Holding

The two companies are related persons under Section 4(4)(c), but the Revenue cannot claim duty because the notice was issued beyond the six‑month limitation and there was no suppression of facts.

Summary

The assessee, I.T.E.C. (P) Ltd., sold projectors to Mis. International Talkie Equipment Co. Pvt. Ltd. and claimed exemption under Notification 71178. The Revenue issued a notice under Section 4(4)(c) of the Central Excise Act, alleging Mis. International was a "related person" and demanded excise duty and penalty for the period April 1978 to September 1979. The Tribunal held the two companies were not related persons and that Section 11‑A’s extended limitation period could not be invoked because the notice was issued beyond six months and there was no suppression of facts. On appeal, the Supreme Court examined the definition of "related person" and, relying on the companies’ common directors, family ties and shared benefits, concluded that they were indeed related persons. However, the Court affirmed the Tribunal’s view that the Revenue could not rely on Section 11‑A since the notice was untimely and the assessee had disclosed the relevant price differentials, so no duty could be recovered.

Issues considered

Whether Mis. International Talkie Equipment Co. Pvt. Ltd. qualifies as a "related person" of the assessee under Section 4(4)(c) of the Central Excise Act, 1944.
Whether the Revenue can invoke the larger period of limitation provided under Section 11‑A of the Central Excise Act to demand duty and penalty.

Legislation cited

Central Excise Act, 1944s. 11-A, s. 4(4)(c)
Central Excise Rules, 1944s. Rule 9(2)

Subjects

related personcentral exciseSection 11-A limitationexemption notificationfamily concernmutual interestexcise dutypenalty

Judgment

A COLLECTOR OF CENTRAL EXCISE, AHMEDABAD
v.
l.T.E.C .(P) LTD., BOMBAY

SEPTEMBER 18, 2002

B [SYED SHAH MOHAMMED QUADRI ANDS. N. VARIAVA, JJ.)

Central Excise Act, 1944/Central Excise Rules, 1944:

Ss. 4(4) (c) and 1I-Air.9(2)- 'Related person' -Ingredients of-Assessee
C selling projectors and other goods to another company, namely, '/', which in
turn selling the said goods to independent buyers on higher rate and collecting
excise duty from them-Assessee not paying excise duty and enjoying benefit
of exemption Notification No. 71178 dated 1.3.1978-Revenue issuing notice
to assessee on 13.4.1982 demanding excise duty along with penalty, on
D higher value fetched directly or indirectly by it from independent buyers for
the period 11.4.1978 to 19.9.1979 on the ground that company '/' was a
related person-On adjudication, excise duty and penalty confirmed-Tribunal
allowing the appeal of assessee holding that company '/' was not a related
person, and as regards penalty, it held that there was no suppression on
behalf of assessee and as such larger period of limitation u!s. Jl-A was not
E available-Held, assessee and Company '/'had common Directors and they
were relatives of one another-Both the companies were family concerns and
their benefits were shared by members of one and the same family-Thus
mutuality of interest between the two is apparent-The finding of the Tribunal
that the two companies were not related persons is set aside.
F Union of India and Ors. etc. etc. v. Bombay Tyre International Ltd etc.
etc., (19841 I SCR 347 and Union of India and Ors. v. Atic Industries ltd ....,.
(1984( 3 sec 575, relied on.

S.11-A-Notice for demanding excise duty and imposing penalty -
G Limitation-Sale to related person-Notice issued on l /.4. /982 for the period
13.4.1978 to 29.9.1979-Held, assessee had disclosed the correct facts
including the price at which the goods were sold to related person and the
difference in the price-Therefore, it cannot be said that there was any
suppression on the part of assessee.:_On facts, larger period of limitation
provided u/s.11-A is not available to Revenue-Show cauo·e notice is far
H 492
C.C.E. v. 1.T.E.C. (P) LTD. 493
beyond the period of six months-Revenue not entitled to claim any difference A
of duty.

Words and Phrases:

Expression 'related person '-Meaning of in the context of s.4(4){c) of
Central Excise Act, I 944. B
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 736of1995.

From the Judgment and Order dated 25.7.1991 of the Central Excise
Customs and Gold Control Appellate Tribunal, New Delhi in ED/SB/A.No.
777/83-A in F.O. No. 532/9I-A. C
Soli J. Sorabjee, Attorney General, Rajiv Nanda and B. Krishna Prasad,
for the Appellant.

R.P. Bhan, M.N. Shroff and Chirag M. Shroff, for the Respondent.
D
The following Order of the Court was delivered :

This appeal, filed by the Revenue, is from the judgment and order No.
532/91-A of the Customs, Excise and Gold (Control) Appellate Tribunal in
Appeal No. ED/SB. A. No. 777/83-A dated July 25, I991.
E
The respondent-assessee was selling projectors and other goods to
Mis. International Talkie Equipment Co. Pvt. Ltd. (hereinafter referred to as
'Mis. International'). It was also enjoying the benefit of exemption under
Notification 71178 dated March I, 1978. On the ground that M/s.-ffiternational
was a related person within the meaning of the Central Excise Act, 1944 (for
short, 'the Excise Act'), the Superintendent of Central Excise issued a notice F
on April 13, 1982 for the period April 11, 1978 to September 29, 1979 to the
respondent to show cause as to why the duty at appropriate rate under Rule
9(2) of the Central Excise Rules on the higher value fetched directly or
indirectly by it from the independent buyers shculd not be charged when
they were not paying excise duty, in view of the benefit of the Notification G
71178, and as to why penalty should not be imposed. After adjudication, the
duty and penalty were confirmed. On appeal, the Tribunal accepted the
findings recorded by the adjudicating authority and held that the respondent
and Mis. International were not related persons. In regard to the application
of larger period of limitation under Section 11-A of the Excise Act, the
Tribunal found that there was no suppression of fact by the respondent and, H
494 SUPREME COURT REPORTS [2002) SUPP. 2 S.C.R.

A therefore, the benefit of Section 11-A was not available to the Revenue. The
Tribunal allowed the appeal of the respondent herein on July 25, 191. That
is the order under challenge before us.

The learned Attorney General, appearing for the appellant, contends
that without anything more the findings accepted by the Tribunal are sufficient
B to show that the requirements of 'related person' are satisfied. Learned
counsel for the respondent invited our attention to the following findings of
the Tribunal:

"No evidence regarding mutuality of interest has been brought on
record except the evidence of sale of goods by the appellants to or
c through Mis. International."

He contends that as there is no material to hold that the respondent and
Mis. International are related persons the Tribunal has rightly allowed the
appeal.

D The questions as to whether the respondent and Mis. International' are
related persons has to be determined in the light of the definition of that
expression in Section 4(4Xc) of the Excise Act. It reads as follows :

"(c) "related person" means a person who is so associated with the
'assessee that they have interest directly or indirectly, in the business
E 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.

Explanation - In this clause "holding company'', "subsidiary
company and "relative" have the same meanings as in the Companies
F Act, 1956 (I of 1956)."

From a plain reading of the definition, it is evident that if a person is
so associated with the assessee that both of them have interest directly or
indirectly in the business of each other, they would be treated as related
G persons. The definition also includes a holding company, a subsidiary
company, a relative and a distributor of such distributor, but we are not
concerned with the later part of the definition. The ingredients of the first part
of definition are: first, a person to be treated as related person must be
associated with the assessee; secondly, the person so associated and the
assessee must have interest in the business of each other; and thirdly, such
H interest may be direct or indirect. Mutuality of interest between the other
C.C.E. v. l.T.E.C. (Pl LTD. 495
person and the assessee in the business of each other, whether direct or A
indirect, is necessary to label such a person as a related person.

In Union of India and Ors. etc. etc. v. Bombay Tyre International Ltd.
etc. etc., [1984] SCR 347, a three-Judge Bench of this Court upheld the
constitutional validity of the said definition by reading it down.
B
The 'validity of the same definition again came up for consideration
before this Court in the case of Union of India and Ors. v. Actic Industries
Ltd., [1984] 3 SCC 575. Following the judgment in Bombay Tyre International
(supra), speaking for the Court, Bhagwati, J., as he then was, observed:

"It is essential to attract the applicability of the first part of the C
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. The equality and degree of interest which each
has in the business of the other may be different; the interest of one D
in the business of the other may be direct, while the interest of the
latter in the business of the former may be indirect. That would not
make any difference, so long as each has got some interest, direct or
indirect, in the business of the other."

Keeping these expositions and the ingredients of the definition of the E
"related person'', we shall advert to the question as to whether M/s.
International was so associated with the respondent that they had interest,
directly or indirectly, so as to conclude that they were related persons.

We may not turn to the findings recorded by Customs, Excise and Gold
(Control) Appellate Tribunal. It was found that the respondent and F
M/s. International were having common Directors and that they were relatives
of one another; a further finding was also noted that both the companies were
family concerns and were beneficiaries of their ventures and that the benefit
of both the concerns are shared by members of one and the same family. From
these findings, it is difficult to resist the conclusion that the respondent and G
Mis. International have a direct interest, in the business of each other and
that the mutuality of interest between the two is apparent. We may point out
here that the Tribunal's observation, quoted above, that no evidence regarding
mutuality of interest has been brought on record, is inconsistent with the
acceptance of the finding of the adjudicating authority, referred to above.
Once those findings are accepted, the conclusion that there is mutuality of H
496 SUPREME COURT REPORTS [2002] SUPP. 2 S.C.R.

A interest between the two concerns is inevitable. In this view of the matter, we
set aside the finding of the Tribunal that the respondent and Mis. International
are not related persons.

The next question that arises for consideration is; whether, on the facts
and in the circumstances, it is open to the Revenue to invoke the provisions
B of Section 11-A of the Act. The Tribunal held that once the respondent
declared Mis. Internationals a 'related person' giving the prices at which the
goods were sold to the related person and to other dealers and the differential
price in the classification list while claiming the benefit of the exemption under
Notification 71178, as it evident from page six of the paper book, it was for
C the Revenue to deal with the respondent before approving the price list. The
respondent declared the price_s of their goods in proforma Part IV relating to
"sale of goods through related buyers" as follows:

1978-79

D S. Description Particulars Price at Deduc- Value Value
No. of Goods of the which tion as as
buyers the goods---:-- claimed approved
sold by S.T. C.E. for
the duty approval
related Amt. Amt.
E persons
to dealers
2 3 4 5 6 7 8
Rs.
I. Projector Major buyer
F Head Mis. Inter-
national 12779 372 2869 9544 9544
per pc.
2. Sound Head -do- 2807 629 2096 2096
per pc.
G 3. Arc Lamp -do- 6854 200 1535 5119 5119
per pc.
1979-80
L Projector
Head -do- 1353014 570.24 3300 9600 9600
per pc.
H
C.C.E. v. l.T.E.C. (P) LTD. 497
2 Sound Head -do- 3065.44 129.19 76125 2175 2115 A
3. Arc Lamp -do- 7216.13 304.13 1792.00 5120 5120

Thus, it is clear that the respondent had disclosed the correct facts
including the price at which the goods were sold to related person and the
difference in the prke. In view of this declaration, it is futile to contend that B
there was any suppression of fact on the part of the respondent. The learned
Attorney General does not seriously dispute this position. It follows that the
larger period of limitation provided in Section 11-A of the Excise Act is not
available to the Revenue. We, therefore, confirm the conclusion arrived at by
the Tribunal on this aspect. For the period April 11, 1978 to S·~ptember 29, C
1979 the show cause notice was issued on April 13, I 982 which is far beyond
the period of six months, therefore, the Revenue is not entitled to claim any
difference of duty.

The appeal is allowed in part to the extent indicated above, in regard
to 'related person' in other respect it is dismissed. There shall be no order D
as to costs.

RP. Appeal allowed.