1. Originally preferred as an appeal before the Central Board of Excise & Customs against the order dated 3-2-1977 passed by the Collector of Central Excise, Baroda, on transfer to this Tribunal, the matter is being treated as if the matter were an appeal before the Tribunal, and is being disposed of as such.
2. Vide his impugned order dated 3-2-1977, the learned Collector held that the assessable value for the refrigerant gases, manufactured by M/s. Navin Fluorine Industries (hereinafter referred to as NFI) to M/s.
Hoechst Dyes & Chemicals Ltd. (hereinafter referred to as Hoechest) were to be treated as sales to a related person within the meaning of Clause (c) of Sub-section (4) of Section 4 of the Central Excises and Salt Act, 1944 (hereinafter referred to as Act) and accordingly, the assessable value should be determined with reference to the prices charged by Hoechest to its wholesale buyers and not at the prices at which NFI sold the said goods to Hoechest.
3. The case against the appellants as discussed in the Collector's order and supported by Shri Jain, the learned SDR, is based on three grounds. The first ground, extracted from the annexure to the show cause notice dated 25-2-1976 is reproduced below : "M/s. Hoechest AG of West Germany hold l/3rd of total equity shares in Polyolefins India Ltd. and M/s. Hoechest Dyes & Chemicals. Shri Arvind Mafatlal is managing director of both Polyolefins India Ltd. and Mafatlal Industries Ltd. Mafatlal Industries Ltd. hold more than one-third of shares in M/s. Mafatlal Fine Spinning & Manufacturing Co. Ltd. of Bombay and 26.667% in Hoechest Dyes and Chemicals. There is thus business association between M/s. Mafatlal Industries Ltd. and M/s, Mafatlal Fine Spinning & Manufacturing Co. Ltd., Bombay and also between M/s. Hoechest Dyes & Chemicals and M/s. Mafatlal Fine Spinning & Manufacturing Co. through Polyolefins India Ltd. and Mafatlal Industries. Since M/s. Navin Fluorine Industries is Chemical division of M/s. Mafatlal Fine Spinning & Manufacturing Co.
Ltd., M/s. Hoechest Dyes & Chemicals and M/s. Navin Fluorine Industries can be said to have mutual business association." Shri Engineer, the learned Counsel for the appellants submitted that a special relationship had been sought to be established between the appellants and Hoechest on the ground that Shri Arvind N. Mafatlal held the pivotal position by way of being Chairman and/or Managing Director on the Board of Directors of M/s. Mafatlal Industries Ltd., M/s.
Mafatlal Fine Spg. & Mfg. Co. Ltd. (hereinafter to be referred to as Mafatlal Fine), M/s. Hoechest and M/s. Polyolefins Industries Ltd. (hereinafter referred to as PIL). He submitted that the appellants' sales to Hoechest could not be considered as sales to a related person as contended by the lower authorities. These sales were genuine transactions, acceptable under provisions of Section 4 of the Act and could be corroborated by their invoices to other buyers. The learned Collector had, by referring to the equity composition of various companies, tried to establish remote connection between the appellants and Hoechest and thereby held that Hoechest were a related person vis-a-vis the appellants. Even in their reply dated 22-3-1976 to the show cause notice, which was sent long before the pronouncement of the Supreme Court judgment-1984 (17) E.L.T. 323 (S.C.) (Union of India and Ors. v. Atic Industries Ltd.) the appellants had urged that some remote connection between the appellants and Hoechst could have no bearing on the bilateral transactions between them and Hoech st. No doubt, Shri Mafatlal was associated as Chairman/Managing Director with M/s.
Mafatlal Industries Ltd., which held 33.33% equity in the appellant Company, with Hoechest in which M/s. Mafatlal Industries Ltd. held 26.67% equity and with PIL in which the equity holding of M/s. Mafatlal Industries Ltd. was to the extent of 1.63%. Taking the other party, namely Hoechest, the Department had built up its case on the ground that 33.33% of its equity was held by PIL and Shri Mafatlal happened to be its Chairman as also the Chairman of the appellant Company. This ground was further sought to be reinforced by reasoning that 26.67% equity of Hoechest was held by M/s. Mafatlal Industries Ltd. of which Shri Mafatlal was the Chairman-cum-Managing Director. According to Shri Engineer, the learned Collector overlooked some of the legal niceties in the functioning of corporate bodies under the Indian Companies Act, 1956. Shri Mafatlal was associated with the above-mentioned Companies but he drew no remuneration from any of them (except fees for attending meetings of the Board of Directors) and held the minimum of qualifying shares in the Companies with which he was associated as Chairman/Managing Director. Shri Engineer thereafter referred to the Supreme Court judgment (supra) and submitted that it had been held by the Supreme Court that to 'qualify for being related persons both parties must have interest in each others business' (emphasis supplies). He stated that for the sake of argument one could state that by virtue of M/s. Mafatlal Industries Ltd.'s equity holding in the appellant company as well as Hoechest, it had some interest in the business of these two corporate bodies. However, since neither the appellant Company nor Hoechest had any equity participation in Mafatlal Industries nor between themselves, it could not be argued that these two corporate bodies had any interest in the business of M/s. Mafatlal Industries Ltd. In short, applying the ratio of the Supreme Court judgment, the legal position adopted by the learned Collector was totally unsustainable. He laid lot of emphasis on the following observations from the said judgment : "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 the 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. The equality and degree of interest which each has in the business of the other may be different; the interest of one in the business of the other may be direct, while the interest of the latter in the business of the former may be indirect. That would not make any difference, so long as each has got some interest, direct or indirect, in the business of the other." Shri Engineer also laid lot of stress on another observations from the said judgment which is extracted below : "But we fail to see how it can be said that a limited Company has any interest, direct or indirect, in the business carried out by one of its share holders even though share holding of such share holder may be 50%." Shri Engineer submitted that the Supreme Court had squarely dealt with the issue in the present appeal and the benefit ot the ratio of the judgment was available to the appellants as well.
4. The second ground adopted by the learned Collector was that during 1975, the appellants sold more than 97% of their product to Hoechst.
Shri Engineer submitted that ab initio this position taken by the learned Collector was erroneous in Law. Reference to 97% of the product was to the goods manufactured by NFI and NFI were only a Division of the appellant Company and had no legal status of its own. The mere fact that they had been issued a separate licence for central excise purposes did not confer on NFI, the status of a separate legal corporate body. The sale of refrigerant gases by the appellants to Hoechest constituted only 5% of their total production. The appellants manufacture several other products which were not sold to Hoechst.
Similarly, in the case of Hoechst, their total sales were to the tune of Rs. 45 crores odd of which the sales of refrigerant gases, purchased from the appellants, amounted to Rs. 2.45 crores only. Thus, the allegation that 97% of the appellant Company's sales were to Hoechst was legally not correct. In any event, it was not the Departments' case that the sales of such gases to Hoechst were effected at a lower price than to other parties. It was pointed out by Shri Engineer that the remaining 3% production of refrigerant gases were sold to other parties at prices equal to or, in one or two instances, at a level lower than those effected to Hoechst.
5. The third plank of the Department's case against the appellants was that the sales between the appellants and Hoechst were governed by an agreement and several clauses of the agreement were indicative of the relationship between the two parties being of a special nature. Shri Engineer stated that the agreement was in force from 1-10-75 to 31-12-83 and terminated thereafter. However, there was nothing unique about the agreement, between the appellants and Hoechst because identical agreements were entered into by the appellants with other parties, for example, M/s. East Coast Gas Co. and M/s. Phoenix Distributors (P.) Ltd. In any event, prices charged for the refrigerant gases were the same to whomsoever they were sold. Shri Engineer referred to clauses 4, 5, 8, 9, 14 etc. of the agreement and with regard to each he explained that none of these amounted to detract from the principal to principal character of sales between the appellants and Hoechst and, for that matter, the other two parties with whom identical agreements had been entered into.
Summing up the appellants' case, Shri Engineer submitted that applying the ratio of the Supreme Court judgment, the orders passed by the learned Collector of Central Excise, Baroda could not be sustained and should be struck down. Further, the appellants had also put forth all the evidence available to show that the prices charged by the appellants for the goods in question were uniformly available to all parties including Hoechst. In this view of the matter also, the Department had no case at all.
6. Shri Jain, the learned SDR has not been able to refute any of the arguments advanced by Shri Engineer. We find substance in the submissions made by the learned Counsel for the appellants which are principally based on the Supreme Court decision, reported in 1984 (17) E.L.T. 323 (S.C.) (Union of India and Ors. v. Atic Industries Ltd.).
For the 7. In the result, we accept this appeal and set aside the impugned order passed by the Collector. The consequential relief which flows as a result of the decision be given to the appellants.