Supreme Court of India
UNION OF INDIA & ORS.versusHIND LAMP LTD.
- Citation
- 1989 INSC 172
- Decided
- 2 May 1989
- Disposal
- Dismissed
- Bench
- SABYASACHI MUKHERJI
Holding
The five customer companies are not "related persons" under Section 4(4)(c); thus the value for excise duty is the price at which Hind Lamp Ltd. sold the lamps to them, not the subsequent resale price.
Summary
Hind Lamp Ltd., a manufacturer of electric lamps, sold its entire output to five customer companies under the latter's brand names. The Central Excise authorities argued that the value for excise duty should be based on the price at which these customers subsequently sold the lamps to wholesale dealers, while Hind Lamp contended that the price it charged to the customers should be the valuation basis. The key issue was whether the five customers qualified as "related persons" under Section 4(4)(c) of the Central Excises & Salt Act, 1944, which would affect the valuation method. The Supreme Court held that only one of the customers (Bajaj Electricals Ltd.) held shares in Hind Lamp and the others did not, so the mutual interest required by the definition was absent. Relying on the precedent set in Union of India v. Atic Industries Ltd., the Court affirmed that the sale was on a principal‑to‑principal basis with no extra commercial consideration, and therefore the price charged by Hind Lamp to the customers is the appropriate value for duty. Consequently, the appeal by the Excise authorities was dismissed and the High Court's order upheld.
Issues considered
- Whether the five customer companies are "related persons" within the meaning of Section 4(4)(c) of the Central Excises & Salt Act, 1944.
- Whether the valuation for excise duty should be based on the price at which the assessee sold to the customer companies or the downstream price at which the customers sold to wholesale dealers.
- Whether the 1973 amendment of Section 4 altered the principle governing valuation of goods for excise duty.
Legislation cited
- Central Excises & Salt Act, 1944s. 4(4)(c)
Subjects
Excise dutyValuation of goodsRelated personsSection 4(4)(c)Central Excises & Salt ActPrincipal to principal saleBrand name labelingCorporate shareholding
Judgment
UNION OF INDIA & ORS. A
v.
HIND LAMP LTD.
MAY 2, 1989
B
-~[SABYASACHI MUKHARJI ANDS. RANGANATHAN, JJ.]
- Central Excises & Salt Act, 1944-Section 4(4)(c)-Valuation of
goods for purposes of levy of excise duty-Whether Customer
Companies can be regarded as 'related persons' as defined in Section
4(4)(c)-Whether the prices charged by the assessee company to its
Customer Companies for its products or the prices charged by the c
Customer Companies for further sale to wholesale dealers and others
should be the basis for determination of value of goods for levy of excise
duty.
The respondent company, a manufacturer of electric lamps,
fluorescent-lamps and miniature lamps sold its entire products to five D
customer companies namely (a) Bajaj Electricals Ltd. (b) Philips India
Ltd. (c) Crompton Greaves Ltd. (d) General Electric Co. oflndia Ltd.
and (e) Mazda Lamps Co. Ltd. after putting the brand names of the
said Cu~tomer companies as per their directions. The customer com-
panies in turn sold these lamps under their respective names to
wholesale dealers and others at prices higher than the prices charged to F
them by the Respondent Company.
Excise duty on electric lamps at first was a specific duty but lator
j· it was changed to ad valorem duty. After such change there was a
controversy between the Respondent Company and the Central Excise F
-41 authorities as to whether the prices charged by the Respondent
Comrany to its customer companies or the prices charged by the custo-
mer companies when they in turn sold to wholesale dealers and others,
should be the basis for determination of the value for levy of excise
duty. As the Department insisted that latter shall be the value for levy of
excise duty, the Respondent Company moved a Writ Petition in the High
Court of Allahabad. The High Court by its order dated 14.S. 74 allowed G
the Writ Petition holding that the prices at which the Respondent
Company sold its products to tire Customer companies should be the
value for levy of excise duty and not the prices at which the customer
companies sold these to wholesale dealers and others. Hence this appeal
by the Excise authorities.
H
''
874 SUPREME COURT REPORTS [1989] 2 S.C.R.
A Dismissing the appeal, this Court,
HELD: The first part of Section 4(4)(c) refers to a person who is
so associated with the assessee that each had interest, directly or indi-
rectly in the business of the other and the second part of that definition
refers to a holding company, a subsidiary company, a relative and a
B
distributor of the assessee and any sub-distribntor of such distributor,
The sale by the assessee company was on principal to principal bas~.
and the share holding company (Bajaj Electrical Ltd.) and so called to
-
associate companies of the foreign share holding companies. Goods
were supplied to the Customer companies in their brand names as in the
case of Atic Industries case. In Atic Industries case there was no allega-
C lion of extra commercial consideration and in the instant case also there
was no such allegation. In Atic Industries case, same prices were
charged from all the customers. similar is the position in the instant -f
case. [876G-H; 8770; 878A-B]
In view of the ratio of the decision of this Court in Atic Industries
D case the Judgment and order of the High Court is upheld and the appeal
preferred by the Revenue dismissed. [879E]
Union of India v. Bombay Tyre International Ltd., [1984] I SCR
347;A.K. Royv. VoltasLtd., [l973]2SCRl089andUnionoflndiav. -+·
A tic Industries Ltd., [1984] 3 SCR 930, referred to.
E
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2858
of 1977.
From the Judgment and Order dated 16.12.1976 of the Allaha-
F bad High Court in Civil Miscellaneous Writ No. 179 of 1976. ~
A. Subba Rao, P. Parmeshwaran and Mrs. Sushma Suri for the+.
Appellants.
H.N. Salve, Ravinder Narain, K.C. Dua, P.K. Ram and D.N.
Misra for the Respondents.
G
The Judgment of the Court was delivered by
SABYASACHI MUKHARJI, J. This is an appeal by special
leave from the judgment and order of the High Court of Allahabad
H dated 16th December, 1976.
U.O.l. v. HIND LAMP LTD. [MUKHARJI, J.] 875
). The question in this case was the valuation of goods for the
A
purpose of levy of excise duty under the Central Excises & Salt Act,
1944 (hereinafter referred to as 'the Act'). The respondent company
had submitted its price list in Form IV to the Superintendent, Central
Excise containing-the price at which five companies to which it sold its
entire output (hereinafter referred to as the Customer Companies)
sold those products. The customer companies thereafter sold their B
__,)... J;roducts. The respondent challenged the direction of the Superinten-
- . ent and had contended that for the purpose of levy of excise duty the
value of its products should be the prices at which it sold those
- products to the customer companies and not the prices at which these
in turn sold those products to wholesale dealers or others. The respon-
dent company was registered under the Indian Companies Act, 1913.
At the relevant time, there were five shareholders of the company, c
~ namely, Bajaj Electricals Ltd., Bombay, Crompton Parkinson Ltd,,
London, N.V. Philips, Eindhoven (Holland), General Electricals Co.
Ltd,, London and Mazda Lamp Co. Ltd., Licencester, England.
Except M/s Bajaj Electricals Ltd., the aforesaid four companies are
referred to as the foreign companies. The said Bajaj Electricals held D
1,80,000 shares in the respondent company. It is called 'A' share-
holder. The four foreign companies together held 1,80,000 shares.
These are called 'B' share holders. The respondent company was
~- engaged in manufacture of electric. lamps, fluorescent lamps and
miniature lamps. It sold its entire output of the products exclusively to
the following customer companies: E
(a) Bajaj Electricals Ltd.
(b) Philips India Ltd.
(c) Crompton Greaves Ltd.
)- (d) General Electric Co. of India Ltd.
(e) Mazda Lamps Co. Ltd. F
~ On the lamps manufactured by the respondent company, it put
the brand names of trade marks like Philips, Osram, Mazda, Cramp-
ton and Bajaj of the respective Customer Companies according to
their directions. The Customer companies in turn sold these lamps
under their names at prices higher than the prices charged by the G
~ respondent company. Excise duty on electric lamps and fluorescent
lamps was levied for the first time in the year 1965. At first, excise duty
on lamps was a specific duty. Later, excise duty on them was changed
from specific to ad valorem duty. After such change, there was a
controversy between the respondent company and the central excise
authorities as to whether the prices charged by the respondent com- H
876 SUPREME COURT REPORTS [!989] 2 S.C.R.
parry to its customer companies for its products or the prices charged _.Jo,
A
by the customer companies when they sold them to wholesale dealers
and others, should be the basis for determination of the value for levy
of excise duty. Being aggrieved by the insistance of the Central Excise
authorities that the latter prices should be the value for levy of excise
duty, the respondent company approached the High Court of Allaha-
B bad by Civil Misc. Writ No. 2189 of 1973. The High Court by its order
dated 14th May, 1974, allowed the writ petition and held that the ,>-._
prices at which the respondent company sold its products to the J.
customer companies, should be the value for levy of excise duty and ·
not the price at which the customer companies sold these to wholesale
dealers and others. The Central Excise authorities, however, had
taken the view that the aforesaid decision of the High Court which was
c rendered on the basis of the old section 4 as it stood before it was
amended by the Amendment Act of 1973 did not apply to the levy of ~
excise duty subsequent to the Amendment Act coming into force on
1st October, 1973. On the other hand, the contention on behalf of the
respondent company was that the aforesaid amendment of the Act had
D not altered the legal position so far as the respondent company was
concerned and that the decision of the High Court would be binding. It
appears that the Central Excise Authorities were wrong in view of the
observations of this Court in Union of India v. Bombay Tyre Interna-
tional Ltd., [1984] 1 SCR 347, where this Court observed that it was ~
not the intention of the Parliament while en~cting the new section to
E create a scheme materially different from that embodied in the
superseded s. 4. The object and purpose remained the same, and so
did the central principle of the scheme. The new scheme was merely
more comprehensive and the language employed more precise and
definite. As in the old s. 4, the terms in which the value was defined
remained the price charged by the assessee in the course of wholesale
F trade for delivery at the time and place of removal. See the obser- -{_
vations at pages 377 and 378 of the said Report. The High Court
referred to the decision of this Court in A.K. Roy v. Voltas Ltd., ~
[1973] 2 SCR 1089 and also in Union of India v. Atic Industries Ltd.,
[1984] 3 SCR 930.
G The real question that arose in this case is whether the five
customer companies can be regarded as 'related persons' as defined in +
section 4(4)(c). The definition of that consists of two parts. The first
part refers to a person who is so associated with the assessee that each
has interest, directly or indirectly in the business of the other and the
second part of that definition refers to a holding company, a subsidiary
H company, a relative and a distributor of the assessee and any sub-
U.O.I. "· HIND LAMP LTD. [MUKHARJJ, J.J 877
) distributor of such distributor. The High Court held that in order for
A
the respondent company to come within the first part of the definition,
the respondent company and the customer companies must have in-
tere1it, directly or indirectly, in the business of each other. Such of the
customer companies which held shares in the respondent company,
could be said, according to the High Court, to have interest in the
busines~ of the respondent com~an y. But only one of the cust~mers
1 1
__)\ B
~compames, namely, Bajaj E ectnca s Ltd., Bombay, held shares m the
-~respondent company. The remaining four customer companies did not
- bold any shares in the respondent company.
It was further contended before the High Court that those four
customer companies were respectively associated companies of the
c
four foreign companies and that hence those four customer companies
must also be held to have interest indirectly, if not directly, in the
busiuess of the respondent company. The High Court found that in the
absence of material, it was not possible to accede to the contention of
the company. What is 'inter.est, directly or indirectly', has been
explained in Union of India & Ors. v. Atic Industries Ltd., (supra). In D
that case, the respondent-assessee, a limited company, was engaged in
the business of manufacturing dyes. Its 50 per cent share capital was
held by Atul Products Ltd. and the remaining 50 per cent by Imperial
Chemical Industries Ltd., London which also bad a subsidiary com-
pany fully owued by it, called Imperial Chemical Industries (India)
Pvt. Ltd. The Imperial Chemical Incjustries (India) Pvt. Ltd. ceased to E
be a subsidiary company wholly owned by the Imperial Chemical
Industries Ltd., London on 13th March, 1978, since 60 per cent of the
share capital of Imperial Chemical Industries (India) Pvt. Ltd., was
offered to the public in pursuance of the policy of the Government of
India requiring that not more than 40 per cent of the share capital of an
Indian company should be held by a foreign shareholder. Consequent F
.... upon this dilution of foreign shareholding, the name of Imperial
Chemical Industries (India) Pvt. Ltd. was changed to Crescent Dyes
and Chemicals Ltd. The assessee in that case at all material times sold
the large bulk of dyes manufactured by it in wholesale to Atul Products
Ltd. and Imperial Chemical Industries {India) Pvt. Ltd. which subse-
quently came to be known as Crescent Dyes and Chemicals at a G
uniform price applicable alike to both these wholesale buyers and
those wholesale buyers sold these dyes to dealers and consumers at a
higher price which Inter alia included the expenses incurred by them as
also their profit. The transactions between the assessee on the one
hand and Atul Products Ltd. and Crescent Dyes and Chemicals Ltd.
on the other were as principal to principal and the wholesale price H
878 SUPREME COURT REPORTS [1989] 2 S.C.R.
charged by the assessee to Atul Products Ltd. and Crescent Dyes and ""
A Chemicals Ltd. was the sole consideration for the sale and no extra-
commercial considerations entered in the determination of such price.
In that case, this Court held that on a proper interpretation of othe
definition of "related person" in sub-section (4)(c) of sec. 4, the words
"relative and a distributor of the assessee" do not refer to any dis-
B tributor but these.were limited only to a distributor who is a relative of ,.__
the assessee withm. t~e meaning of the Comp.anies Act, 1956: It was J
held that the defimt10n of "related person" 1s not unduly wide and ·
does not suffer from any constitutional infirmity.
Reliance was also placed on the observations of this Court in
Union of India & Ors. v. Bombay Tyre International Ltd.,. (supra).
-
C The first part of the definition defined "related person" to mean a
person who is so associated with the assessee that each has interest,
directly or indirectly, in the business of each other. 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
D person alleged to be a related person has an interest, direct or indirect
in the business of the assessee. To attract the applicability of the first
part of the definition, 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 quality and degree of interest which each
E must have 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. After analysing the
facts, this Court came to the conclusion that there was no relationship.
Shri Sibal placed before us a Chart indicating the similarity of the
F facts of Atic Industries' case (supra) and the facts of the present case.
In Atic Industries' case, 50 per cent of share capital belonged to Atul
Products Ltd. and 50 per cent to the Imperial Chemicals (London)
Ltd., a foreign company. In the case of the respondent herein, 50 per
cent share capital belonged to the Bajaj Electricals Ltd. (Indian Com-
pany) and 50 per cent belonged to Philips (17.67%), Mazda (14.86%),
G G.E.C. (10.59%) and Crompton (6.88%), all foreign companies. In
case of Atic Industries, the sale of goods was on principal to principal
basis and to· a share holding company and to another company, which
was initially a subsidiary of the foreign shareholding company and to
which subsequently became "associate" company of the foreign share-
holding company. In the instant case also, it was on principal to princi-
H pal basis and to a shareholding company (Bajaj Electricals Ltd.)
U.0.1. v. HIND LAMP LTD. [MUKHARJl, J.J 879
~ and so called to associate companies of the foreign shareholding A
companies. Goods were supplied to customers in their brand name in
the case of Atic Industries as in the instant case. In Atic Industries'
case, there was no allegation of extra commercial consideration and in
the instant case also there was no allegation of extra-commercial con-
sideration. In Atic Industries' case, same prices were charged from all
the customers, similar is the position in the instant case. B
_,.I.
'
• In the aforesaid view of the matter and in view of the ratio of the
said decision, Shri Sibal sought to urge that the High Court was righ! in
the view it took. In our opinion, Shri Sibal is right. There is a lurking
doubt that the five customer companies were the favoured customers,
but no investigation seems to have been carried out. The High Court c
.,.. while allowing the writ petition held that it was open to the Central
Excise Authorities to examine whether or not the five customer com-
panies were the favoured customers and whether the price at whicl) the
respondent company sold its products to these were the normal prices
at which such goods were ordinarily sold by a manufacturer in the
course of wholesale trade for delivery at the time and place of D
removal. Apparently, no such scrutiny wa~ done.
-+ In that view of the matter, the judgment and order of the High
Court of Allahabad must be upheld and in view of the ratio of the
decision in Civil Appeal No. 859, this appeal must fail without order as
to costs. E
R.N.J. Appeal dismissed.
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