1. The questions that arise for consideration in this Revision Application to the Government of India, transferred to and heard by the Tribunal, pursuant to Section 35B of the Central Excises and Salt Act, 1944 (the Act, for short) are- (a) Whether, in the facts and circumstances of the case, the Appellant and M/s. Sun Distributors and Mining Co. Ltd., said to have been appointed by the Appellant as their del-credre agent (hereinafter, referred to as M/s. Sun) are "related persons" and, accordingly, the assessable value of the goods manufactured by the appellant is the price at which the goods are ordinarily sold by the aforesaid M/s. Sun in the course of wholesale trade, in terms of the third proviso to Section 4(1) (a) of the Act (b) Whether the Appellant allowed any, and if so what, trade discount and if such discount has to be excluded from the computation of the assessable value in accordance, with Section 4(4) (d) (ii) of the Act (c) Whether the Appellant is entitled to exclusion of delivery charges from the computation of the assessable value 2. While the first two of the aforesaid questions arise in common with this Appeal in Appeal Nos. 125/80A, 78/81A, 1505-1509/84A as well, the third arises exclusively in this Appeal only. Two other issues which had arisen in all the Appeals, namely, inclusion of the value of the wrapping paper in the assessable value of the packed paper and relief under Rule 56A of the Central Excise Rules, 1944 were given up in the course of the arguments before us by an application. Accordingly, the order in this Appeal on the first two of the aforesaid questions disposes of the rest of the aforesaid Appeals as well.
(a) the Appellant, manufacturing paper and paper boards, at all material times, sold their manufactured products directly to over 120 wholesale buyers all over India, (apart from Government and Government allottees) and amongst them, M/s. Sun; (b) the Agreement between the Appellant and M/s. Sun dated December 1, 1975, in renewal of previous Agreements and, in so far material, provided, inter alia, for- (i) reservation of a right in the Appellant to sell directly to any party, Central Government, State Government and semi-Government, without having to pay any commission to M/s. Sun on such sales; (ii) reservation of a right in the Appellant of acceptance of all orders placed by M/s. Sun on the Appellant from time to time at the appellant's net mill rates or, with their approval in writing, subject to such discount as may, from time to time, be fixed by them; (iii) equality of price for large consumers previously recommended by M/s. Sun and approved by the Appellant with that for dealers; (iv) payment of Bills for supply of goods pursuant to orders booked by M/s. Sun and guarantee for payment in all such cases by M/s. Sun, notwithstanding any failure on the part of the purchasers; (v) payment of a commission of 2 % (reduced to 1 % with effect from 30-6-1976 by virtue of a supplementary contract) to M/s. Sun in respect of sales except on direct sales by the Appellant; (vi) collection by M/s. Sun of such Bills in the names of the dealers as may be duly endorsed to M/s. Sun, subject to such deduction of trade discount as may be fixed by the Appellant from time to time; (c) in accordance with the aforesaid sales pattern, the Appellant was selling about 31% of their total production to independent wholesale buyers directly while about 29% of their production was sold to independent wholesale buyers, documents whereof were endorsed in favour of M/s. Sun for collection at 1 % commission.
Both the aforesaid sales to wholesale buyers were subject to a uniform discount at 10 %. About 18 % of their total production, was sold to M/s. Sun on a principal to principal basis on the same terms and conditions relating to the price and trade discount as in the case of sales to other wholesale " dealers, namely, at a discount of 1%'. The balance 22% was sold directly by the Appellant to the Government and Government allottees without any discount whatsoever; (d) the Commission paid to M/s. Sun at 1 % for collection of bills of wholesale buyers endorsed to them is not required to be excluded from the assessable value; (e) M/s. Sun were incorporated on 7-5-1959 and the Appellant holds no shares in M/s. Sun, who, however, held 5.9% shares in the Appellant company at the relevant time. Subsequently, it became diluted to 1 %; (f) it would thus appear that while M/s. Sun were the collecting agents for a commission (not in controversy in this Appeal) on the one hand, they themselves are wholesale buyers to the extent of atleast 18% of the total production of the Appellant on the same terms and conditions as any of the other direct wholesale buyers numbering nearly 120 all over in India; (g) on the submission of various price lists by the Appellant claiming exclusion of discount at 10% and delivery charges at Rs. 50/- per M/T (for delivery at Appellant's godown in Calcutta) and Rs. 65/- per M/T (for delivery at buyer's premises in Calcutta), the Assistant Collector of Central Excise, Asansol directed the Appellant, on or about 16-6-1976, amongst other things, to compute the assessable value after allowing a deduction of 5 % trade discount only (equal to the discount given by M/s. Sun to purchasers from them of the quantity directly sold to them, i.e., 18% of the total production and to include the delivery charges, if included in the sales revenue of the Appellant; (h) on a representation by the Appellant dated 21-7-1976, the Assistant Collector expressed his inability to deal with the case afresh. Consequently, and in view of the expiry of the time for Appeal, the Appellant approached the Board for a Review under Section 35A of the Act (as it read then). On the Board refusing to exercise such power by letter dated 6-4-1978, the Appellant represented their case to the Government of India under Section 36 of the Act (as it read then). The Government of India by their order dated 31st July, 1979, remanded the case to the Collector of Central Excise, West Bengal for a decision in the case in conformity with the provisions of the Act. The Collector by his Order dated 10th April, 1980 refused to interfere with the order of the Assistant Collector and the Revision to the Government of India, now heard as an Appeal, was the sequel.
4. It appears to us on a perusal of the records and the submissions made that- (a) the Assistant Collector, in para 3 of his Order dated 16-6-1976, found that the goods of the Appellant were being marketed through "direct delivery sales to dealers by the Appellant" apart from sales to dealers through M/s. Sun, and direct sale of about 18% of the Appellant's producton to M/s. Sun and 30% to Government or Government nominees. Nevertheless, he comes to the conclusion that 52 % of the total sales (after deducting 30 % of the total yearly production sold to Governmemt and allottees of Government, and 18 % directly sold to M/s. Sun) were effected through M/s. Sun only and supply of the goods were made either direct from the Appellant's factory or from the Appellant's godowns located at Calcutta, Bombay and Delhi. This is a conclusion contrary to his own earlier finding.
The evidence on the basis of which one could come to any conclusion whatsoever has neither been adverted to not discussed in the course of his order. It is almost as if all that is necessary is his own subjective satisfaction and not such evidence as may demonstrably support the conclusion arrived at. Nor had he found, for a fact, that the Appellant was related to M/s. Sun in terms of the definition of the said expression in Section 4(4)(c) of the Act; (b) on remand from the Government of India, the Collector proceeded to hold that- (i) the Appellant and M/s. Sun were related persons, since an agent has to be treated as a related person on account of the mutual interest that subsists between him and his principal in the business of each other. Further, M/s. Sun would appear to have substantial interest in the Appellant, when their share holding in the Appellant is compared with their other investments; (ii) in view of the marketing pattern of the sales of the Appellant, nearly 52% of their total production was necessarily sold through M/s. Sun. The dealers cannot purchase without going through M/s. Sun and all realisations were through M/s. Sun. Accordingly, in respect of nearly 70% of the total sales (made of 18% sales to M/s. Sun and 52% sold through them), the distribution is only through M/s. Sun and they happen to be the sole selling agents. Therefore, M/s. Sun is a related person to the Appellant.
(iii) "delivery charges" had not been separately shown in the invoices and, in the absence of any severable transport cost, they could not be excluded from the assessable value; In the premises, he refused to interfere with the order of the Assistant Collector. The evidence on the basis of which he had come to the aforesaid conclusions was again neither disclosed in the course of his order nor discussed. It is almost as if a mere ipse dixit carries conviction; (c) "related person", in terms of Section 4(4) (c) of the Act, 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; (d) one piece of evidence relied upon to prove relationship between the appellant and M/s. Sun was the share holding of the latter in the former-may be substantial-to the extent of 2/3rds of the total share investment of the latter; (e) this, by itself, does not mean that the Appellant has interest direct or indirect in the business of M/s. Sun. In terms of the ratio of the Supreme Court in 1984 (17) ELT 323 (SC) (Union of India and Ors. v. Aric Industries Ltd.). "It is not 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".
Accordingly, it was held by the Hon'ble Supreme Court that it cannot be said that a limited company has any interest direct or indirect in the business carried on by one of its sharesholders even though the shareholding of such sharesholders may be 50 %. Adverting to the wholesale purchase by the alleged related person of the goods manufactured by an assessee, their Lordships held that since the transaction was between principal to principal, it is difficult to appreciate how the assessee could be said by virtue of that circumstance to have any interest direct or indirect in the business of the person alleged to be a related person; (f) applying the ratio of the aforesaid decision, it cannot be said that Appellant and M/s. Sun are related persons just because M/s.
Sun hold shares in the Appellate company, or about 18% of the total production of the Appellant's company is sold directly to M/s. Sun.
It is not the extent of the share holding of M/s. Sun in the Appellant as compared with their other investment or the direct purchase of a part of the goods produced by the Appellant that furnishes the criteria for adjudging relationship but mutuality of interest in the business of each other; (g) but then the question of M/s. Sun being sole distributor of the Appellant's goods to the extent of 52 % of the Appellant's total production as concluded by the Assistant Collector or 70% as observed by the Collector, still remains, for "related person" includes, the Appellant's distributor in terms of the definition of the said expression. On this issue, as already observed, the Assistant Collector contradicts himself in his order. Nor is there any evidence brought on record to support and prove that M/s. Sun is the sole distributor of the Appellant to the extent of the aforesaid 52% of their total production. The Collector as well does not discuss the evidence, if any, in holding that it was indeed, 70% of their total production that the Appellant sold through M/s. Sun and it is almost as if his mere ipsi dixit carries conviction on the issue; (h) if, as alleged by the Appellant and as found by the Assistant Collector, there were, indeed, direct sales to nearly 120 dealers all over the country (apart from sales to M/s. Sun and the Government and its allottees) during the relevant period, a conclusion that nearly 52% or 70% as the case may be, of their total production was sold only through M/s. Sun could not have been reached, inasmuch as, (i) wholesale purchase by M/s. Sun to the extent of 18% of the Appellant's total production, necessarily, on a principal to principal basis, cannot result in an agency between M/s. Sun and the Appellant in respect of the said quantity, just as it cannot imply that they were related as observed in the aforesaid decision of the Supreme Court. The essence of an agency is the absence of a transfer of title and ownership in the goods to the agent, unlike in a sale.
[AIR 1968 SC784at p.787-Sri T.V.T. and Firm v. CTO, Rajahmundhary : 1985(19) E.L.T. 527 Latex and Dispersions Pvt. Ltd. v. Collector of Central Excise, Bombay]. A distributor is no other than an agent, and it cannot be that M/s Sun were acting as distributors in respect of the said quantity while, admittedly, they were buying it in wholesale; (ii) assuming that, as alleged by the Appellant, M/s. Sun were collecting certain bills of the Appellant in respect of goods directly sold to dealers, that, by itself, does not necessarily, mean and imply that M/s. Sun were the Appellant's distributor in respect of quantities covered by such bills. An agent for collection is not, ipso facto, a distributor. The direct wholesale sales to dealers cannot change their character as such into one of purchase or sale through a distributor, just because the bills for such sales are endorsed or entrusted to an agent for collection; (iii) the alleged direct sales to dealers where M/s. Sun were not even the collecting agents, if true, militates against M/s. Sun being a distributor in respect of any such quantity directly sold; (iv) M/s. Sun had, admittedly, nothing to do with the sales to the Government or its nominees; (i) it would thus appear necessary that the Appellant's sales pattern, as alleged by them, should be properly investigated and the question of M/s. Sun being a distributor of the Appellant demonstrably determined on the basis of such evidence as may be adduced by either party rather than be concluded on subjective satisfaction sans any evidence whatsoever; it cannot also be forgotten that even in terms of the agreement between the Appellant and M/s. Sun, a right to effect sales directly without the intervention of the latter had been expressly reserved to the former; (j) on the issue of delivery charges as well, the orders below appear to be in error. The question is if the price declared in the price list was inclusive of delivery charges and if so, to what extent and not whether the invoice shows delivery charges separately. If the price in the invoice and the price declared are identical and the latter was declared in the price lists to be inclusive of delivery charges, it has necessarily to be considered whether such delivery charges are to be excluded in the determination of the assessable value and to what extent, in terms of the ratio of the Supreme Court in 1983 E.L.T. 1896 (SC) (Union of India v. Bombay Tyres International).
7. In the premises, we allow the Appeal, set aside the learned Collector's order dated 10-3-1980 and the Assistant Collector's order dated 16-6-1976 and remand the matter for re-determination of the assessable value on the basis of such evidence as might have been available in the records or may be adduced by both the parties in the course of a de novo hearing and in the light of our observations hereinbefore.