ORDER
U.L. Bhat, J. (President)
1. The appellant (assessee) is M/s. Safari Industries (India) Ltd., engaged in the manufacture of moulded plastic luggage, brief cases and suit cases falling under T.I. No. 4201.10. The period under consideration is 1-5-1986 to 31-3-1990. M/s. Safari Sales Ltd., Bombay is a wholesale dealer in Bombay and will be referred to as the Bombay wholesale dealer in this order. Both are public limited companies. Shri Y.S. Mehta was shareholder and the Managing Director of the assessee till 31-5-1988. He has been Director of the Bombay wholesale dealer from 1-6-1988. The assessee was selling its products to several wholesalers, including the Bombay wholesaler, at the same price. 52% of the sales was to the Bombay wholesaler while 48% of the sales was to the other wholesale buyers. During the relevant period, the assessee spent over Rupees two crores for advertisement and sales promotion, while the Bombay wholesale dealer spent Rs. 50,09,285/-. There was no written agreement requiring Bombay wholesale dealer to incur this expenditure. The assessee, during the relevant period, submitted price lists indicating the relevant particulars including the identity of the wholesale buyers, but did not disclose the advertisement expenses incurred by the Bombay wholesale dealer. Price lists were duly approved. Notice dated 9-5-1991 was issued under proviso to 11A(1) of the Central Excises and Salt Act, 1944 (for short, the Act) to the assessee to show cause why the sum of Rs. 50,09,285/-should not be added to the assessable value of the goods manufactured by the assessee and differential duty of Rs. 15,93,904.15 should not be levied for the above period. The assessee rebutted the notice, but the Collector passed the impugned order confirming the duty demand. This order is now under challenge.
2. The impugned assessment has been made specifically under Section 4(1)(a) and not Section 4(1)(b) of the Act. The Collector has accepted that the two companies were not related persons and therefore proviso (iii) to Section 4(1)(a) was not invoked. The Collector held the assessee had financial interest in the functioning of the Bombay wholesaler for the reason that the latter had furnished security to the Central Bank of India of its stock and book debts for the working capital limit sanctioned by the bank to the assessee during the years 1986-87, 1987-88 and that Shri Y.S. Mehta who was earlier Director of the assessee became Managing Director of the Bombay wholesaler with effect from 1-6-1988. The Collector observed that though the wholesale price available at the factory gate was the same for all wholesale buyers, the Bombay wholesaler by spending over Rs. 50 lakhs enriched the sales of the assessee by securing free publicity to his products in the market. These factors persuaded the Collector to infer the existence of some underhand dealings between the two and that the Bombay wholesaler acted as marketing agent of the assessee. Since the assessee was getting the benefit of publicity and advertising directly or indirectly without entering into an agreement with the buyer, the Collector opined that there was favoured relationship between them and therefore price shown was not the sole consideration. On account of free publicity the value of the assessee’s products and its marketability was enriched. Thus the Collector inferred that the Bombay wholesaler was indirectly promoting the sales of the assessee’s products and indirectly acted as its agency for sales promotion. Since the assessee was thereby relieved of the need for incurring advertising expenses, this introduced an extra commercial consideration. The transactions between the two were not at arm’s length and not on principal to principal basis and there was financial interest in their transactions. The Collector held that the assessee therefore should have included the Bombay wholesaler’s advertising expenses in its own assessable value and failure to reveal this aspect amounted to suppression of material facts for the purpose of evading excise duty.
3. The above conclusion and reasoning of the Collector has been challenged by appellant. We have heard learned counsel for the appellant and the Departmental Representative.
4. The Department has no case that the two companies are related persons or that Section 4(1)(b) of the Act is applicable to the facts of the case. The Department rests its case on Section 4(1)(a), without invoking any of the provisos thereto.
5. Under Section 4(1)(a) of the Act, valuation for charging excise duty shall be the normal price of the goods. The normal price is the price at which the 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. This is subject to two conditions :
(i) the buyer is not a related person; and
(ii) the price is the sole consideration for the sale.
According to the Collector, though the buyer is not a related person, the price is not the sole consideration for the sale inasmuch as the buyer in whom the assessee has financial interest has spent about Rs. 50 lakhs for advertising the assessee’s products without any specific agreement in that behalf, for the benefit of the assessee and thereby enriched the assessee’s products and their marketability. There are certain significant omissions in the impugned order. The Collector has not found the Bombay wholesaler was the only wholesale buyer of the assessee who incurred expenses for advertising the products of the assessee or that other wholesale buyers of the assessee, who buy 48% of the products manufactured by the assessee, did not incur any expenditure on this account. The Collector also failed to attach due importance to the fact that the advertising activity of the Bombay wholesaler to the extent it helped the assessee in promoting sales, was of equal benefit to the Bombay wholesaler in promoting its sales activity and that the expenses incurred by the Bombay wholesaler were so incurred of its own accord and not as part of the condition of agreement between them. The Collector also failed to draw proper inference from the admitted fact that the assessee charged the same price to all wholesalers and did not actually show any favour to the Bombay wholesaler by showing any concessional price or in any other respect but on the other hand, the latter had incurred expenses to the tune of about Rs. 50 lakhs on its own. The Collector also failed to notice that if Rs. 50 lakhs was really a part of the consideration between the parties, it would mean that a higher price was charged to the alleged “favoured buyer” while charging a lower price to buyers who are not favoured. The Collector totally ignored the significant circumstance that the assessee itself had spent about Rs. two crores for advertisement and there is no material to show that the other wholesale buyers did not incur any such expenses. The Collector also ignored the circumstance that Rs. 50 lakhs was spent not by the assessee itself but by a wholesale buyer who commanded about 52% of the market.
6. Undoubtedly the normal price (wholesale price) is ascertainable inasmuch as the price charged to all wholesalers, favoured or otherwise was the same. There would be no logic in the assessee collecting higher price from a socalled favoured buyer. The show cause notice did not rely on the circumstance that the Bombay wholesaler furnished security to the bank of its stock and book debts for the working capital limit sanctioned by the bank to the assessee. That being so the assessee had no opportunity to offer an explanation in this regard. There was only one class of wholesale buyers including the Bombay wholesaler and all of them were charged the same price for identical goods under identical conditions. Whatever expenses the Bombay wholesaler incurred on account of advertising was incurred on its own and not under any agreement with the assessee. In these circumstances the conclusion of the Collector that there are two classes of wholesale buyers is unsustainable. Equally unsustainable is the conclusion the Bombay wholesaler was favoured buyer. There is no relevant information on record regarding the constitution, shareholding and controlling interest of the two companies. The only circumstance on record is that one common shareholder Shri Y.S. Mehta was Managing Director of the assessee till 31-5-1988 and was Director or Managing Director of the Bombay wholesaler thereafter. The nature of the shareholding of the two companies is not known. There is nowhere any suggestion that Shri Y.S. Mehta owned major shareholding of the two companies. This is an additional reason against the conclusion that the Bombay wholesaler was a favoured buyer. It is inexplicable why the Bombay wholesaler would agree to reduce its profit to enable higher profit and reduced excise duty liability for the assessee.
7. On a consideration of the entire record in the light of submissions made by both sides, the following circumstances emerge :-
(a) Independent wholesale buyers of 48% of products and the Bombay wholesaler who purchased 52% of the products paid the same price to the assesse;
(b) No concessional price was offered to the Bombay wholesaler;
(c) The Bombay wholesaler incurred expenses of Rs. 50 lakhs for advertising but this was not under any agreement with the assessee, but on its own;
(d) There is no material to show that other wholesale buyers did not incur any expenditure for advertising;
(e) The advertising activity of the wholesaler benefitted itself as much as it benefitted the assessee;
(f) The assessee spent around Rs. two crores for advertising its products;
(g) If Rs. 50 lakhs spent by the Bombay wholesaler is to be regarded as part of the consideration for the transaction of sales of the assessee’s products, it would mean the Bombay wholesaler was charged higher price than the other wholesalers;
(h) There is not material to show that the advertising expenses incurred by Bombay wholesaler were compensated in any way by the assessee, either by granting exclusive right of sale in any particular territory or by paying cash compensation or otherwise;
(i) The two companies are not related persons;
(j) Absence of any reliable material to show the transaction price was not sole consideration or condition for transactions; and
(k) Absence of material to show that the Bombay wholesaler and other wholesale buyers were different class of buyers.
The above circumstances point unerringly to one conclusion, namely that the common price charged by the assessee for the Bombay wholesaler and other wholesale buyers was the normal price, that is the price at which the goods were ordinarily sold to buyers in the course of wholesale trade for delivery at the time and place of removal since there are no other inhibiting factors. The conclusions and the finding arrived at by the Collector are erroneous.
8. In the result, the impugned order is set aside and the appeal is allowed.