assistant Collector changed the prices to higher prices saying that they should be assessed at the price at which the buyer sold the products in the market, proceeding on the footing that the buyer was the manufacturer of the goods and not the seller. This decision was overruled by the Appellate Collector who in turn, was overruled by the Central Government whose decision was set aside by the High Court. The matter then went to the Supreme Court."
"It is very important to note that there is nothing in this agreement that allows M/s. Television Factory to dispose of the defective receivers themselves to other buyers. If the receivers are found by ECIL on inspection to be defective at the place of delivery, they are to be returned to the factory for rectification of that defect and the factory has to bear transport charges both ways plus the cost of rectification and other incidental expenses. There is, to be sure, a price agreed upon which was to the tune of Rs. 2010/- per set between the two. This proves nothing because the factory must be paid some money for it has to meet expenses. On the other hand, we find the manufacturer factory bound hand and foot during the five years or so that the agreement ran, to ECIL and that it had none of the latitude that the manufacturer in the CIBATUL has vis-a-vis the buyer of its goods. The seller, as we can read in paragraph 6 of the CIBATUL judgment, could sell the goods to others or even destroy them if they are not accepted. Apparently the goods did not belong to the buyer and, therefore, the seller could, if the buyer did not take them, sell them or destroy them. For this reasons, the court said that the seller cannot be said to manufacture the goods on behalf of the buyer M/s. Television Factory cannot sell the goods to other buyers. These goods bear the ECIL brand and can be sold only to ECIL. Whatever the TV receivers manufactured and sold to this parties, they were receivers not covered by the agreement with ECIL. But in respect of the receivers made under the agreement with ECIL. But in respect of the receivers made under the agreement, the appel- lants had nothing but a very limited freedom of action, one not to be compared with the freedom enjoyed by Cibatul. It is clear, therefore, that M/s. Television Factory, the appellants, made the goods on behalf of ECIL."
"From this we say that the price declared by M/s. Television Factory, a price agreed upon between them and ECIL, is not an acceptable price under Section 4 of the Customs Act, and that the only acceptable price for assessment is the price at which the TV receiver sets are sold to independent customers by ECIL. The price quoted by Television Factory, the appellants, is a dictated price, a captive price and not an independent market price determined only by the forces of supply and demand, and is not a price that was the sole consideration for the sale. From the various things we have seen in the agreement, M/s. Television Factory and ECIL are related persons and the action of the Assistant Collector in demanding a part IV price list was quite correct since the assessable value must be governed by Section 4(l)(a)(iii) of the Central Excises and Salt Act, 1944.
and also the judgment of the Hon'ble High Court of Allahabad in the case of Hind Lamps Ltd., Shikohabad, Distt. Mainpuri v. Tlxe Union of India (1977 ELT J-1) and read para 35 which is reproduced below:-
"To say that the sales by the petitioner company to the five customer companies, cannot be regarded as sales to related persons, is not to say that the transactions between the petitioner company and those five customer companies are necessarily transactions at arms length and that the Central Excise authorities must accept without scrutiny the price at which the petitioner company sells its products to the five customer companies as the real value of goods for the purpose of levy of excise duty."
It was also pleaded that for the purpose of Section 4 interest in the business of each other between the buying company and selling company need not be pecuniary in nature. It was also pleaded that in the case of two such partnership concerns, one manufacturing and the other buying, where there were common partners between the two, Hon'ble Supreme Court has held in the case of Mohanlal Maganlal Bhavsar and Ors. v. Union of India and Ors. [1986 (23) E.L.T. 3 (S.C.)] that sales were not at arms length.
17. In regard to the use of the trade mark, the learned advocate for the appellants pleaded that the use of the trade mark makes no difference so far as assessments under Section 4 are concerned and cited the case of Hon'ble Supreme Court in the case of. Secretary to Govt. of India v. Food Specialities Ltd. [1985 (22) E.L.T. 324]. He pleaded that the condition that all goods should be sold to ICIL was removed by deletion of this clause in 1970 and also the clause whereby if either of the two companies, ceased to be subsidiary of the parent company, the agreement would stand terminated. He also pleaded that the buying company was having a separate agreement with their customers so far as the warranty and maintenance of the equipment was concerned, and pleaded that in fact no warranty element was involved in the matter of sales. He pleaded having common Managing Director as earlier mentioned did not taint the transaction for being considered as coming under the provision of Section 4.1(a) proviso (3) as held by the Tribunal in their case of Mafatlal Fine Spg. & Mfg. Co. Ltd. v. Collector of Central Excise, Bombay [1985 (21) E.L.T. 474]. He also pleaded the decision of the Tribunal in the case of Television Factory, Solan v. Collector of Central Excise, Chandigarh [1986 (26) E.L.T. 317] was not relevant as the agreement between the two parties in that case and the agreement between the two parties in the appellants case were quite different and no correspondence has been drawn by the Revenue in this regard.
18. He pleaded that it was open to the Department to investigate that the goods were sold at favourable price in view of the agreements and with the 100% sales of the appellants goods sold to one buyer. In their case, he pleaded no such investigation was carried out nor any such inference drawn. Regarding the plea of the Revenue that the interest need not be pecuniary for holding the appellants and the buying company as related persons, he pleaded that the case cited by revenue in the case of AIR 1923 Bombay 305, the definition of interest was given in the context of Bombay Municipal Act and this could not be relied upon for proceedings under the Customs Act.
19. The points forxxmsideration are whether in terms of new Section 4 ICIM and ICIL can be considered as related persons :-
1. (i) by virtue of ICIL being a distributor of ICIM;
(ii) by virtue of the two companies being subsidiaries of the same holding company;
(iii) by virtue of the two having interest in business of each other; or
2. whether, in terms of the agreement and their operations and also loans taken by the manufacturing company, it can be considered that the sales were not in the normal course of trade or open marketing conditions and the transactions between the two are not at arms length.
20. We observe that the law as to whether the distributor is a related person stands settled with the judgment of Hon'ble Supreme Court in the case of Bombay Tyre International [1983 (14) E.L.T. 18% (S.C.)]. The Hon'ble Supreme Court has held as under :-
"(i) The price at which the excisable 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 as defined in Sub-section (4)(b) of Section 4 is the basis for determination of assessable value provided, of course, the buyer is not a related person within the meaning of Sub-section (4)(c) of Section 4 and the price is the sole consideration for sale. This proposition is subject to the terms of the three provisos to Sub-section (l)(a) of Section 4.
(ii) Where the price of excisable goods in the course of wholesale trade for delivery at the time and place of removal cannot be ascertained for the reason that such goods are not sold or for any other reason, the nearest as- certainable equivalent thereof determined in the manner prescribed by the Central Excise (Valuation) Rules, 1975 should be taken as representing the excisable value of the goods;
(iii) Where the wholesale price of any excisable goods for delivery at the place of removal is not known and the value thereof is determined with reference to the wholesale price for delivery at a place other than the place of removal, the cost of transportation from the place of removal to the place of delivery should be excluded from such price;
(iv) Of course, these principles cannot apply where the tariff value has been fixed in respect of any excisable goods under Sub-section (2) of Section 3.
(v) On a proper interpretation of the definition of 'related person' in Sub-section (4)(e) of Section 4, the words 'a relative and a distributor of the assessee' do not refer to any distributor but they are limited only to a distributor who is a relative of the assessee within the meaning of the Companies Act, 1956. So read, the definition of 'related person' is unduly wide and does not suffer from any constitutional infirmity. It is within the legislative competence of Parliament. It is only when an assessee so arranges that the goods are generally not sold by him in the course of wholesale trade except to or through such a related person that the price at which the goods are ordinarily sold by the related person in the course of wholesale trade at the time of removal of 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 is liable to be taken as the excisable value of the goods under proviso (iii) to Sub-section (l)(a) of Section 4."
It is seen that both the buying company and the selling company are limited companies and the question of one being the relative of the other does not arise and, therefore, it has to be held that even if the buying company is a distributor of the appellants, they cannot be considered as a related persons in terms of Section 4.
21. The next question that arises for consideration is whether the two companies by virtue of being subsidiaries of the same holding company can be considered to be so associated with each other that they can be taken to be having interest in the business of each other. We observe that it has not been shown by the Revenue and in the orders passed by the lower authorities that the two have any common share holding. No ground has been laid as to in what way the two have interest in the business of each Other except by saying that since the two are the subsidiaries of the same holding company, they have interest in the business of each other through the agency of the holding company. The Revenue on the other hand, has cited the judgment of Hon'ble Supreme Court in the case of Mohanlal Maganlal Bhasar and Ors. v. Union of India and Ors. [1986 (23) E.L.T. 3(S.C)].
22. We observe that this Tribunal have followed the judgment of the SC cited in the case of MA. Rakesh Industries [1988 (16) E.C.R. 313], a case of sale of goods by one partnership concern to another partnership concern with common partners. Following this ratio of SC in the case of Mohanlal Maganlal Bhavsar (Deceased) through LRS and Ors. v. Union of India and Ors. [1986 (23) E.L.T. 3 (S.C.)] this Tribunal has held that the sales to the other partnership concern with common Directors were sale to the related person. In this context, we observe that the issue in those goods related to the sales by one partnership concern to the other and it was held that there was identity of interest between the two firms. We observe that the Hon'ble Supreme Court's judgment in the case of Collector of Central Excise, Madras v. T.I. Millers Ltd., Madras & T.I. Diamond Chain, Madras - [1988 (35) E.L.T. 8 (S.C), 1988 (17) E.C.R. 63 (S.C.)] have examined the issue in the context of sales by a subsidiary of the company to the sole distributor of the holding company and have observed as under :-
"The Tribunal held that the distributors were not related persons and in the light of the observations of this Court inAtic Industries case (supra) set out hereinbefore. We are of the opinion that what was necessary to find out, was whether the buyer is holding company or subsidiary company or relative of the manufacturer. From the explanation of the relationship furnished in this case, such is not the position. It appears that the link between the respondents T.I. Miller Ltd. Company and T.I. & M. Sales Ltd., is the main distributors of M/s. Tube Investments of India Ltd., who are the holding company of the respondents. This relationship does not satisfy the criteria for establishing the related persons concept. These were limited companies at the material time, and it will be difficult to say that a limited company has any interest direct or indirect in the business carried on by one of its shareholders."
23. We observe that in the present case also both ICIM & ICIL are limited companies and there is no evidence to show that the limited companies had any interest, direct or indirect, in the business of each other. There is no evidence on record to show that the U.K. holding company had influenced the price structure by using its leverage or that the prices of the two companies were so managed by the holding company that it favoured the operations in a manner that ICIL came out better off vis-a-vis ICIM. Direct or indirect interest in the business of each other between ICIL & ICIM has to be established before proviso (iii) of Section 4(l)(a) can be invoked. Nothing in this regard is on record nor any evidence has been placed before us to show that the two had direct or indirect interest in the business of each other.
24. We observe that the Revenue has pleaded that the buying company has advanced an interest-free loan and that by virtue of this, the buying company should be deemed to have interest in the manufacturing company. It has been explained by the appellant that the ICIL had imported some equipment which was intended for the L.I.C. but which was not finally purchased by the said organisation and Govt. allowed the sale of the same to be made and since the amount realised at the relevant time could not be repatriated, this was advanced as a one time loan to the manufacturing company. No doubt this loan was without interest but nothing has been shown that because of this, one time loan, any consideration was shown by the manufacturing company to M/s. ICIL. This only shows the closeness of the two companies. All the same, it has not been shown as to what interest the manufacturing company has in the business in ICIL other than being that of buyers and sellers. One leg of the argument of the revenue is that the ICIL & ICIM had a common Managing Director and therefore, the mutuality of interest is through that. As held by the Hon'ble Court in the case of Mafatlal, referred to supra, this cannot be held so. We observe that in terms of the agreement between the two ICIL & ICIM, the appellants were bound to sell their full production to M/s. ICIL and the agreement between the two was required to be terminated in case either of the two. ceased to be the subsidiary of the holding company. This clause was deleted later and at the relevant time was not operative. The plea of the Revenue in this context is that the sales made by the appellants were not in the open market conditions and, therefore, not to be taken at arms length. We observe that the Hon'ble Supreme Court in the case of Voltas judgment, referred to supra, and various other judgments have held that quantum of sales is not the criteria for determining as to whether the sales are in the open market conditions. There will have to be something more like unusually low price charged or some other such factor on record to establish that the price charged did not reflect the open market price. No such facts are on record to come to this conclusion. We, on examination of all the facts on record, however, observe that all along the lower authorities were examining the question as to whether ICIL & ICIM were related persons or whether the sales were at arms length but no attempt or scrutiny has been made to find out whether the price is the sole consideration for sale of goods or whether any other factors were also involved. The appellants want the price declared by them to be accepted under Section 4(l)(a) of the new Section and 4(a) of the old section. These are reproduced below for convenience of reference :-
"4(1) Where under this Act, the duty of excise is chargeable on any excisable goods with reference to value, such value shall, subject to 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."
"4(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 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."
25. It is seen apart from the facts, the goods should be ordinarily sold in the course of wholesale, one of the considerations is that the price should be the sole consideration for sale of goods. We observe that the appellants and M/s. ICIL are very closely linked as admitted by the appellants themselves. M/s. ICIL have set out the peculiar features of manufacture and sale of their products of the appellants in one of their letters to the Assistant Collector bearing No. RVS/DM/6/146, dated 24th September, 1974. A copy of this letter has been filed by the appellants. This letter was in reply to letter from the Assistant Collector. This letter makes an interesting reading and what has been stated therein has not been properly appreciated by the authorities below. For convenience of reference, the relevant portion of the letter is reproduced below:
3. (a) "In the first instance, we wish to emphasise that the prices charged by us to our customers are not abnormally high either when compared to the prices charged to us by International Computers Indian Manufacture Limited or otherwise.
(b) It will no doubt be appreciated that the products which we sell are not normal consumer products and the sales are not made across the counter as in the case of normal consumer products. Also, our products are offered as a group of machines of varying numbers and configurations or specifications and not as individual machines. Highly qualified and trained personnel have to do the prospecting for all possible users covering a wide range of applications, study the detailed requirement of the prospects concerned and submit schemes which would be viable in a highly competitive market. Obviously not all of these activities result in orders for sale or hire of equipment. Furthermore, after an order is received, various services require to be organised such as customers' staff selection and training, site preparation, progressive implementation planning, system reports and advice before the equipment is supplied. Thereafter, the equipment is required to be installed, tested and commissioned to the satisfaction of the customer by highly specialised and qualified technical staff. Also, support from various angles such as software, systems, training and maintenance of the equipment has to be afforded to the customer on a continual basis. We may also mention here that we keep certain equipment for demonstration purposes.
(c) It is generally well-known that rapid advances take place in the types of equipment which we deal in and to keep pace with those advances our staff needs to be continually trained. Because of the heavy outlay and the aforesaid developments in techniques, many customers favour a contract of hire to that of outright purchase. Hiring contracts give customers the right to terminate the contract after two years whether or not the customer replaces by our equipment. This pattern of our business gives rise to
(i) heavy investment in purchase of equipment on our own account and resultant cost of finance
(ii) risk of carrying idle equipment while trying to secure another customer for terminated contracts
(iii) writing off costs where products become obsolete.
The authorities did not take proper note of this. It has been admitted in this that the buying company renders services in regard to the development of the product mix to be manufactured by the appellants and also after the sale services. We observe that the Hon'ble Supreme Court in the case of Bombay Tyrqs International have laid down the principles as to the elements which are given in the assessable value [1983 E.L.T. 1896 (S.C.) "We shall now examine the claim. It is apparent that for purposes of determining the "value", broadly speaking both the old Section 4(a) and the new Section 4(1) (a) speak of the price for sale in the course of wholesale trade of an article for delivery at the time and place of removal, namely, the factory gate. Where the price contemplated under the old Section 4(a) or under the new s. 4(1) (a) is not ascertainable, the price is determined under the old Section 4(b) or the new Section 4(l)(b). Now, the price of an article is related to its value (using this term in a general sense), and into that value how poured several component, including those which have enriched its value and given to the article is marketability in the trade. Therefore, the expenses incurred on account of the several factors which have contributed to its value upto the date of sale, which apparently would be the date of delivery, are liable to be included. Consequently, where the sale is effected at the factory gate, expenses incurred by the assessee upto the date of delivery on account of storage charges, outward handling charges, interest on inventories (stocks carried by the manufacturer after clearance), charges for other services after delivery to the buyer, namely, after- sales service and marketing and selling organisation expenses including advertisement expenses cannot be deducted. It will be noted that advertisement expenses, marketing and selling organisation expenses and after-sales service promote the marketability of the article and enter into its value in the trade. Where the sale in the course of wholesale trade is effected by the assessee through its sales organisation at a place or places outside the factory gate, the expenses incurred by the assessee upto the date of delivery under the aforesaid heads incurred, by the assessee upto the date of delivery under the aforesaid heads cannot, on the same grounds, be deducted. But the assessee will be entitled to a deduction on account of the cost of transportation of the excisable article from the factory gate to the place or places where it is sold. The cost of transportation will include the cost of insurance on the freight for transportation of the goods from the factory gate to the place or places of delivery."
26. We observe that the appellants buyers ICIL perform the function of prospecting for users, study the detailed requirement of prospects concerned and give a feedback to the appellants as to the machines and product mix which is ultimately required to be manufactured for the purpose as identified by M/s. ICIL. M/s. ICIL on their own admission as seen from the letter above in the line of business of goods manufactured by the appellants have essentially to put in considerable efforts and incur expenses before and after the manufacturing activity takes place.
27. Obviously, some consideration for these services rendered has to be taken into reckoning for arriving at the assessable value both under the old Section 4 and new Section 4. In the absence of the actual details about the nature of the services actually rendered and the cost thereof in the records before us, we direct that the lower authority should call for the details and quantify the amount required to be added in the price charged by ICIM to ICIL after following the guidelines laid down by the Hon'ble Supreme Court in the case of Bombay Tyres International (referred to supra). We, therefore, while holding that the appellants ICIL are not related persons in terms of Section 4(a) proviso (iii) hold that in respect of the sales made by the appellants to ICIL the price is not the sole consideration. Since this aspect of the matter has not been gone into, we in view of the law as settled by the Supreme Court, remand the matter for this limited purpose to-the Assistant Collector for working out the assessable value afresh in the light of our observations above. It is clarified that our decision above on the point discussed is applicable in the cases following both under the new Section 4 and also under old Section 4. Hon'ble Supreme Court, in their judgment, in the case of Bombay Tyre International have clearly set out the position of valuation provision both under new Section 4 and old Section 4 as substantially the same and, therefore, the rationale in the context in which the issue has been examined by us will apply in all the cases beforerus in these proceedings.
28. The learned advocate of the appellant, during course of hearing stated in regard to the claim in respect of packing charges that he is not pressing the plea for abatement thereof from the sale price.
29. The learned advocate for the appellants then made his pleas in appeal No. 103/78. He pleaded that on merits as to the acceptance of the sale price for the same, his pleas in this case are also the same as made in the appeal No. 34/79. He pleaded, no doubt, the proceedings in this appeal have been drawn under old Section 4, but inasmuch as, it has not been shown by the revenue that an unusally, low price has been charged from M/s. ICIL in view of his submissions in the other case, the price charged from ICIL should be accepted for assessment purposes. He pleaded that under the show-cause notice in this case was issued on 2-1-76 and duly demanded was for the period 1971 onwards till 30th September, 1975 under Rule 10A of Central Excise Rules 1944 by fixing the assessable value under Section 4(b)of the old Section 4, as in force at the relevant time. He pleaded that the assessable value in view of his pleas made earlier was required to be determined under Section 4(a) and not under 4(b) as the Hon'ble Supreme Court in the case of Bombay Tyre International 1983 ELT 1896 has held that the valuation provision under new Section 4 and old Section 4 were substantially the same so far as the sale concept of sales at arms length is concerned.
30. His plea is that arguments adduced by him in the context of new Section 4 will hold good in this case also and that there was no warrant for not accepting the wholesale price at which the goods were sold by the appellants to ICIL. He pleaded that it was not necessary that the market for the goods should exist and inasmuch as the goods were sold to M/s. ICIL at the price acceptable in law and that is the price that should be accepted for the purpose of assessment of the goods. He, further pleaded that Rules 10 and 10A as were applicable for the purpose of recovery of short levy, if any, and in the case of appellant the demand could be raised only in terms of Rule 10 and not under Rule 10A.
31. He drew our attention to the said rules which are reproduced as under for the convenience of reference :
"Prior to 6th August 1977 there were two provisions viz., Rules 10 and 10A.
Earlier old Rule 10 read as follows :-
"10. Recovery of duties or charges short-levied, or erroneously refunded:
(1) When duties or charges have been short-levied through inadvertance, error, collusion, or misonstruction of the part of an officer, or through mis-statement as to the quantity, description or value of such goods on the part of owner, or when any such duty or charge, after having been levied, has been owing to any such cause, erroneously refunded, the proper officer may, within three months from the date on which the duty or charge was paid or adjusted in the owner's account-current, if any, or from the date of making the refund, serve a notice on the person from whom such deficiency in duty or charges is or are recoverable requiring him to show cause to the Assistant Collector of Central Excise why he should not pay the amount specified in the notice.
(2) The Assistant Collector of Central Excise, after considering the representation, if any, made by the person on whom notice is served under Sub-rule (1), shall determine the amount of duty or charges due from such person (not being in excess of the amount in the notice) and thereupon such person shall pay the amount so determined within ten days from the date on which he is required to pay such amount or within such extended period as the Assistant Collector of Central Excise may, in any particular case, allow."
"10-A. Residuary powers for recovery of sums due to Government:
(1) Where these Rules do not make any specific provision for the collection of any specific provision for the collection of any duty, or of any deficiency in duty if the duty has for any reason been short-levied, or of any other sum of any kind payable to the Central Government under the Act or these Rules, the proper officer may serve a notice on the person from whom such duty, deficiency in duty or sum is recoverable requiring him to show cause to the Assistant Collector of Central Excise why he should not pay the amount specified in the notice.
(2) The Assistant Collector of Central Excise, after considering the representation, if any, made by the person on whom notice is served under Sub-rule (1), shall determine the amount of duty, deficiency in duty or sum due from such person (not being in excess of the amount specified in the notice) and thereupon such person shall pay the amount so determined within ten days from the date on which he is required to pay such amount or within such extended period as the Assistant Collector of Central Excise may, in any particular case allow."
32. He pleaded that unless it could be shown that their case did not fall under Rule 10, only then the provision of Rule 10A could be invoked.
33. In this connection he cited the case of Magrat Paints v. Union of India 1978 ELT (J) 39. He pleaded that rule 10A was residuary in nature and under Rule 10 specific categories of cases as set out in the said rule were covered. He pleaded that the appellants had been filing price lists and the same were accepted all along. He pointed out that the appellant had furnished a copy of the agreement between ICIM and ICIL to the Superintendent (Central Excise Inspection Group) of the office of Assistant Collector of Central Excise, Bangalore-1 Division on June 6,1972 and a copy of the same was also endorsed to the Jurisdictional Superintendent.
34. He also pleaded that the copies of the balance sheet of the appellants, at the request of the Superintendent of the concerned MOR, incharge of appellants' factory was also given on 31st December, 1971. He pointed out that various details about the payments made in respect of common Managing Director and also loans stated to have been given to the appellants, were also reflected in the balance sheet. He pleaded that the agreement was quite clear. His plea is that they have not held back anything from the departmental authorities and all the relevant information was with the department between December, 1971 and June, 1972 and in case the department accepted the price on the basis of the information furnished by them they (appellants) could not be faulted in this regard.
35. He pleaded that in their case, if at all there was any short-levy it fell within the specific categories under Rule 10 as applicable, then for the purpose of these proceedings. He pleaded their case could be considered as a case of mis-construction on the part of the officers as the duty paid by them was accepted as correct. He pleaded that if the officers concerned felt any doubt, they could have made further enquiries in the matter. He further pleaded that if the worst is assumed against them that the full information was not furnished regarding the sale price, this could be taken to be a case of mis-statement on their part and which contingency was also covered under Rule 10. He further pleaded that the Hon'ble Tribunal has held in the case of IISCO v.CCE, Calcutta the case will fall under Rule 10. He pleaded that in their case also the price lists had been accepted over a long period and therefore, the case would fall under Rule 10 and not under Rule 10A. He pleaded that there is allegation in the show cause notice issued that there was any supression of fact and the demand has been raised only for the reasons'that the appellants had not filed the price lists of ICIL. He pleaded that the Rule 9(2) also could not be invoked inasmuch as there was no case of clandestine removal and in terms of the Hon'ble Supreme Court judgment in the case of Assistant Collector of Central Excise Bombay and Ors. v. The Elphinstone Spinning & Weaving Mills Co. Limited 1978 ELT (J) 399 referred to supra.
36. On behalf of the revenue, it was argued by learned SDR that the appellants were working under SRP and were under obligation to furnish all the facts relevant for assessment purposes and they should have furnished full details regarding their relationship with ICIL at the time of filing the price list. He pleaded that the copy of the agreement between ICIL and ICIM was sent to the Superintendent and the balance sheet was also sent in 1971 as pleaded by the appellants in connection with some other enquiry. He pleaded that these documents were not furnished in the context of approval of the price list. He pleaded that the balance sheet was asked for in the context of getting data in respect of important units. He pleaded that it was not correct on the part of the appellants to say that there was no obligation on their part to furnish price list at which M/s. ICIL were selling the goods and that they held back the information in regard to the price list published by ICIL.
37. In this connection, he cited the judgment of the Hon'ble Karnataka High Court in the case of Bengal Electric Lamps 1986 (25) ELT 38. He drew our attention to paras 25 and 35 of the same. The same are reproduced for convenience of reference as under:
"Sri Sundaraswamy, replying to these arguments of Sri Shivashankar Bhat on limitation, argued that what is sought to be done by the department is to revive a dead cause of action. The new Rule 10(1) (C) was inserted with effect from 6-8-1977 and the show-cause notices dated 21-7-77 and 17-7-79 were both barred by time and the rule that was applicable was Rule 10 read with Rule 173(j) and 10A before it was substituted with effect from 6-8-77 and the limitation period of one year should apply to the case."
"According to Sri Shivashankar Bhat, the modus operandi adopted by the petitioner came to light only when it was detected by the department after certain incriminating documents were seized and scrutinised by the Directorate of Intelligence, New Delhi. The further follow up also revealed that there was a systematic under-valuing of the wholesale cash price received by the petitioner company from its distributors and that therefore, it is still open to the petitioner to contest the proposed inquiry before the competent authority. Redetermination of the assessable value and the differential duty payable thereon, is yet to be ascertained and the adjudication on these matters has to be done by the competent authority."
"I have carefully considered the arguments advanced by both sides on all the aspects of the case. The scope of this writ petition is very much limited to the question of jurisdiction. The petitioner's attempt has been to bring its case under Rule 10; whereas the Department has relied upon Rule 10A and has sought to justify its action. On a perusal of the records and on a careful scrutiny of the materials relied upon by the Department as is disclosed in the two show cause notices, I am of opinion that the Department has made out aprima facie case to invoke Rule 10A."
"For the reasons aforementioned, the show-cause notices are upheld."
38. It was further pleaded, on behalf of the revenue, that finalisation of RT 12 returns did not tentamount to completion of assessments.
39. He pleaded that the finalisation of RT 12 returns was only arithmetical exercise and the assessments could not be said to have been completed with the finalisation of the same. He pleaded that there was a difference between levy and assessment as brought out by the Hon'ble High Court of Madras in their judgment in the case of Bituty Ltd. v. Superintendent Central Excise Gundy and Ors. [1979 ELT (J 65)].
40. He pleaded in respect of RT 12 assessments Rule 10 need not be invoked.
41. He further pleaded that any payment made does not mean that the assessment had been completed as held by the Hon'ble Supreme Cqwt in the case of Assistant Collector, Central Excise v. National Tobacco Co. [1978 ELT (J 416)]. It was also pointed out that any mis-interpretation in regard to the price declared based on the appellants understanding of the law could not be tentamount to mis-statement as held in the case of lndo-national (1978 ELT 416). The learned Representative of the Department also pleaded that Rule 9(2) will be applicable as the goods had been cleared without payment of duty due and he cited the case of Star Mettle v. Collector of Central Excise Bombay [1984 (19) ELT 489]. It was pleaded that vital information had been held back and therefore, duty can be recovered as held by the Hon'ble Supreme Court in the case of D.R. Kohli and Ors. v. Atual Products [1985 (20) ELT 212 para 16]. The relevant para for convenience of reference is produced as under:
"The points of difference between the above two Rules were that (i) whereas Rule 10 applied to cases of short levy through inadvertence, error collusion or mis-construction on the part of an officer or through mis-statement as to the quantity, description or value of the excisable goods on the part of the owner Rule 10A which was a residuary clause applied to those cases which were not covered by Rule 10 and that (ii) whereas under Rule 10, the deficit amount could not be collected after the expiry of three months from the date on which the duty or charge was paid or adjusted in the owners account-current or from the date of making the refund. Rule 10A has been considered by this Court in two decisions i.e. NB Sanjana Assistant Collector of Central Excise, Bombay and Ors. v. Elphinstone Spinning and Weaving Mills Co. Ltd., 1978 ELT (J 399) - 19713 SCR 506 and Assistant Collector of Central Excise, Calcutta Division v. National Tobacco Co. of India Ltd. 1978 ELT (J-416) -19731 SCR 822. In addition to the above two points of distinction between Rules 10 and 10A of the Rules, this Court further held in Sanjana's case supra following the decision in Gursahai Saigal v. Commissioner of Income-Tax, Punjab (1963 3 SCR 893) that in calculating the period of limitation, the expression paid in Rule 10 should not be literally construed as 'actually paid' but as ought to have been paid in order to prevent a person, who had not paid any excise duty at all which he should have paid from escaping from the net of Rule 10 of the Rules."
He also cited the case of Badrul Amin and Ors., v Union of India and Anr. [1985 (21) ELT 29 (Allahabad)]. The relevant para is reproduced below for convenience of reference -
"So Rule 10 as it stood prior to 1967 has been interpreted to apply to those cases where an assessment was made but either there was no levy in the sense of nil assessment due to exemption or otherwise or there was short-levy in the sense of duty payable having been determined at a lesser amount and subsequently the assessment was sought to be re-opened. It could not apply to those cases where as in the instant cases, a correct assessment had been made which was not at all sought to be re-opened but only the amount assessed was sought to be realised, the same not having been paid by the person from whom it was payable. For recovery of such amount there was no limitation as is clear from Section 11 of the Act."
42. During the course of arguments, the point as to whether there were wholesale transactions at the factory gate, was also argued by both sides. While the appellants pleaded that the wholesale transactions took place at the factory gate, the plea of the Revenue is that the sales at the factory gate were in single units and therefore could not be taken to be in wholesale lots and therefore, there was no wholesale price.
43. Before going into the question of the applicability of Rule 10 or 10A, we propose to first dispose of the plea by the Revenue that in case Rule 10A was not held to be applicable, Rule 9(2) could be invoked.
44. We observe that the lower authorities neither in the show cause notice nor in the orders passed have at any time invoked this rule. No factual or legal basis has also been laid as to how it could be invoked by the lower authorities.
45. It is a matter of record that all clearances were made after filing of the price lists and classification lists by the appellants and on approval thereof and all procedural formalities as required under Central Excise Law had been complied with before the clearances were made.
46. In view of the law, as settled in the case of Elphinstone Spinning & Weaving Mills Co. Ltd. [1978 ELT (J) 399] referred to supra and followed in various other judgements of the Hon'ble Supreme Court, it cannot be said that the goods were removed clandestinely and that Rule 9(2) could be invoked. One plea taken is that the clearances were made without paying required levy under Rule 9 and therefore, under Rule 9(2) the demand could be raised.
47. We observe that the appellants paid duty based on the price list and classification list approved by the Departmental authorities and that any duty paid by them was after compliance with the various procedural requirements of die law. And if duty paid was found short, the case was to be dealt with in terms of specific provision for recovery of short levy as provided for in the law. These provisions at the relevant time were under Rules 10 and 10A. In regard to the applicability of Rule 10 or Rule 10A at the relevant time, both the sides have cited case law in support of their pleas.
48. It is pointed out that Rule 10A can only be invoked when the short levy is not covered by any one of the specific provisions as provided for under Rule 10. The specific provisions covered thereunder were;.-
(i) the short levy should have accrued through inadvertance, error, collusion or mis-construction on the part of the officer; or
(ii) through mis-statement as to the quantity, description or value of such goods on the part of the owner.
49. The appellants have pleaded that their case would fall under Rule 10 as it could be either a case of mis-construction on the part of the officer or a case of mis-statement as to the value on their part, if it is held that the correct value was not declared.
50. It has been pleaded by the Revenue that there was no mis-construction or inadvertance on the part of the officer and the case if at all could be considered only as a case of mis-interpretation of law both on the part of the officer and also on the part of the appellants.
51. We observe that in the case cited no detailed procedure for assessment had been laid down at the relevant time and assessment as such had not taken place. Here in the present case, the detailed procedures for filing price list and classification lists and approval thereof by the authorities and thereafter determination of duty by the assessee and payment of the same have been prescribed and followed and after clearance of goods, a final accountal by filing of RT12 returns is done.
52. In view of this, we have to hold that in the present case the assessments had taken place. The point to be considered is whether in case of these assessments short levy involved is covered by any of the specified elements of Rule 10.
53. The plea of the Revenue is that the authorities were not in possession of the full facts relating to the agreement between ICIL & ICIM. We however, observe that inasmuch as the agreement was submitted by the appellants to be Superintendent of the Inspection Unit and with a copy to the Jurisdictional Superintendent in the office of the Jurisdictional Assistant Collector the same can be taken to have been within the knowledge of the authorities concerned.
54. We find no specific reason has been given for calling for these agreements but nothing has been shown from the record that the agreement was called for in con- nection with the approval of the price list and that this was before the officer who approved the price lists. In the absence of that, we cannot hold that there was mis-construction on the part of the officer in approving the price list. The next question to be considered is whether there was any mis-statement on the part of the appellants in regard to value. In the instant case, it is not in dispute that M/s. ICIM to whom the goods were stated to have been sold by the appellants sold the goods to their customers at a price higher than that at which the goods were invoiced to them by the appellants. But so far as the prices that have been declared in the price list filed by the appellants are concerned, these are the ones which the appellants showed in the invoices raked by them on M/s. ICIL and there was no other price involved, so far as their transactions with ICIL are concerned. There is, therefore, no question of any mis-statement so far as appellants are concerned.
55. So far as factual position is concerned, the price declared by the appellants in the price list correctly reflected the position at which the invoices were raised. It was based on their interpretation of the law as understood by them that they declared the prices in the price list as charged by them to ICIL and not the ones charged by ICIL to their customers. This can only be for reason of mis-interpretation of the law and this cannot be considered mis-statement in regard to price. Mis-statement can only be there when the statement made is otherwise than the known position or the actual position. This is not the case in the case before us. Now mis-construction of law or mis-interpretation of the same by the assessee is not covered by specified provisions under Rule 10.
56. In the facts of this case, therefore, we hold that the demand can be raised under Rule 10A.
In view of above, we thus partially allow the appeals by remand.