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Bombay Latex and Dispersions Pvt. Vs. Collector of Central Excise - Court Judgment

LegalCrystal Citation
CourtCustoms Excise and Service Tax Appellate Tribunal CESTAT Delhi
Decided On
Reported in(1985)LC420Tri(Delhi)
AppellantBombay Latex and Dispersions Pvt.
RespondentCollector of Central Excise
Excerpt:
1. certain questions relating to the construction and applicability of the notification no. 120/75-c.e., dated 30-4-75, in the facts and circumstances of the case, arise for consideration in this revision application to the government of india, transferred to and heard by the tribunal, pursuant to section 35p of the central excises and salt act, 1944 (the act, for short).2. the aforesaid notification (copy at page 3 of the paper book) exempts goods falling under item no. 68 (of the first schedule to the act) cleared from the factory of manufacture, on sale, from duty leviable in excess of the duty calculated on the basis of the invoice price charged by the manufacturer, provided that (in so far material),- "(iv) the invoice price is not influenced by any commercial, financial or other.....
Judgment:
1. Certain questions relating to the construction and applicability of the Notification No. 120/75-C.E., dated 30-4-75, in the facts and circumstances of the case, arise for consideration in this Revision Application to the Government of India, transferred to and heard by the Tribunal, pursuant to Section 35P of the Central Excises and Salt Act, 1944 (the Act, for short).

2. The aforesaid Notification (copy at page 3 of the paper book) exempts goods falling under Item No. 68 (of the First Schedule to the Act) cleared from the factory of manufacture, on sale, from duty leviable in excess of the duty calculated on the basis of the invoice price charged by the manufacturer, provided that (in so far material),- "(iv) the invoice price is not influenced by any commercial, financial or other relationship whether by contract or otherwise between the manufacturer or any person associated in business with the manufacturer and the buyer or any person associated in business with the buyer other than the relationship created by sale of the aforesaid goods;" 3. It is the fulfilment of condition (iv) of the aforesaid Notification extracted supra that requires to be decided in the following facts and circumstances of the case- (a) the Appellant manufactures baby products and rubber goods falling under Item No. 68 of the First Schedule and opted for the benefit of the exemption in the aforesaid Notification on 13-9-75 ; (b) the Appellant had issued letters of appointment to more than 600 stockists in various places throughout the country and at times to a plurality of stockists in some of the places. The letters were uniformly the same with all the stockists and provided, inter alia, that- (i) the stockists are to stock the Appellant's products in reasonable quantities so as to enable execution of orders procured by the Appellant's sales staff. They are to maintain a level of stocks for a minimum period of two months. They are also to pay for the stocks despatched to them through the Bank ; (ii) the stockists are to be given a discount of 6% on the trade price in the invoice itself and a further discount of 2% to cover delivery charges; (iv) the orders booked by the Appellant's salesman should be executed within two to three days and if any such order is cancelled or refused by the retailer, the Appellant should be informed ; (v) stocks should be sold as per price-list plus sales tax and octroi only ; (vi) the stockists are to keep deposits of specified amounts (varying widely between one stockist and another) with the Appellant and communicate the acceptance of the aforesaid conditions ; (A specimen copy of the agreement is at page 13 of the paper book); (c) it would also appear that the Appellant pays overriding commission to the stockists where the Appellant sells directly to anyone in the area for which the stockists had been appointed ; (d) the Appellant was also, admittedly, manufacturing nipples, feeders, water bags, etc. as bonus articles and clearing the same without separate payment of duty ; (e) a notice dated 10th March, 1977 was issued requiring the Appellant to show cause as to why,- (i) a price-list under Section 4 of the Act without availing of the benefit of the aforesaid Notification should not be filed; and (ii) differential duty at 1% ad valor em on the basis of normal price computed in terms of Section 4 of the Act and full duty on the products cleared as bonus pieces for the periods between 30-4-75 to 31-1-77 and 1-3-75 to 31-1-77, respectively, should not be recovered, in terms of Rule 10 read with 173P of the Central Excise Rules, 1944 (hereinafter referred to as the Rules) ; (Copy of the show cause notice at page 14 of the paper book); (i) the terms and conditions in the agreement embodied in the letters of appointment and the over-riding commission, taken together, establish a special commercial relationship between the Appellant and the various stockists contrary to the requirement in Clause (iv) of the proviso in the aforesaid Notification in consequence of which the Appellant became disentitled to the benefit thereof; and (ii) bonus articles cleared by the Appellant without payment of duty are akin to discount in kind and even though a well recognised trade practice; duty is still payable on such goods in terms of the Rules.

Accordingly, the benefit of the Notification was disallowed and the concession thereof withdrawn. The Appellant was directed to file a price-list in Part IV i.e. on the basis of the price charged by the stockists to independent dealers, as well as to pay differential duty and 1% duty on the bonus pieces manufactured and cleared from 30th of April, 1975 upto the date of adjudication; (Adjudication order of the Assistant Collector of Central Excise dated 21-6-77 at page 23 of the paper book); (g) the aforesaid order was confirmed in Appeal to the extent demand is not hit by limitation and the instant Revision Petition, heard by us as an Appeal, was the sequel.

4. Before us, it was submitted by Shri J.R. Gagrat, for the Appellant, inter alia, that- (a) the letters appointing the stockists had been misconstrued by the lower authorities. None of the conditions therein or the overriding commission or even the deposit can be construed to be unrelatable to the sales promotion of the Appellant's products.

Indeed, the letters did not constitute any binding agreement or arrangement, inasmuch as there is no effective remedy for enforcing the stipulations therein which are merely of a suggestive and advisory nature. The territories allotted to each of the stockists was not demarcated nor is any stockist restricted from selling the goods outside the locale of his business. The requirement of stocking reasonable quantities of the products of the Appellant was merely recommendatory and intended to ensure that the stockists do not completely run out of stock and thereby starve the market. The discount at 6% is normal and the deposit was merely meant for instilling discipline, since there is no provision for its forfeiture in case of breach. The requirement of a sale by the stockist at a price fixed by the Appellant was to protect not merely the interest of the Appellant in a competitive market but was also intended to protect the consumer. The overriding commission was to ensure that the goods ordered directly from the Appellant, more as an exception rather than the rule, are duly taken care of and sold by the stockists in case of default by the trader who placed the order directly. Nor is it as if the Appellant's salesmen canvass and procure orders for the stockists. The first condition in the letter was only meant to ensure quick delivery to other buyers where orders are booked directly with the Appellant; (b) in terms of the aforesaid Notification and in particular Clause (iv) to the proviso thereof, it was not only necessary to establish any commercial, financial or other relationship (whether by contract or otherwise) other than the one created by sale between the Appellant and his stockists but it is essential also to prove that the invoice price was influenced by any such relationship ; (c) except for a finding that there was a special relationship between the Appellant and his stockists, there was neither a consideration nor a categorical finding in the adjudication order as well as that of the Appellate Collector, on the issue as to whether such relationship, even if it existed, had, indeed, influenced the invoice price, and if so to what extent ; (d) the Notification in question was meant to be a simplified alternative to evaluation under Section 4 of the Act. That being so, the various concepts implicit in Section 4 of the Act cannot be imported into a construction of the Notification, as that would render the Notification superfluous and where no part of the proceeds of the subsequent sale accrues either directly or indirectly to the benefit of the manufacturer, the Notification cannot be held to be inapplicable ; (i) the Appellant could have any commercial, financial or other relationship other than that created by sale of the goods in question with more than 600 stockists all over the country ; or (ii) such relationship, even if it existed, had influenced the invoice price ; (f) in the absence of any evidence to establish that any part of the proceeds of sale by the stockists accrued to the Appellant either directly or indirectly, the price specified in the invoice had to be accepted for levy of excise duty; (g) the bonus pieces given by the Appellant are declared and mentioned in the invoice and the price of the said pieces is included in the invoice for the quantities billed.

5. Reliance was placed by the learned counsel on the decisions reported in 1981 ECR 91 (Allied Textile Leather Industries v. Union of India); 1982 ECR 711 (Amar Dye-Chem Ltd. v. Union of India); 1978 E.L.T. 350 (S.C.) (Nemraj Goverdhan Dass v. H.H. Dave); 1983 ECR 59 (Ashok Leyland v. Govt. of India); 1980 E.L.T. 397 (S.M. Chemicals & Electronics v. R.Parthasarathy) ; 1981 E.L.T. 807 (In re : Kalapi Stores, Bombay); 1979 E.L.T. 454 (Queens' Chemists Mfg. Department v. Collector of Central Excise) 6. For the Respondent, Shri Jain, while admitting that the concepts germane to valuation under See. 4 of the Act cannot be imported into a construction of the relevant exemption Notification [reliance on 1984 (4) ETR 66=(Kunal Engineering Co. Ltd. v. Collector of Customs & Central Excise), (a) the overriding commission, the control of sales by the sales representatives of the Appellant and the control of the retail price in terms of the agreement entered into between the Appellant and his stockists, are all inconsistent with a relationship merely created by sale of the goods in question. The commissions are not normal and prove a special relationship ; (b) the maximum cooperation with the field staff, that is to be extended by the stockists, shows mutuality in business interests between the assessee and his stockists. [Reliance upon 1979 E.L.T. 407 (Cibatul Ltd. v. Union of India and 1981 E.L.T. 284 (Jay Engineering Works Ltd. v. Union of (c) since the Notification in question speaks of the exemption from duty in regard to goods cleared upon sale, the benefit of the Notification cannot be extended to gifts.

7. It appears to us on a perusal of the papers, the submissions made and otherwise, that- (A) It is axiomatic that in the construction of a Notification, "there is no room for any intendment but regard must be had to the clear meaning of the words. The entire matter is governed wholly by the language of the Notification." [1978 E.T.R. 350 (S.C.)- Hemraj Gordhandas v. H.H. Dave(Kunal Engineering Co. Ltd., Madras v. Collector of Customs & Central Excise, Madras) the Notification, in question, providing as it docs, a mode of valuation in the altenative to Section 4 of the Act, cannot be construed to be identical in scope and effect with the said Section by importing some of the concepts germane to valuation thereunder, unless the words and expressions in Section 4 of the Act are repeated in the Notification.

(ii) "Related person" as defined in Section 4 of the Act implies mutuality of interest, direct or indirect, in the business of each other between the assessee and the person said to be related. As observed by the Hon'ble Supreme Court in 1984 (17) E.L.T. 323 (S.C.) [Union of India v. Atic Industries "It is not enough that the assessee has an interest, direct or indirect, in the business of the person alleged to be a related person; nor is it enough that the person alleged to be a related person has an interest, direct or indirect, in the business of the assessee. It is essential to attract the applicability of the first part of the definition that the assessee and a person alleged to be a related person must have interest, direct or indirect, in the business of each other. Each of them must have a direct or indirect interest in the business of the other." (iii) The fourth proviso in the Notification, however, speaks of any relationship whatsoever ("any commercial, financial or other relationship whether by contract or otherwise") and not merely mutual business interest and to that extent it goes much beyond the scope meaning and effect of the expression "related person" as defined in Section 4 of the Act and interpreted by the Hon'ble Supreme Court in the aforesaid decision.

(iv) Even so, the decisions of the various High Courts construing "related person", cited to us by one or the other of the parties and reported in 1982 1981 E.L.T. 348 (Amar Dye-Chem v. Union of India), 1983 ECR 59 (Ashok Leyland v. Govt. of India); and 1981 E.L.T. 284 (Jay Engineering Works v. Union of India) afford some guidance in the matter of construction of the letter of appointment though not the Notification in question.

(C) Clause (iv) of the proviso to the Notification is not happily worded. Even so, its requirements, are- " (i) absence of any relationship whatsoever other than that of buyer and seller pursuant to a contract of sale between the manufacturer and the buyer of goods from him; (ii) the price itself as shown in the invoice should be uninfluenced by any relationship, assuming one to exist.

(D) (i) The only evidence of a relationship between the Apoellant and the stockists of the Appellant's goods is the letter of appointment of the stockists.

(ii) The questions that arise for consideration, in the context of the various stipulations in the letters of appointment are- (a) Do the letters constitute the basis for enforceable contracts between the Appellant and the stockists, once the conditions therein are accepted by the latter? (b) If so, what exactly is the nature of the resulting contract? Is it an agreement to sell goods or a contract of sale of goods? What is the essential difference between the two? If neither, is it a contract of agency? (c) Do the letters of appointment, when accepted by the stockists, bring about a relationship created by sale of goods or any commercial, financial or other relationship? (d) If so, does it have any impact or influence on the price as shown in the invoice? (E) Simply stated, an offer when accepted becomes a promise, an agreement when supported by consideration. If the agreement is enforceable by law it is a contract. Undeniably, the letters were offers meant to be accepted not merely by a communication of such acceptance but by means of a deposit as an earnest of continued adherence to the terms and conditions thereof. Consideration for the agreement is the appointment of the acceptors as stockists. The agreement is not prohibited in law. It is accordingly a contract. A concluded contract need not necessarily and specifically provide for the consequences of breach, for the law takes care of it. It is, nonetheless, a contract and such loss as may result from its breach can either be partly or fully compensated from the deposit even though there is no covenant for its forfeiture. Even if the contract does contain a condition enabling forfeiture of the deposit, indisputably in the nature of security, in case of breach, it is always a matter for consideration, if it does not amount to a penalty in terms of Section 74 of the Contract Act [AIR 1963 S.C. 1405 (Fatehchand v. Balkishen Dass); (1969) 2 S.C.C. 554 (Maula Bux v. Union of India)}. The absence, therefore, of a forfeiture clause in the agreement does not negate the existence of a contract in terms thereof.

(F) But then, are they contracts of sale of goods-agreements to sell-or contracts of agency? (i) The true relationship of the parties has to be gathered as an inference of fact "from the nature of contract, its terms and conditions, and the terminology used by the parties themselves is, by no means, decisive of the legal relationship". [AIR 1968 S c' 784 at p. 787-Sri T.V.T. & Finn v. Commercial Tax Officer, Rajahmundry].The Sales Tax Officer, Philibhit v. Budh Prakash Jai Prakash], there is a clear distinction between "agreements to sell" and "contracts of sale". Whereas there is in a sale a transfer of property in the goods from seller to the buyer, there is none in an agreement to sell. "When the contract is to sell future goods . . . there can be no transfer of title to the goods until they actually come into existence; and even then, the condition laid down in Section 23 of the Act should be satisfied before the property in the goods can pass." This is even otherwise implicit in Section (4)(3) of the Sale of Goods Act, 1930. In terms of Clauses (3) and (4) of Section 4 thereof, "Whereunder a contract of sale the property in the goods is transferred to the buyer, the contract is called a sale, but where the transfer of property in the goods is to take place at a future time or subject to some condition, thereafter to be fulfilled, the contract is called an agreement to sell". An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred.

(iii) The expression "sale of goods" is, in accordance with the decision of the Supreme Court in AIR 1953 S.C. 252 [State of Bombay v. United Motors {India) Ltd.] found to consist of the following elements amongst others- (b) an agreement for sale which when carried out will result in the passing of the property for a price; (iv) To the same effect are the decisions of the Supreme Court in AIR 1953 S.C. 274 [=(1953) S.C.R. 611-Popattlal Shah v. State of Madras] and AIR 1964 S.C. 1037 [=(1964) 1 S.C.R. 481-Bhopal Sugar Industries v. D.P. Dube (v) It might appear rather anomalous that what is a contract otherwise in terms of the provisions of the Contract Act, 1872, is merely an agreement and not a contract when it comes to a sale of goods. But that is because of the diversity in the meaning ascribed to the word "agreement" in the two Acts. While in the Contract Act, an agreement cannot amount to a contract unless it if enforceable in law, an agreement to sell goods in terms of Section 4 of the Sales of Goods Act presupposes that it is enforceable in law and hence, in reality, a contract to sell goods. A contract for sale of goods is, however, one of completed sale by change in the title to and ownership in the goods.

(vi) Be that as it may, the so-called letters of appointment, can, if at all, be agreements for sale of goods and not contracts for sale of goods. With the issue of the letters, there has been no sale of goods, since the goods themselves are yet to come into existence and unless the property therein had passed to the stockists from the Appellant, there can be no question of a sale thereof, much less a relationship created by sale of goods.

(vii) The true test as to whether a contract is an agreement or contract for sale of goods on the one hand or one of agency on the other is the absence or otherwise of the conveyance of the title to and ownership in the goods. The essence of an agency to sell is the delivery of the goods to an agent who is to sell them, not as his own property but as the goods of the principal who continues to be the owner of goods. No title in the goods passes to the agent- which is of the crux of contract of saie. [AIR 1968 S.C. 784 at 787-Sri T.V.T. & Firm v. Commercial Tax Officer, Rajahmundry].

(b) organisation and promotion of sales and distribution, maintenance of stocks and after sales service, (c) retail price maintenance at the price determined by the manufacturer,(Jay Engineering Works v. Union of India) had held applying the test of change in title to and ownership in the goods, that, though subject to certain restrictions such as limitation of the retail price and the like-common in modern commerce-the agreement was nothing but a "contract by which the assessee is able to sell the bulk of its goods to Usha", and not one of agency.

(a) the Bombay High Court in 1981 E L T. 348-A mar Dye Chem Ltd. v. Union of India]', and (b) the Madras High Court in 1983 ECR 59 [Aslwk Leyland Ltd. v. Government of India}.

(x) In construing the notification in question, we are concerned, as was observed in the Amar Dye Chem case, with the relationship between the Appellant and his stockists rather than the relationship that may come about between the stockists and the buyer from them at the instance of the Appellant or the sales representatives, who were to book orders. Even in such cases, it is not as if the stockists were to sell on behalf of the Appellant but on their own.

(xi) The overriding commission of 2%-more of an exception rather than the rule-is to induce the stockists to take over the goods despatched directly to other dealers who may neglect or refuse to take delivery thereof and at the same time to mitigate the resulting loss for the Appellant by way of freight and incidental charges in bringing back the goods.

(xii) The deposits (without any interest) are in the nature of security for the due performance of the agreement as already observed and cannot in any way be construed to bring into existence a relationship inconsistent with an agreement for sale.

(xiii) The price to be paid for the goods, although not specified in the agreement, is determinable in terms thereof (Sec. 9 of the Sale of Goods Act).

(xiv) In fine, the letters of appointment of stockists are none other than agreements for sale of goods and the conditions therein singly or cumulatively do not render them anything other than such agreements.

(G) (i) (a) Strictly speaking, in the view we have taken, the letters of appointment bring about a relationship other than that created by sale of goods. Such relationship, anterior to that created by sale, matures into a relationship consequent upon a completed sale each time goods are consigned to the stockists, pursuant there to, and delivered after having been paid for. The agreement is the cause and sale the effect.

(b) It is, undoubtedly, a commercial relationship. May be, the stockists of the Appellant's goods are not "related persons" as defined, since they and the Appellant are not mutually interested in the business of each other. There is no evidence, nor is it possible to infer from the letters of appointment that any part of the sale proceeds come back to the Appellant directly or indirectly. All the same, having taken note of the distinction in law between an agreement to sell and a sale of goods and in the context of the language of the Notification, it cannot be held otherwise.

(H) (i) It cannot be that the invoice price is "influenced" by the relationship brought about by the agreement to sell. The invoice price is in terms of the agreement. It is not as if the commercial relationship resulting from the agreement is anterior in its effect, so that the price is "influenced" by it. On the contrary, they are coeval. There is no question of the one influencing the other. Nor is there any evidence on record of the agreement having "influenced" the invoice price to the stockists.

(ii) It is of no relevance, in terms of the Notification, if the absence of such relationship influenced the price at which the goods are sold to others outside the pale of the relationship. On the contrary, the relationship should have influenced the price to those related i.e. the stockists themselves and not the others with whom no such relationship has been established by the agreement. The price charged to those who did not enter into the agreement for sale, even if higher, is, therefore, irrelevant. Such a contingency is inevitable when the price in the invoice represents the assessable value and there can be as many different assessable values as there are invoices. The third proviso makes this clear. In terms thereof, the manufacturer is required to certify the price charged "for the relevant sale". In this respect as well as others, the Notification in question marks a departure from the concepts entrenched in Section 4 of the Act. It is not the price at which the goods are ordinarily sold that affords the basis for determination of the assessable value but the invoice price in regard to each "relevant sale". We refrain, however, from a consideration of the validity of the Notification in so far as it goes against Section 4.

Suffice it, however, to say that a difference in price to the stockists and others is neither impermissible nor ruled out in terms of the Notification.

(I) It is, accordingly, to be held that there is no evidence on record, barring the letters of appointment to prove a relationship other than that brought about by a sale of goods. The letters of appointment are merely agreements to sell. It is absolutely inconceivable that the invoice prices to the stockists can be influenced by the relationship brought into existence by the agreement to sell. The invoice prices charged to buyers other than the stockists is irrelevant, for, admittedly, there is no relationship between the Appellant and them and there can be no question of the price to them being influenced by such relationship.

(J) In regard to assessability of the bonus articles cleared by the Appellant without payment of duty, we find ourselves in agreement with the ratio of the decisions of the Government of India, in 1981 E.L T. 807 (In re : Kalapi Stores, Bombay) and 1981 E.L.T. 856 (In re : M/s. Barlington Exports) and that of the Bombay High Court in 1979 E.L.T. 454 {Queen's Chemists v. Collector of Central Excise).

8. In the result the Appeal is allowed and the Appellant is entitled to consequential relief, if any.

9. While I concur in the conclusion reached by my learned brother Shri Murthy, I would reach that conclusion by a somewhat different route.

10. So far as the valuation of the "bonus" goods is concerned, I agree with the decision of the Government of India in the case of Kalapi Stores, Bombay (1981 E.L.T. 807). It is quite evident that, as represented by the appellants, the "bonus" pieces are not really given away free, but their price is distributed over the price of the other goods which are charged for. This is nothing but a sales gimmick. As an analogy, when goods (especially books) are ordered by post, the supplier very often offers that if goods worth say Rs. 100 are ordered, packing and postage will be "free". Obviously this does not mean that such expenses will be borne by the supplier from his own pocket, but only that it is in the nature of a quantity discount for a sizeable order. Therefore, on this issue the appeal deserves to be allowed.

11. Coming to the main issue, namely the admissibility of the invoice prices of the appellants in terms of Notification No. 120/75-C.E., dated 30-4-75, my learned brother has made a very exhaustive analysis with reference to the provisions relating to contracts and sale of goods. I would, however, look at the issue from a different angle.

12. There is one important aspect to the matter which does not seem to have been appreciated by the lower authorities. This has been hinted at in para 7(H) (ii) of Shri Murthy's order. It is the effect of Notification 120/75 vis-a-vis the provision of Section 4 of the Central Excises and Salt Act. It is evident that a new criterion for valuation of goods could not be introduced by a notification so as to override the provisions of Section 4. However, it is within Government's powers to exempt any goods from the whole or a part of the duty leviable thereon, and it does not appear material whether this exemption is given by adopting a lower rate of duty (as is normally done) or a lower value (as is purported to be done in terms of Notification 120/75). It is, however, well-settled that no exemption notification can have the effect of subjecting any goods to a higher duty than would have been leviable in the absence of that notification. Therefore, if in any case the application of Notification 120/75 results in a higher duty than would be leviable by direct application of Section 4, the excess levy would not be authorised by law. In other words, in respect of goods to which the Notification applies, the duty which is payable would be the duty in terms of the Notification or the duty under Section 4, whichever is lower. The fact that the assessee has opted to avail himself of the 'exemption' would not affect this legal position.

13. As pointed out in para 7 of Shri Murthy's order, the "mode of valuation" prescribed in the Notification cannot be construed to be identical in scope and effect with the provisions of Section 4. It appears that the object in issuing the Notification was to effect a procedural simplification, by doing away with price-lists for individual goods, without departing from the principle of an "arm's length" price. In other words, both Section 4 and the Notification essentially seek to provide that the price to be adopted as the basis of assessable value shall be an arm's length price. However, having regard to the context in which Notification 120/75 was issued, where considerable reliance was to be placed on the certificate of the manufacturer, a different formula (as set out in para 2 above) has been adopted for defining the arm's length price.

14. Now, although the basic concept in Section 4 and Notification 120/75, which seek to define an arm's length price, is the same, their effect is not identical, since the formulations are different In one way, the notification is more favourable to an assessee, and in another way it is less favourable. It is more favourable because the disqualification from the notification in terms of condition (iv) is incurred not merely through the existence of a commercial, financial or other relationship, but only if the invoice price is affected by that relationship. Under Section 4, on the other hand, the existence of a relationship as "related person" is itself enough to disqualify the price to the related person in the absence of sales to other persons, to substitute the price at which the related person sells the goods.

Notification 120/75 is less favourable to the assessee in the sense that the relationship described therein is...(illegible) than the relationship of "related person" as defined in Section 4 and as interpreted by the Supreme Court.

15. It would thus follow that in some cases the invoice price would qualify in terms of Notification 120/75 but not in terms of Section 4.

In other cases, the invoice price might qualify in terms of Section 4 but not in terms of Notification 120/75. However, in view of what has been stated above, even in the latter case, there should be no question of seeking, on the basis of Notification 120/75, to adopt an assessable value higher than that which would be arrived at in terms of Section 4.

16. This, however, is in effect what the decision of the Central Excise authorities in the present case amounts to. In the show cause notice dated 10-3-77, the appellants were asked to show cause why they should not be asked to file a price-list under Section 4 by withdrawing the concession under Notification 120/75, and why differential duty on the basis of the normal price should not be recovered. In other words, they were basically required to show cause why the assessable value in their case should not be determined in terms of Section 4. However, in his Order-in-Original dated 21-6-77, the Assistant Collector apparently went beyond the scope of the show cause notice. He not only withdrew the concession of assessment in terms of Notification No. 120/75 and ordered that price-lists should be filed under Section 4, but he also specified that the price-lists should be in "Part IV", that is, the proforma applicable in the case of sales to related persons. Further, he specifically directed that the price-list should be on the basis of the prices charged by the stockists to their independent dealers. This decision was confirmed by the Appellate Collector, subject to a part of the duty demand being held as time-barred.

17. Although the position is as above, I do not think it would serve any useful purpose at this stage to remand the matter back to the Collector (Appeals) or to the Assistant Collector for a fresh decision in terms of Section 4 after giving due notice to the appellants. As all the relevant facts are before us, we are in a position to decide the matter without prolonging the proceedings.

18. I shall now proceed to the question whether the invoice prices in this case fulfil the conditions of Notification 120/75. Without going into great detail, I consider that the following aspects are material:- (a) There was undoubtedly a relationship between the appellants and their "stockists", created by the appellants' letter which was confirmed by their distributors (in terms of the notification it is not material whether or not this is regarded as a contract); (b) this was a continuing relationship, and separate from the relationship created by each sale (the differentiation between an agreement to sell and a sale supports this view); (c) by virtue of this relationship certain payments (in respect of goods supplied direct) were admissible to the stockists; and (d) such payments, unconnected with any specific sale and not dependent on any specific service, could influence the price charged on each sale.

19. However, in terms of the notification, it is not sufficient that there is a relationship between the manufacturer and their buyers, and that it could influence the invoice price. It is also necessary that the invoice price be actually influenced by the relationship [of. para 4(b) and (c) supra]. The best evidence to this effect would have been some material to show that there were wholesale sales to persons other than the stockists, at a higher price. But nowhere in the show cause notice, or the order of the Assistant Collector, or the order of the Appellate Collector, is there any statement, much less any evidence, to the effect that there were wholesale sales to other buyers at a higher price.

20. In reply to a question from us, Shri T.S. Narang, the Managing Director of the appellants who was present at the hearing, gave a reply which we understood as meaning that on sales to dealers other than stockists a discount of only 5% was given (as compared to a total discount of 8% to stockists). Though this could be taken as clinching the case for denying the appellants the benefit of Notification No.120/75, we do not think it would be fair to rest our decision on a reply given in the course of the hearing.

21. Nevertheless, let us assume that the appellants are not entitled to the benefit of Notification No. 120/75. This, however, is not the end of the matter. In accordance with the reasoning in para 12 above, once it was held that Notification No. 120/75 was not applicable, the value had to be determined fully in accordance with the provisions of Section 22. As already observed, the stockists have been treated as "related persons" to the appellants, in terms of the Assistant Collector's order. Considering the position with reference to the provisions on "related person s", it is immediately apparent that the 700 odd stockists cannot be termed as related persons. There is nothing on record to show that there is a reciprocal "interest" as between the appellants and each of their stockists, in terms of the recent decision of the Supreme Court in the case of Union of India and Ors. v. Atic Industries Ltd. [1984 (17) E.L.T. 323 (S.C.)], so as to render each of the stockists a "related person". Nor is there anything on record to show that any of the stockists is also a relative of the appellants, so as to render him "a relative and a distributor" in the light of the decision of the Supreme Court in the case of Union of India and Ors. v.Bombay Tyre International Ltd. (1983 E.L.T. 1896). Thus, there is no warrant for holding the stockists to be "related persons" within the meaning of Section 4, or for requiring the appellants to pay duty on the basis of the price at which the stockists sell their goods to other dealers.

23. I would, therefore, hold that the lower authorities were not justified in directing the assessment of the goods to duty on the basis of the prices at which the stockists sold them to other dealers. In the absence of any other reason for rejecting the prices at which the appellants sold their goods to their stockists, those prices would be the assessable values in terms of Section 4, Central Excises and Salt Act, and should form the basis of valuation. I would accordingly, like my learned brother Shri Murthy, though on different grounds, allow the appeal and direct that consequential relief be granted.


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