JUDGMENT
1. Messrs Atic Industries Limited is the petitioner. The petitioner is engaged in the business of manufacturing dyes ans has got its factory in the State of Gujarat. the share capital of the petitioner-comapny is held by two companies. Atul Products Limited holds 50 percent of the share capital and Imperial Chemical Industries Limited, London, holds the remaining 50 per cent of it. The company has been selling a large part of its products to Messrs Atul Products Limited ans Imperial Chemical Industries (India) Private Limited, (hereinafter referred to as the buyer). It may be stated that Imperial Chemical Industries (India) Private Limited is a subsidiary wholly owned by Imperial Chemical Industries Limited, London. Though it is not necessry for the purpose opf this case to state we may state that since March 13, 1978 Imperial Chemical Industries (India) Private Limited has ceased to be the subsidiary wholly owned by Imperial Chemical Industries Limited, London, and its name has also ben changed to Crescent Dyes and Chemicals Limited. 60 per cent of its share capital since March 13, 1978 has been put in the market and has been held by Indian citizens. the remaining 40 percent of its share capital is held by Imperial Chemical Industries Limited, London. It is the case of the petitioner that transactions between the petitioner- comapny on the one hand and Atul Products Limited and Imperial Chemical Industries (India) Private Limited now known as Crescent Dyes and Chemicals Limited, the nuyers, are on the principle-to-principle basis and that no consideration other than commercial considerations enter into the trasactions. On September 15, 1975 the petitioner- company submitted a declaration showing the asseesable value of the excisable goods. On October 1, 1975 section 4 (as amended) of Central Excises and Salt Act, 1944 came into force. On September 19,1975 the Supreintendent of Central Excise demanded certain information from the petitioner and the petitioner supplied it by his letter dated September 23,1975. Correspondence between the Supreintendent of Central Excise and the petitioner-comapny passed between Oct. 8, 1975 and Oct 20, 1975. On Oct 29. 1975 the Assistant Collectors of Central Excise approved the price list cubmitted by the petitioner-company. In pursuance thereof the petitioner-company went on clearing the goods after paying the excise duty at the specified rate of 30 percent on the basis of the assessable value as shown in the price list approved by the Assistant Collector. Between December 6, 1975 and July 21, 1976 corrspondence betweebn the Central Excise authorites and the petitioner-comapny went on. By that correspondence the Central Excise authorities demanded certain information which the petitioner-comapny supplied. On July 31, 1976 the Supreintendent of Central Excise issued a notice to the petitioner-company calling upon the petitioner-comapny to show cause why the earlier decision of the Assistant Collector approving the price-list should not be reviewed on the ground that the company ans the buyers are “related person”. The petitioner-company waas also called upon to show cause why the differential duty worked out on the baisi of the selling price charged by the buyers with effect from Oct. 1, 1975 should not be recovered. On Augut 31, 1976 the petitioner-company gave reply to that notice. the petitioner- compny inter alia contended in the reply that the Assistant Collector of Central Excise had no power or authority to review his own decision; that in any case he had no power to review it resrocpectively, that section 4 (as amended) of the Central Excises and Salt Act, 1944 was ultra vires the Constitution; and that the petitione-comapny and its two buyers were not “related person” within the meaning of that expression as given in amended Section 4 of the Central Excises and Salt Act, 1944. On November 19, 1976 the Assistant Collector gave personal hearing to the petitioner-company. On Decemaber 10, 19076 the Assistant Collector reviewed his earlier order of approval of the petitioner’s price-list and confirmed the demand of different in dtuy with retrospective effect from October 1, 1975 and directed the petitioner-comapny to file a frash price-list. Between December 27, 1976 and December 29, 1976 some correspondce ensued between the petitioner-company and the Superintendent of Central Excise in regard to the selling prices charged by the buyers. On December 31, 1976 the Suprerintendent of Central Excise directed the petitioner to pay a sum of Rs. 81,98,087.88 ps. on account of differnce in excise duty for the period October 1, 1975 to December 31,1976. therefore, on January 7, 1977 the petitioner filied the present petition. After this petition was filed,the Asseiatent Collector of Central Excise made a fresh demand for an additional sum of Rs. 35,79,650. 07 ps. in respect of the goods cleared by the petitioner-comapny between October 1, 1975 and December 31, 1976 on the ground that five percent discount which was given by the petitioner’s buyers to thier customers was not admissible. Therefore, the total amount which the petitioner-company was xalled upon to apy was Rs. 1,17,77,737.65 ps. On March 8, 1977 the petitioner-company preferred an appeal before the Appeal Collector in which the petitioner raised certain grounds against both the demands made by the Assistant Collector. On August 9, 1978 the Appellate Collector gave the petitioner-company personal hearing. On August 28, 1978 the Appellate Collector rejected the appeals without going into thir merits mainly on the ground that this Writ Petition had been pending before this Court where all questions raised by the petitioner-company would be decided.
2. It is these circumstances which have given rise to this petition. the contentions which have been raised by Mr. Bhatt who appears on behalf of the petitioner-company are as follows:-
(1) Section 4 (as amended) of the Central Excises and Salt Act, 1944, is ultra vires the Constitution and Section 3 of the said Acr.
(2) The Assistant Collector of Central Excise did not have the power and authority to review the price-list which he had already approved.
(3) In any case, the Assistant Collector of Central Excise did not have the power to review the price-lisxt retrospectively.
(4) The petitioner-company and its buyers are not “related persons”.
(5) In any case the price which the petitioner-company charged it buyers was the normal price within the meaning of that expression givn in clause (a) of sub-section (1) of Section 4.
(6)The order passed by the Assistant Collector of Central Excise was passed without applying his mind because he did dale with the various contentions raised before him.
(7) the Appellate Commissioner also did not apply his maind to the various contention raised before him in appeal.
(8) Orders as Annexures “H” and “N” are illegal and deseve to eb set aside
3. The first contention is not open to arguments because is Special Civil Application No. 119 of 1976 decied by us on 2oth/ 21st February, 1979 [See 1979 E.L.T. (J 407)] we have declared a part of amended Section 4 ultra vires the legislative competence of Parliament under Articles 246 read with Entry 84 in the Union List and in light of Entry 54 in the State List. We have futher held that it is not saved by Entries 92-A and 97 in the Union List. Therefore, for the reasons stated in that judgment we declare that the concept of “related person” occurring in amended Section 4 is ultra vires the legislative competence of Parliament under Articles 246 read with Entry 84 in the Union List and in the lighrt of Entry 54 in the State List. Accordingly the expression “…the nuyers is not a related person and…” and proviso (iii) to clause (a) in sub-section (1) of Section 4 are struck down.
4. So far as the second and third contentions are concerned, the correspondence shows that the price-list cubmitted by the petitioner- company was reviewed under Section 4 and Rule 173-C(3). Arguments were very vehemently advanced on both the sides on these two contentions. An attempt was also made to show us that the Central Excise authorites do not have inherent power to review the price-list. Since we have struck down the concept of “related person” occurring in Section 4 and since we are holding that the petitioner-company and its two buyers are not “related persons”, the petitioner-company succeeds on this ground alone. Nothing, therefore, thus upon the question whether the Central Excise authorities had juridiction to review the price-list which they had finally approved earlier of had jurisdiction to do so retrospectively. We, therefore, do not propose to express any opinion on these two contentions.
5. So far as the fourth contention is concened, the Central Excise authoritites have taken the view that the petitioner-companyand it s tqo buyers Messrs Atual Products Limited and Messrs Imperial Chemical Industries (India) Private Limited are “related persons” because they are “inter-connceted undertakings” under the Monopolies Restrictive Trade Practices Act [Section 2(g)]. In special Applicartion No. 119 of 1976 decied by us on 20th/ 21st February 1979 [Sec 1979 E.L.T. (J 407)] we have taken the view that in order to decied whether a manufacturer & a buyers are “related person” within the menaing of that expression given in Section 4 of the Central Excises and Salt Act, 1944, resort cannot be had to Section 2(g) of the Monopolies and Restrictive Trade Practices Act. We are, therefore, of the view that the Central Excise authorities were in error in applying the norm of “inter-connected under-takings” laid down by Paliament in Monopolies and Restrictive Trade Practices Act for judging whether the petitioner-company and its two buyers are “related persons” under Section 4 of the Central Excises and Salt Act. Whether they are “related persons” or nor must be judged in the light of the defination of “related persons” given in Section 4. The expression “related person” has ben defined in the following terms:-
“…a person who is so associated with the assessee that they have interest,directly or indirectly, in the buesiness, of each other and includes a holding company, a sudsidiary company, a relative and a distributor of the assessee, and any sub-distributor of such distributor.”
The difinition consists of two parts. the first part provides that a person should be so associated with the assessee that both have direct of indirect interest in the business of each other. In Special Civil Application No. 119 of 1979 [See 1979 E.L.T.(J 407)] we expressed the view that the expression “theyhave interest, directly or indirectly, in the business of each of other” conanotes mautuality of business interest. The first question, therefore, which arises for our consideration is whether the petitioner-company on the one hane and its two buyers on the other hand have mutuality of interest in the business of each other. Such mutuality of interest may be direct of indirect.
6. It cannot be gainsaid that the two buyers-Messrs Atul Products Limited and Messrs Imperial Chemical Industries (India) Private Limited-have interest in the business of the petitioner-company. But can it be said that the petitioner-company has interest in the business of its two buyers-Messrs Atul Products Limited and Messrs Imperial Chemical Industries (India) Private Limited? It is difficult for us to say that the petitioner-comapny has any interest in the business of its two buyers because, if those two buyers do not purchase the product of the petitioner-company, the petitioner-company can as well them toother persons. There is no evidence on record to enable us to come to a contrary conclusion. Therefore, within the meaning of the first part of the defination of “related person” given in the Central Excises and Salt Act, 1944, the petitioner-company on ther one hand and its two buyers-Messrs Atul Products Limited and Messrs Imperail Chemical Industries (India) Private Limited. on the other hand, are not “related persons”.
7. Let us now go to the second part of the definition which states that a “related person” includes a holding company, a subsidiary company a relative and a distributor of the assessee, and any sub- distributor of such distributor”. The explanation to the definition of “related persons” given in the Act state that the expression “holding company”, “subsidiary company”and “relative” will have the same meaning as in the Companies Act, 1956. We, thereofre, turn to Section 4 of the Companies Act, 1956. Sub-section (1) of Section 4 reads as follows :-
“4. (1) For the purpose of this Act,a company shall, subject to the provisions of sub-section (3), be deemed to be a subsidiary of another if, but only if, –
(a) that other controls the co,position of its Board of directions; or
(b) that other-
(i) where the first-mentioned company is an existing company in respect of which the holders of preference shares issued before the commencement of this Act have the same voting rights in all respects exercises or controls more than half of the total voting power of such company:
(ii) where the first-mentioned company is nay other company, holds maore than half in nominal of its equity-share capital; or
(c) the first mentioned company is a subsidiary of any company which is that other’s subsidiary.”
Sub-section (4) of Section 4 provides as follows :-
“(4) For the purposes of this Act, a company shall be deemed to be the holding company of another if, but only if, that is its subsidiary.”
8. So far as the facts of this case are concerned, there arte two material ingredients one of which must be satisfied before we come to the conclusion that the petitioner-company and the buyers have relationship of subisdiary company and holding company. the first ingredient is that “the holding company” is one which has the right to control the composition of the Board of directors of the subsidiary comapny. there is nothing to show that either Messrs Atul Production Limited or Imperial Chemical Industries (India) Private Limited have a right to control the composition of the Board of directors of the petitioner-company. We may state that when the Central Excise authorites examined the evidence which the petitioner-comapny was called upon to produce and which is on the record of this case, they did not come to the conclusion that any of the two buyers. Messrs Atul Prodicts Limited or Messrs Imperial Chemical Industries (India) Private Limited had the right to control the composition of the Board of directors of teh petitioner-comapny nor did they come to the conclusion that thepetitioner-comapny could control the composition of the Board of directors of Messrs Atul Limited or Messrs Imperial Chemical Industries (India) Private Limited.
9. The second material ingredient is that in order that a company bceomes a holding company, more than 50 percent sheres of the other company must be held by it. In the instant case, Messrs Atul Products Limited holds 50 per cent of shares of the petitioner-company, and no more. Therefore Messrs Atul Products Limited, one of the buyers of the petitioner-comapny cannot be the holding company and the petitioner- company cannot be the subsidiary company of M/s. Atul Products Limited.
10. So far as Imperial Chemical Industries (India) Private Limited is concerned, they hold no shares whatsoever of the petitioner-company. Imperial Chemical Industries Limited, London, is a different Company incorporated under the English Companis Act. It holds the remaining 50 per cent shares of the petitioner-comapny. Therefore, the petitioner- company is not a subsidiary of Imperial Chemical Industries (India) Private Limited nor is Imperial Chemical Industries (India) Private Limited is the holding company in relation to the petitioner- company.
11. Ex-facia, therefor, it is clear that the petitioner-company is not a subsidiary either of Messrs Atul Products Limited or Messses Imperial Chemical Industries (India) Private Limited.
12. Mr. Vkil has, however, argued that Imperial Chemical Industries (India) Private Limited is the wholly owned subsididiary of Imperial Chemical Industries Limited. London. He, therefore, wants us to substitute Imperial Chemical Industries Limited, London, for Imperial Chemical Industries (India) Private Limited. We do not think we can do so. Section 4 of the Companies Act does not provide for such a substitution in order to decied whether a particular company is a holding company and the other company is its subsidiary. However, assuming without holding that it can be done, that we are in error and that such substitution can be done, what is the effect ? If we substitute Imperial Chemical Industries Limited, London, fo Messrs Imperial Chemical Industries (India) Private Limited, then the petitioner-company has two buyers-Messrs Atul products Limited and Messrs IMperial Chemical Industries Limited, London-each one of them is holding 50 per cent of shares of the petitioner-company. therefore, if we substitutie IMperial Chemical Industries Limited, London, for Messrs Imperial Chemical Industries (India) Private Limited, we are not able to come to the conclusion that either Messrs Atul Products Limited or Messrs Imperial Chemical Industries Limited, London, is the holding company of the petitioner-company and that the petitioner- company is the subsudiary of each or any one of them.
13. Mr. Vakil has, however, futher argued that not only we should substitute Imperial Chemical Industries Limited, London, for Messrs Imperial Chemical Industries (India) Private Limited but we must combine the shares held by Messrs Atul Products Limited and Messrs Imperial chemical Industries (India) Private Limited as if the latter- mentioned company is Imperial Chemical Industries Limited, London, itself and hold that 100 per cent of the petitioner-company’s shares are held by them together. Therefore, according to him, when both are combined together, they becom the holding company of the petitioner- company and the petitioner-company becomes their subsidiary. This argument cannot be accepted.
14. When this judgment was dicted in the open court. Mr. Vakil intervened to say that it was not his contention that the two companies together should be regarded as “holding companies” of the petitioner-company. According to him, his argument was that since the two companies hold 100 per cent of shares of the petitioner-company and that therefore, according to him, the petitioner-company is interested in the business of its buyers. In other words, in order to show that there was mutuality of interest between the petitioner- company on the one hand and its two buyers, Messrs Atul Products Limited and Messrs Imperial Chemical Industies (India) Private Limited on the other hand, he tried to show that there was relationship of the owner and the owned between Messrs Atul Products Limited and Imperial Chemical Industies Limited, London, on the one hand and the petitioner-company on the other. We are unable to accede to this argument, firstly, because Imperial Chemical Industries Limited, London, cannot be substituted for Imperial Chemical Industries (India) Private Limited and, secondly, because the two buyers cannot be regarded as collaborators in business. Ordinarily they are supposed to be business competitiors because both of them have been buying the products of the petitioner-company and marketing them. It may be stated that there is no allegation of collusion between Messrs Atul Products Limited and Imperial Chemical Industries (India) Private Limited in the context of the petitioner-company nor is there a tripartite agreement between the petitioner-company, Messrs Atul Products Limited and Messrs Imperial Chemical Industries (India) Private Limited or Messrs Imperial Chemical Industries Limited, London. If there was such a tripartite agreement, depending upon the terms of such an agreement, whether they are “related persons” could have been decided. We may state that the legal implicatious of the concept of “related person” have been exhaustively examined by us in Special Civil Application No. 119 of 1976 decided by us on 20th/21st February, 1979 [1979 E.L.T. (J 407)]. We have therefore, refrained from re-examining them in this judgment and applied to the facts of this case the principles laid down therein.
15. For the purpose of completing the narration, we may state that since March 13. 1978, Imperial Chemical Industries (India) Private Limited has ceased to be a subsidiary of Imperial Chemical Industries Limited, London. Since then Imperial Chemical Industries Limited, London, holds only 40 per cent of shares and 60 percent of shares are in the open market and are held by citizens of India. Secondly, Imperial Chemical Industries (India) Private Limited has since then charged its name and is now fuctioning under the name and style of Messrs Crescent Dyes and Chemicals Limited.
16. Mr. Vakil has tried to submit to us that the question relating to “related persons” should not be examined by us because, according to him, clause (3) of Artical 226 of the Constitution bars the examination of this question by the Court. In other words, he has argued that within the meaning of clause (3) of Article 226 the petitioner has effective remedy before Central Board of Revenue and the Appellate Collector. WE are unable to entertain this contention raised by Mr. Vakil because the proceedings before the Appelate Collector have been finally concluded. We may note that the Appellate Collector did not decide this question but left it to be decided by the High Court. SEcondly, we cannot severe the question relating to the vires of section 4 from the question relating to “related persons” and give relief to the petitioner in respect of one and refuse to give it in relation to another. Since the concept of “related person” introduced in the amended Section 4 is ultra vires the legislative competence of the Parliament, the recovery of the two amounts made by the Central Excise authorities has been made without the authority of law. There is no jurisdiction to do so. In that view also we must decide the question.
17. Mr. Vakil in support of his contention that we should not decide this contention has referred to the unreported decision of this Court in Special Civil Application No. 662 of 1968 decided on 14/21/22/23/24/27 October, 1969 by P. N. Bhagwati C.J. (as he then was) and N.K. Vakil,J. He has asked us to follow the course which was followed in that case and leave the question to be decided by the Appellate Collector. The unreported decision does not support his contention because in that question what was required to be decided was the rateable value. Ordinarily, fresh reteable value cannot be decided without evidence. Secondly, the question of as to violation of Article 31 was raised in that case. In this case the parties have placed before the Court all material facts. It is nobody’s case that full material has not been placed on record. We have, thererfore, proceeded to decide this contention and we are of the view that the petitioner-company on the one hand and Messrs. Atul Products Ltd. and Messrs. Imperial Chemical Industries (India) Private Limited, its two buyers on other hand, are not “related persons” within the meaning of that expression given in amended section 4 of the Central Excises and Salt Act.
18. Mr. Vakil has then raised the contention which is based on Article 250 of the Constitution which reads as follows :-
“250 (1) Nitwithstanding anything contained in this Chapter, Parliament shall, while a Proclamation of Emergency is in operation, have power to make laws for the whole or any part of the territory of India with respect to any of the Matters enumerated in the State List.
(2) A law made by Parliament which Parliament would not but for the issue of a Proclamation of Emergency have been competent to make shall, to the extent of the incompetency, cease to have effect on the expiration of a period of six months after the Proclamation has ceased to operate, wxcept as respects things done or omitted to be done before the expiration of the said period.”
Relying upon Article 250 he has argued, as he did in Special Civil Application No. 119 of 1976 [See 1979 E.L.T. (J 407)] that the question as to legislative competence of Parliament to enact the amended Section could not be called in question and that even if it was beyond the legislative competence of Parliament it was a valid law during emergency and six months following its revocation. The contention as to emergency legislation has not been taken up by the respondents in their affidavits. Obviously, therefore, the petitioner- company did not have an opportunity to meet that contention. We have therefore, disallowed that contention on the ground that the petitioner-company did not have an opportunity to meet it.
19. In view of the conclusion which we have recorded, it is not necessary for us to decide the fith, sixth and seventh contention raised by Mr. Bhatt in this petition.
20. In the result, the two impugned demands made by the Central Excise authorities from the petitioner-company were made without authority of law and are liable to be quashed. We, therefore, allow this petition, quash the order of the Assistant Collector of Central Excise, Surat, dated December 14, 1976, Annexure “H” to the petition, and the order of the Appellate Collector of Central Excise and Customs, Bomaby, dated August 28, 1978, Annexure “N” to the petition. We issue a writ of mandamus directing the Central Excise authorities to cancel the two demands made by them on December 31, 1976 and January 19, 1977 – Annexures, “J-1″,”J-2”, “J-3”, “J-4”, and “J-5” and the challans issued is that behalf, Annexures “K-1”, “K-2”, “K-3”, “K-4” and “K-5”. The rule is made absolute. The respondents shall pay to the petitioners the costs of this petition.
21. In pursuance of the interim order made by this Court in this petition the petitioners furnished the Bank Guarantee in order to secure to the Central Excise authorities the payment of the amount which was demanded of them. Since these demands have been found to be unlawful by us, the respondents are directed to pay to the petitioner the costs incurred by them in connection with the Bank Guarantee which they furnished in pursuance of the interim order of this Court. Within two months of the petitioner-company furnishing the statement of such costs to the respondents, the respondents shall after verification, pay the amount to the petitioner. The Bank Guarantee shall stand vacated with effect from June 30, 1979.
22. Mr. Bhatt who appears on behalf of the petitioners-company states that we must also issue directions to the respondents to refund to the petitioner-company the excess amount recovered by them in light of this judgment after this petition was filed. Mr. Vakil objects to such direction because there is no prayer in that behalf made by the petitioner. It is true that the petitioner has not made a prayer in that behalf but we find fron the record that the petitioner had prayer for an interim order restraining the respondents from recovering from the petitioner excise duty on revised bais. This Court refused to grant the stay. The petitioners, therefore, went on paying the amounts of excise duty on the revised basisunder protest. In our opinion, it is just and equitable that instead of directing the petitioner to institution a fresh litigation, we make an appropriate order in that behalf.
23. We, therefore, direct that theresopndents shall, on or before June 30, 1969, make final calculations of what excess amount they have received from the petitioner-company so far in light of the conclusions which we have recorded in this judgment and then submit them to the petitioner. If the petitioner and respondents agree as to the excess amount which is found refundabvle in terms of the conclusions recorded in this judgment, the respondents shall refund it to the petitioner-comapny by September 30, 1979. If there is dispute as to such an excess amount between the parties, the respondents shall refund to the petitioner such excess amount as is not in dispute. As to the amount which may be in diputes the petitioner-company may adopt such appropriate remedy for its recovery as it thinks fit.
24. Whatever amount is refunded by the respondents to the petitioner- company shall bear interest at the rate of six percent annum from the dates of different payments made by the petitioner-company to the respondents till the date of refund.
25. Mr. Vakil who appears on behalf of the respondents applies for a certificate of fitness under Articles 132 and 133(1) of the constitution in order to enable the respondents to appeal against this decison to the Supreme Court. We ahve granted certificate under both these Articles in Special Civil Application No. 119 of 1976. We therefore, grant to the respondents-certificate of fitness under Articles 132 and 133(1) of the Constitution vbecause, in our opinion, this involve the interpretaion of the Constitution and substaintial question of law of general public importance which, in our opinion, should be decied by the Supreme Court.
26. Mr. Vakil prays for stay of the operation of this order in order to enable the respondents to obtain appropriate interim orders from the Supreme Court. In the first instance we direct that the operation of this order made herein shall be stayed for a period of two months.
