{"id":203300,"date":"1988-03-28T00:00:00","date_gmt":"1988-03-27T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/collector-of-central-excise-vs-t-i-millers-ltd-madras-t-i-on-28-march-1988"},"modified":"2015-08-04T22:24:54","modified_gmt":"2015-08-04T16:54:54","slug":"collector-of-central-excise-vs-t-i-millers-ltd-madras-t-i-on-28-march-1988","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/collector-of-central-excise-vs-t-i-millers-ltd-madras-t-i-on-28-march-1988","title":{"rendered":"Collector Of Central Excise, … vs T.I. Millers Ltd. Madras & T.I. … on 28 March, 1988"},"content":{"rendered":"
Supreme Court of India<\/div>\n
Collector Of Central Excise, … vs T.I. Millers Ltd. Madras & T.I. … on 28 March, 1988<\/div>\n
Equivalent citations: 1988 AIR 1154, \t\t 1988 SCR (3) 355<\/div>\n
Author: S Mukharji<\/div>\n
Bench: Mukharji, Sabyasachi (J)<\/div>\n
           PETITIONER:\nCOLLECTOR OF CENTRAL EXCISE, MADRAS\n\n\tVs.\n\nRESPONDENT:\nT.I. MILLERS LTD. MADRAS & T.I. DIAMOND CHAIN, MADRAS\n\nDATE OF JUDGMENT28\/03\/1988\n\nBENCH:\nMUKHARJI, SABYASACHI (J)\nBENCH:\nMUKHARJI, SABYASACHI (J)\nRANGNATHAN, S.\n\nCITATION:\n 1988 AIR 1154\t\t  1988 SCR  (3) 355\n 1988 SCC  Supl.  361\t  JT 1988 (2)\t 86\n 1988 SCALE  (1)716\n CITATOR INFO :\n D\t    1989 SC1555\t (12)\n\n\nACT:\n     Central Excises  and Salt\tAct, 1944-Sec.\t4-Assessable\nvalue of  goods\t for  levy  of\tduty  under  Sec.  3-How  to\ndetermine assessable value.\n     Central Excises  and Salt\tAct, 1944-Sub-sec.  4(c)  of\nSection\t  4-Related    Person-Who   is-Criteria\t   for\t its\ndetermination.\n\n\n\nHEADNOTE:\n%\n     The   respondents\t manufactured\tgoods\twhich\twere\nassessable under  Item 68  of the Central Excise Tariff. The\nrespondents filed  price lists\tfor the\t sale of  the  goods\nthrough their  distributors one\t of them being M\/s. T.I & M-\nSales Ltd.,  quoting their  price  to  the  distributors  as\nassessable value. Subsequently the respondents required that\nthe price  charged by  them from  buyers at the factory gate\nshould be accepted as the assessable value and not the price\nto the\tdistributors. The Assistant Collector found that the\ndistributors were  related persons  as per  section 4 of the\nCentral Excises\t and Salt  Act, 1944  and the price at which\nthe distributors  sold the  goods should  therefore  be\t the\nassessable value.  On appeal  by the  appellant-revenue, the\nAppellate Collector  held that these could not be held to be\nthe related persons. The Revenue had found that there was an\nagreement  existing   between  the   respondents  and  their\ndistributors according\tto which  they\twere  the  company's\ndistributors for  the sale  of their goods. Major portion of\nthe sales  were effected  through M\/s.\tT.I. & M. Sales Ltd.\nwho were  the main  distributors of M\/s. Tube Investments of\nIndia Ltd.  and its  subsidiary companies  and rest  of\t the\nsales  through\t the  other   two  distributors.  M\/s.\tTube\nInvestment of  India was  the holding  company of  M\/s. T.I.\nMillers Ltd.  The agreement between the assessee and the T.I\nJUDGMENT:\n<\/pre>\n
Revenue had  further found  that  there\t was  a\t territorial
\nearmarking for\tthe operation  of the distributors, who also
\nundertook advertisements  and  helped  the  sub-dealers\t for
\nmaintaining   show-rooms    in\t dealer’s    premises.\t The
\ndistributors did  not  deal  with  competitor’s\t goods.\t The
\nRevenue had  also noted that the assessee granted mark up to
\nthe distributors  to  cover  their  establishment  expenses,
\ntravelling expenses, advertisements and
\n356<\/span>
\nsundry expenses.  In view of this the revenue filed a review
\npetition, but  the Appellate  Tribunal rejected\t the  review
\npetition and  upheld the finding of the Appellate Collector.
\nHence these  appeals under  section 351(b)  of the  Act. The
\nquestion was  whether the  distributors were related persons
\nof  the\t  respondents  and  secondly  whether  the  expenses
\nincurred for  maintaining the show-room, advertisements etc.
\nshould also be added to the assessable value.\n<\/p>\n
     Dismissing the appeals this Court,
\n^
\n     HELD: To find out whether the distributors were related
\npersons of  the manufacturers  it is  necessary to  find out
\nwhether the  buyer is  holding company or subsidiary company
\nor relative of the manufacturer. From the explanation of the
\nrelationship  furnished\t in  this  case,  such\tis  not\t the
\nposition. It  appears that  the link between the respondents
\nT.I. Miller  Ltd. Company  and T.I. & M. Sales Ltd., is that
\nthe  latter   are  the\t main  distributors   of  M\/s.\tTube
\nInvestments of\tIndia Ltd.,  which is the holding company of
\nthe respondents.  This relationship  does  not\tsatisfy\t the
\ncriteria for establishing the related persons concept. These
\nwere limited  companies at the material time, and it will be
\ndifficult to  say that\ta limited  company has\tany interest
\ndirect or  indirect in the business carried on by one of its
\nshareholders. [362A-C]
\n     The mark up in the price was allowed in connection with
\nthe requirement to display the maximum sale price. The sales
\npattern shows  also sales  to other than distributors and it
\nis not restricted only to the appointed distributors of T.I.
\nIndia Limited.\tIn the\tbackground of  the  facts  mentioned
\nhereinbefore and in the light of the decisions of this Court
\nin Bombay  Tyre International  and Atic\t Industries cases we
\nare of\tthe opinion that the Tribunal was right and there is
\nno cause  for interference  with the  order of the Tribunal.
\n[362C-E]
\n     Union of  India and  others v. Atic Industries Limited,<\/a>
\n[1984] 3  S.C.R. 930 and Union of India and Others etc. etc.
\nv. Bombay Tyre International Ltd. etc. etc., [1984] 1 S.C.R.
\n347, referred to.\n<\/p>\n
&
\n     CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 1938-39
\nof 1987.\n<\/p>\n
     From the  Order dated  1.10.1985 of  the Customs Excise
\nand Gold  (Control) Appellate  Tribunal, New Delhi in Appeal
\nNos. ED (SR) T. 1415\/82 Al and 1533\/84-A.\n<\/p>\n
357<\/span><\/p>\n
     M.K. Banerjee,  Solicitor General,\t A.K. Ganguli and P.
\nParmeshwaran for the Appellant.\n<\/p>\n
     A.T.M. Sampath for the Respondents.\n<\/p>\n
     The Judgment of the Court was delivered by
\n     SABYASACHI MUKHARJI, J. These are appeals under section
\n35L(b)\tof   the  Central   Excises  and   Salt\t Act,\t1944
\n(hereinafter called ‘the Act’). The respondents-T.I. Millers
\nLtd. and  T.I. Diamond\tChain manufacture  cycle  lamps\t and
\nautomative chains.  Both these\tgoods are  assessable  under
\nItem 68\t of the\t Central Excise Tariff. The said respondents
\nfiled price  lists for\tthe sale  of the goods through their
\ndistributors, namely,  M\/s.  T.I.  and\tM-Sales\t Ltd.,\tM\/s.
\nCharmvel Agencies  and M\/s.  Ambadi  Enterprises  Pvt.\tLtd.
\nquoting their  price to the distributor as assessable value.
\nHowever, subsequently  following the  decision of the Madras
\nHigh Court  in a  valuation case,  the respondents  required
\nthat the  price charged\t by them  from buyers at the factory
\ngate should  be accepted as the assessable value and not the
\nprice to the distributors. The question is whether the price
\ncharged by  the respondents  from buyers at the factory gate
\nshould be  accepted as\tthe assessable value for the levy of
\nduty under  section 3  of the  Act. The\t Assistant Collector
\nfound from  the sales  pattern of  the respondents  that the
\ndistributors were  ‘related persons’ as per section 4 of the
\nAct and\t the price  at which the distributors sold the goods
\nshould, therefore, be the assessable value.\n<\/p>\n
     The respondents  went up in appeal before the Appellate
\nCollector. The\tAppellate Collector  held that\tin order  to
\nestablish  mutuality   of  business  interests,\t direct\t and
\nindirect between  manufacturer and buyer, it should be shown
\nthat they  have been promoting the business of each other in
\ntheir own interest and that in the absence of such a finding
\nin the\tAssistant Collector’s order, these could not be held
\nto be  related persons.\t Section 4  of the Act provides that
\nwhere the  duty of  excise is  chargeable on  any  excisable
\ngoods  with   reference\t to  value,  such  value  should  be
\ndetermined on the basis of the normal price thereof, that is
\nto say, the price at which such goods are ordinarily sold by
\nthe assessee to a buyer in the course of wholesale trade for
\ndelivery at  the time  and place of removal, where the buyer
\nis  not\t  a  related  person  and  the\tprice  is  the\tsole
\nconsideration for  the sale.  We are  not concerned  for the
\npurpose of  these appeals  with the  provisos nor  with sub-
\nsection (2) or sub-section (3) of section 4 of the Act. Sub-
\nsection 4(c) of section 4 defines ‘related person’ to mean a
\nperson who is so
\n358<\/span>
\nassociated with the assessee that they have interest, direct
\nor indirect,  in the  business of  each other and includes a
\nholding company,  a subsidiary\tcompany, a  relative  and  a
\ndistributor of the assessee, and any sub-distributor of such
\ndistributor.  The   explanation\t  provides   that   ‘holding
\ncompany’, ‘subsidiary  company’ and ‘relative’ have the same
\nmeanings as in the Companies Act, 1956.\n<\/p>\n
     The words “related person” have been considered by this
\nCourt in  Union of  India  and\tothers\tv.  Atic  Industries
\nLimited,<\/a> [1984]\t 3 S.C.R.  930. Bhagwati, J., as the learned
\nChief Justice then was, speaking for the Court held that the
\nfirst part  of the  definition of “related person” in clause\n<\/p>\n
(c) of sub-section (4) of section 4 defines “related person”
\nto mean\t “a person  who is  so associated  with the assessee
\nthat they  have\t interest  directly  or\t indirectly  in\t the
\nbusiness of  each  other”.  It\tis  not\t enough,  the  Court
\nobserved, that\tthe assessee  has  an  interest,  direct  or
\nindirect in  the business  of the  person alleged  to  be  a
\nrelated person has an innough, that the person alleged to be
\na related  person has an interest, direct or indirect in the
\nbusiness of  the assessee.  To attract\tthe applicability of
\nthe first  part of  the definition,  it\t was  observed,\t the
\nassessee and  the person alleged to be a related person must
\nhave interest,\tdirect or  indirect in\tthe business of each
\nother. Each  of them must have a direct or indirect interest
\nin the\tbusiness of  the other.\t The quality  and degree  of
\ninterest which\teach has in the business of the other may be
\ndifferent, the\tinterest of one in the business of the other
\nmay be\tdirect while  the interest  of\tthe  latter  in\t the
\nbusiness of  the former may be indirect. That would not make
\nany difference so long as each has got some interest, direct
\nor indirect in the business of the other.\n<\/p>\n
     In the  notice issued by the Central Government seeking
\nto review  the\tAppellate  Collector’s\torder,\tthe  Central
\nGovernment indicated  that there  was an  agreement existing
\nbetween the  respondents and their distributors according to
\nwhich they  were the  company’s distributors for the sale of
\ntheir goods.  Major  portion  of  the  sales  were  effected
\nthrough M\/s.  T.I.  and\t M-Sales  Ltd.\twho  were  the\tmain
\ndistributors of\t M\/s. Tube Investments of India Ltd. and its
\nsubsidiary companies and rest of the sales through the other
\ntwo distributors.  M\/s. Tube  Investment of  India  was\t the
\nholding company\t of M\/s.  T.I. Millers\tLtd.  The  agreement
\nbetween the  assessee and  the T.I.  and M  Sales  Ltd.\t was
\nregistered under  the MRTP Act. The Government of India also
\nfound that  there  was\ta  territorial\tearmarking  for\t the
\noperation  of\tthe   distributors,   who   also   undertook
\nadvertisements and  helped the\tsub-dealers for\t maintaining
\nshow rooms in dealer’s pre-\n<\/p>\n
359<\/span><\/p>\n
mises. The  distributors  did  not  deal  with\tcompetitor’s
\ngoods. The  Government of India also noted that the assessee
\ngranted\t mark\tup  to\t the  distributors  to\tcover  their
\nestablishment expenses,\t travelling expenses,  advertisement
\nand sundry  expenses. On  these grounds,  the Government  of
\nIndia tentatively  considered that  it was  a fit  case\t for
\nreversing the  order of the Appellate Collector who had held
\nthat the distributors were not related persons under section
\n4 of  the Act.\tThe question is, whether the distributors in
\nthis case  were\t related  persons  of  the  respondents\t and
\nsecondly, whether  the expenses incurred for maintaining the
\nshow-room, advertisements  etc. should\talso be added to the
\nassessable value.  How the value should be computed has been
\nexamined by  this Court\t in Union  of India  and others etc.
\netc. v.\t Bombay Tyre  International Ltd. etc. etc., [1984] 1
\nS.C.R. 347.  There, Pathak,  J. as the learned Chief Justice
\nthen was,  held that  the definition  of the  words “related
\nperson” did  not suffer\t from any  constitutional infirmity.
\nThis Court  reiterated that  on a  true construction  of its
\nprovisions in  the context  of the  statutory scheme the old
\nsection 4(a)  should be\t considered  as\t applicable  to\t the
\ncircumstances of  the particular assessee himself and not of
\nmanufacturers generally.  The Court  further reiterated that
\npursuant to  the old  section 4(a) the value of an excisable
\narticle for  the purpose  of the excise levy should be taken
\nto be  the price  at which  the excisable article is sold by
\nthe assessee  to a  buyer at  arm’s length  in the course of
\nwhole sale  trade at  the time\tand place of removal. Where,
\nhowever, the  excisable article\t is not sold by the assessee
\nin wholesale  trade, but  for example,\tis consumed  by\t the
\nassessee in his own industry the case is one where under the
\nold section  4(a) the  value must be determined as the price
\nat which  the excisable\t article or  an article\t of the like
\nkind and quality is capable of being sold in wholesale trade
\nat the\ttime and  place of  removal. This Court analysed the
\nposition under\tthe Central  Excise and\t Salt Act,  1944  as
\namended by  Act XXII  of 1973 that if the price at which the
\nexcisable goods\t are ordinarily\t sold by  the assessee\tto a
\nbuyer in  the course  of wholesale trade for delivery at the
\ntime and  place of  removal as defined in sub-section (4)(b)
\nof section  4 is  the basis  for determination\tof excisable
\nvalue provided, of course, the buyer is not a related person
\nwithin the  meaning of\tsub-section (4)(c)  of section 4 and
\nthe price is the sole consideration for the sale, that would
\nbe the value. The proposition is subject to the terms of the
\nthree provisos\tto subsection (1)(a) of section 4. Where the
\nwholesale price\t of any\t excisable goods for delivery at the
\nplace of  removal is  not known\t and the  value\t thereof  is
\ndetermined  with   reference  to  the  wholesale  price\t for
\ndelivery at  a place  other than  the place  of removal, the
\ncost of\t transportation from  the place\t of removal  to\t the
\nplace of delivery should be
\n360<\/span>
\nexcluded from  such price.  It was  further held  that these
\nprinciples could  not apply  where the tariff value had been
\nfixed in  respect of  any excisable  goods under sub-section
\n(2)  of\t  section  3.\tThe  Court   also  dealt   with\t the
\ninterpretation of  definition of ‘related person’. The Court
\nfurther held  that the\texpenses incurred  on account of the
\nseveral factors which have contributed to its value upto the
\ndate  of  sale,\t which\tapparently  would  be  the  date  of
\ndelivery, are liable to be included. Consequently, where the
\nsale is\t effected at  the factory gate, expenses incurred by
\nthe assessee upto the date of delivery on account of storage
\ncharges, outward  handling charges,  interest on inventories
\n(stocks\t carried   by  the  manufacturer  after\t clearance),
\ncharges for  other services  after delivery  to\t the  buyer,
\nnamely,\t after\tsales  service\tand  marketing\tand  selling
\norganisation  expenses\t including  advertisement   expenses
\nmarketing and  selling organisation expenses and after-sales
\nservice promote\t the marketability  of the article and enter
\ninto its value in the trade. Where the sale in the course of
\nwholesale trade\t is effected  by the  assessee\tthrough\t its
\nsales organisation  at a place or places outside the factory
\ngate, the expenses incurred by the assessee upto the date of
\ndelivery under\tthe aforesaid  heads  cannot,  on  the\tsame
\ngrounds, be  deducted. The  assessee will  be entitled\tto a
\ndeduction on  account of  the cost  of transportation of the
\nexcisable article  from the  factory gate  to the  place  or
\nplaces where  it is  sold. The\tcost of\t transportation will
\ninclude\t the   cost  of\t  insurance  on\t  the  freight\t for
\ntransportation of  the goods  from the\tfactory gate  to the
\nplace or  places of delivery. The new section 4(4)(d)(i) has
\nmade express  provision for including the cost of packing in
\nthe determination of “value” for the purpose of excise duty.\n<\/p>\n
     The review\t application, by  the  change  of  law,\t was
\nforwarded to  the Tribunal.  It\t was  contended\t before\t the
\nTribunal on  behalf of\tthe appellant  that the distributors
\nwere related  persons in terms of the judgment of this Court
\nin Bombay Tyre International case (supra). Our attention was
\ndrawn to  a letter  dated  10th\t September,  1981  from\t the
\nrespondents to\tthe Assistant  Collector that  the  mark  up
\nallowed to the distributors was to cover their establishment
\nexpenses, advertisement,  travelling expenses and he pointed
\nout that  this mark  up included certain elements which have
\nto be  included in  the assessable  value. The Tribunal held
\nthat according\tto the judgment of this Court in Bombay Tyre
\nInternational case (supra) where the sale is effected at the
\nfactory gate,  expenses incurred  on account  of charges for
\nservices after\tdelivery to  the buyer,\t namely\t after\tsale
\nservice and  marketing and  selling  organisation  expenses,
\nincluding advertisement\t expenses could not be deducted from
\nthe assessable value. It was further urged
\n361<\/span>
\non behalf of the appellant that other features like division
\nof territory  amongst  the  distributors  and  the  marginal
\nquantity of direct sales otherwise, as well as the fact that
\nthe distributors did not deal in competitor’s goods, clearly
\nindicated that\tthese are  related persons.  Learned Counsel
\ndrew our  attention to\tthe meaning of the term ‘ordinarily’
\ngiven in  K.G. Iyer’s  Judicial Dictionary  at page  704 and
\nexplained that\tit  meant  ‘habitually’,  or  ‘usually’,  or
\n‘normally’. In\tthis case, ordinarily sales are only through
\ndistributors and the sales are made by them on behalf of the
\nmanufacturer. Learned  Counsel pointed\tout that  this was a
\ncase where it was an extension of the manufacturer’s self to
\nthe point  of sale  by the  distributor. Learned Counsel for
\nthe  revenue   urged  that   it\t was   a  case\tof  indirect
\nrelationship and  came within  the ratio  of  the  aforesaid
\ndecision of  this Court\t in Bombay  Tyre International\tcase
\n(supra). In  this case, it was highlighted that manufacturer
\nhad interest  in the  buyer who\t were their distributors and
\nthe distributors  were\tonly  charging\tlimited\t commission,
\nmaintained showrooms,  and did\tnot deal  in the products of
\ncompetitors of\tthe manufacturer.  It was  further contended
\nthat sales  of their  products as  original equipment, could
\nnot be\tconsidered  as\tsales  in  the\tordinary  course  of
\nwholesale trade. It was further highlighted that the norm of
\ninter-connected\t undertakings  found  in  MRTP\tAct  is\t not
\nrelevant to  decide ‘related  persons’ in  the Act.  It\t was
\nfurther argued\tthat mere  area restriction  is not relevant
\nfor proving  mutuality of  interests, but it has to be shown
\nthat the  sale was not at an arms length and but a principal
\nto principal  transaction. It  appears from the letter dated
\n10th September,\t 1981 from  the appellants to the Department
\nthat the  distributors paid for their own advertisements. In
\nsome case,  the manufacturer  might  release  advertisements
\nthrough the distributors. It was also urged that even a sole
\ndistributor could  be an  independent buyer on behalf of the
\nmanufacturer and  the distributor  and\tin  this  connection
\nreliance was  placed on\t the observations of this A.K. Roy’s
\ncase (1977  ELT 177 S.C.). After sales service undertaken by
\nthe distributors  was more  in the  nature of replacement of
\ndefective goods sold, which any manufacturer was bound to do
\nand that is a normal essential service of a distributor.\n<\/p>\n
     Regarding the  ‘mark up’ allowed by the manufacturer to
\nthe distributor\t as indicating\tspecial relationship, it was
\ncontended that\tit was\tprovided for  in the  context of the
\nrequirement to\tindicate maximum  selling price to be marked
\non the\tgoods, and  in fact, it was in this context that the
\nappellants had\tmade a reference to the MRTP Commission. The
\nTribunal held that the distributors were not related persons
\nand in\tthe light  of the observations of this Court in Atic
\nIn-\n<\/p>\n
362<\/span><\/p>\n
dustries case  (supra) set  out hereinbefore.  We are of the
\nopinion that what was necessary to find out, was whether the
\nbuyer is  holding company  or subsidiary company or relative
\nof  the\t  manufacturer.\t From\tthe   explanation   of\t the
\nrelationship  furnished\t in  this  case,  such\tis  not\t the
\nposition. It  appears that  the link between the respondents
\nT.I.Miller Ltd.\t company and  T.I. &  M. Sales\tLtd., is the
\nmain distributors  of M\/s.  Tube Investments  of India Ltd.,
\nwho  are  the  holding\tcompany\t of  the  respondents.\tThis
\nrelationship does  not satisfy the criteria for establishing
\nthe related persons concept. These were limited companies at
\nthe material  time, and\t it will  be difficult to say that a
\nlimited company\t has any  interest direct or indirect in the
\nbusiness carried on by one of its shareholders.\n<\/p>\n
     It has been explained that the mark up in the price was
\nallowed in  connection with  the requirement  to display the
\nmaximum sale  price. The  sales pattern\t shows also sales to
\nother than distributors and it is not restricted only to the
\nappointed distributors of T.I. India Limited.\n<\/p>\n
     In the  premises the  Tribunal’s upholding the order of
\nthe Appellate  Collector, was  right  and  correct.  In\t the
\nbackground of  the facts  mentioned hereinbefore  and in the
\nlight  of  the\tdecisions  of  this  Court  in\tBombay\tTyre
\nInternational and  Atic Industries  cases (supra), we are of
\nthe opinion  that the  Tribunal was  right and\tthere is  no
\ncause for  interference with  the order\t of the Tribunal. In
\nthe premises, we decline to admit the appeals.\n<\/p>\n
H.S.K.\t\t\t\t     Appeals dismissed.\n363<\/span>\n\n\n\n<\/pre>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India Collector Of Central Excise, … vs T.I. Millers Ltd. Madras & T.I. … on 28 March, 1988 Equivalent citations: 1988 AIR 1154, 1988 SCR (3) 355 Author: S Mukharji Bench: Mukharji, Sabyasachi (J) PETITIONER: COLLECTOR OF CENTRAL EXCISE, MADRAS Vs. RESPONDENT: T.I. MILLERS LTD. MADRAS & T.I. DIAMOND CHAIN, MADRAS DATE […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-203300","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nCollector Of Central Excise, ... vs T.I. Millers Ltd. 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