Supreme Court of India
COMMISSIONER OF CENTRAL EXCISE, HYDERABADversusM/S. DETERGENTS INDIA LTD. & ANR.
- Citation
- 2015 INSC 293
- Decided
- 8 April 2015
- Disposal
- Dismissed
- Bench
- A K SIKRI
Holding
Proviso (iii) to Section 4(1)(a) applies only where there is a demonstrable arrangement to depress price and sales to the related person constitute at least 50 % of the output; otherwise the price is taken as the normal price under Section 4(1)(a) even if the buyer is a related person.
Summary
The Supreme Court examined whether the holding company Shaw Wallace and its subsidiary Detergents India Ltd. were "related persons" under Section 4(4)(c) of the Central Excise and Salt Act, 1944 and whether proviso (iii) to Section 4(1)(a) applied to the valuation of excisable goods sold at a lower price. The Court held that while the two companies are indeed related persons, the three conditions for invoking proviso (iii) – a deliberate arrangement to depress price, sales to the related person constituting at least 50% of output, and the sale being to or through the related person – were not satisfied. Consequently, the price paid was the sole consideration and fell within Section 4(1)(a) as the "normal price". The revenue's appeal was dismissed and the penalties imposed on the holding company were upheld as set aside by the tribunal.
Issues considered
- Whether Shaw Wallace and Detergents India Ltd. qualify as "related persons" under Section 4(4)(c) of the Central Excise and Salt Act, 1944.
- Whether the three ingredients for the operation of proviso (iii) to Section 4(1)(a) are satisfied in the present transactions.
- Whether the presumption of a non‑arm's‑length transaction is rebuttable when the price is the sole consideration.
- Whether the price paid to the related person should be treated as the "normal price" under Section 4(1)(a) or as a tainted price under proviso (iii).
- Whether the penalties imposed on the holding company under Rule 209A were valid.
Legislation cited
- Central Excise and Salt Act, 1944s. 4(1)(a) proviso (iii), s. 4(4)(c)
- Companies Act, 1956s. definition of holding company, s. definition of relative, s. definition of subsidiary company
Subjects
related personnormal priceproviso (iii)central excise valuationholding companysubsidiary companyarm's length transactionprice determinationtax avoidancerebuttable presumption
Judgment
[2015) 6 S.C.R. 886
A COMMISSIONER OF CENTRAL EXCISE, HYDERABAD
v.
MIS. DETERGENTS INDIA LTD. & ANR.
(Civil Appeal Nos. 9049-9051 of 2003)
B
APRIL 8, 2015
[A.K. SIKRI AND R.F. NARIMAN, JJ.]
Central Excise and Salt Act, 1944 - s. 4(1) (a) proviso
c (iii) ands. 4(4) (c) (as they stood between the amendment
Acts of 1973 and 2000)- Demand notice by Revenue - To
assessee company-Alleging that the assessee a subsidiary
company sold its goods to its holdinq company (related
person) at a price lower than the normal price - Tribunal
D held that the assessee-subsidiary company and the holding
company were not related persons within meaning of s.
4(1)(a) and rejected the case of revenue- On appeal, held:
Where the buyer is a related person, it merely raises a
rebuttable presumption - Once this presumption is rebutted
E and it is shown that despite the buyer being a related person,
the price was the sole Consideration for the sale, such price
would fall withins. 4(1)(a) for arriving at a 'normal price' -
Proviso (iii) to s. 4(1)(a) is referable only to tainted cases -
In the facts of the case, presumption of a transaction not
F being at arm's length, since has been rebutted, it is s. 4(1 )(a)
and not its proviso (iii) which gets attracted
Words and Phrases:
'Related person' - Meaning of, in the context of
G Proviso(iil) to s. 4(1 )(a) of Central Excise and Salt Act, 1944.
'Holding Company' and 'Subsidiary Company' -
Meaning of.
Dismissing tho appeals, the Court
H HELD: 1. Proviso (iii) to s. 4(1 )(a) of Central Excise
886
•
COMMISSIONER OF CENTRAL EXCISE, HYDERABAD 887
v. M/S. DETERGENTS INDIA LTD.
and Salt Act, 1944 deals with the price that is to be taken A
into consideration, in case, sales are made to related
persons. Three basic ingredients are necessary before
proviso (iii) gets attracted. The first ingredient is that
the assessee must "arrange" that goods are sold by him
in a particular manner. The "arrangement" spoken of in B
the proviso must be something by which the assessee
and the related person "arrange" that the goods are sold
at something below the normal price, so that tax is either
avoided or evaded by such arrangement. The second
ingredient is that such arrangement must be such that C
the goods are "generally" sold by the assessee in the
course of wholesale trade to or through a related person.
The expression "generally" also shows that such goods
must predominantly be sold by the assessee to or D
through the related person - in mathematical terms,
sales that are to or through a related person must consist
of at least 50% of the goods that are manufactured and
sold. And thirdly, such sale need not be to the related
person - it can even be through the related person. The E
expression "to or through a related person" again goes
back to the "arrangement" and is another way of saying
that such sale can be effected directly to or indirectly
through such related person. It is only when all three
considerations are cumulatively met that proviso (iii) can F
be said to be attracted. [Para 10 and 11] [904-C-E, F-H]
[905-A]
2. So far as definition of "related person" is
concerned, the legislature has used a well known G
technique. It first employs the expression "means" and
states that persons who are associated with the
assessee so that they have a direct or indirect interest
in the business of each other would get covered. The
definition then goes on to use the expression "and H
888 SUPREME COURT REPORTS [2015) 6 S.C.R.
A includes" thereby indicating that the legislature intends
to extend the definition to also include various persons
that would not otherwise have so been included. These
include a holding company, a subsidiary company, a
relative and a distributor of the assessee and any sub-
8 distributor of such distributor. The necessity for
including holding and subsidiary companies as defined
under the Companies Act, 1956 is to lift the corporate
veil in order to get to the economic realities of the
transaction. [Para 12] [905-8-D]
c
3. Where price is the sole consideration for the sale
and is not a specially low price because of extra
commercial consideratiG!'I". "'v"'~ ~'Vhere a buyer is a
related person, the normal price mentioned in Section
D 4(1 )(a) post the 1973 amendment would apply. Read in
accordance with the object of the pre-am:mdecf Section
4, it is clear that the expression "where the buyer is not
a related person and the price is the sole conslleration
for the sale" is to be read conjunctively as meaning that
E because the buyer is a related person, the price usually
ceases to be the sole consideration for the sa1e. This
merely raises a rebuttable presumption. Once the
presumption is rebutted and it is shown that ev~n in the
F case of a buyer who is a related person, the prite is the
sole consideration for the sale and is not a specially
low price because of extra commercial consid•rations,
such price would fall within Section 4(1){a) as fie price
of the taxable goods to be taken into conside,.tion for
G arriving at "normal price". Of course, where the three
pre-requisites for the application of proviso (iii) to
Section 4(1)(a) all apply, an irrebuttable presumption is
raised so that it is not necessary thereafter to go to any
other facts. [Para 14] [907-G-H; 908-A-D]
H
4. The object of enacting Section 4 is that
.
1'
.
COMMISSIONER OF CENTRAL EXCISE, HYOCr-. ,BAD 889
v. M/S. DETERGENTS INDIA LTD.
transactions at arm's length between manufacturer and A
wholesale purchaser which yield the price which is the
sole colisideration for the sale alone is contemplated.
Any con.cessional or manipulative considerations which
depress price below the normal price are, therefore, not
to be ~ken into consideration. Thus, it is clear that B
arrangements with related persons which yield a price
below the normal price because of concessional or
manipulative considerations cannot ever be equated to
'hormal price. But at the same time, it must be
remembered that absent concessional or manipulative C
considerations, where a sale is between a manufacitJrer
and a related person in the course of wholesale trade,
the transaction being a transaction where it is proved
by evidence that price is the sole consideration for the D
sale, then such price must form the basis for valuation
as the "normal price" of the goods. A literal reading of
the Section would otherwise lead to an absurdity. Where
it is proved that the same price is paid by related persons
as well as arm's length purchasers (who are unrelated) E
for thE! same goods, in the case of the former the higher
price paid by purchasers from the related person would
be the price on which excise duty would be calculated
which would be more than the "normal price" under
Section 4(1)(a). [Para 15] [908-E-H; 909-A-C] F
5. Proviso (iii) would be referable only to tainted
transactions. Only such cases would raise an
irrebuttable presumption which will then be governed
by the said proviso. [Para 17] [913-B-C] G
6. Section 4(4)(c) is in two parts. The first part
requires the department to apply a de facto test, whereas
the second part requires the application of a dejure test.
A reading of the definition of "relative" u/s. 6 of the H
Companies Act, 1956 would show that the relative need
890 SUPREME COURT REPORTS (2015] 6 S.C.R.
A not be a person who is so associated with the assessee
that they have mutual interest in each other's
businesses. If that were the case, the expression
"relative" in the second part would be otiose inasmuch
as a relative would be subsumed within "person" in the
B first part. Thus, "relatives" would also be "persons"
who are so associated with the assessee that they have
a mutual interest in each other's businesses. The
legislature by application of a de jure test has extended
the meaning of "related persons" to include the entire
C list of relatives per se without more as related persons.
Similarly, holding companies and subsidiary companies
by virtue of the exercise of control by a holding company
over a subsidiary company are similarly included by
D application of a dejure test. [Para 26) [919-G; 921-A-D]
7. In the present case, the price paid by the holding
company for the same/similar products as was sold by
unrelated entities to it was even lower than the price
paid by the holding company to the subsidiary company.
E This being the case, it is clear that on facts, there is no
arrangement" between the holding company and the
subsidiary company to depress a price which is
otherwise at arm's length. Though this fact is pleaded
F expressly before the Commissioner, the Commissioner's
order does not contain any finding based on this fact.
On the other hand, there are copious findings as to how
the holding company and the subsidiary company are
related persons because of a multitude offactors pointed
G out in the Commissioner's order. [Para 27) [921-D-G]
8. That the assessee company and its holding
company are "related persons" is made out by their
holding/subsidiary relationship. However, from this, it
H does not follow that there is any arrangement of tax
avoidance or tax evasion. Therefore, proviso (iii) to
COMMISSIONER OF CENTRAL EXCISE, HYDERABAD 891
v. M/S. DETERGENTS INDIA LTD.
Section 4(1 )(a) would not be applicable. Further, it would A
also not be applicable for the reason that there is no
predominance of sales by the assessee company to its
holding company. Only 10% of its manufacturing capacity
has been sold to the holding company, 90% being sold
to another company. For this reason also, proviso (iii) B
does not get attracted. This being the case, on facts
Section 4(1)(a) and not proviso {iii) is attracted, inasmuch
as on facts, the presumption of a transaction not being
at arm's length has been rebutted. [Para 28) [921-G-H;
922-A-C) C
Union oflndia v. Bombay Tyre International Ltd. (1984)
1 SCC 467: 1984 (1) SCR 347; Flash Laboratories
Umited v. Collector of Central Excise, New Delhi (2003)
2 SCC 86: 2002 (5) Suppl. SCR 698; Commissioner D
of Central Excise Bombay v. Universal Luggage
Manufacturing Company Limited (2005)190 ELT 3;
CCE, II, Chennai v. Beacon NeyrpicLtd. 2006(193)
ELT 16; Commissioner Central Excise, New Delhi v.
India Thervit Corporation, Ltd. (2008) 17 SCC E
374: 2008 (7) SCR 512 - relied on
Raliwolf v. UOI 59 ELT 220 Bombay (1992) -
disapproved.
F
Union of India v. A tic Industries Ltd. (1984) 3 SCC 575:
1984 (3) SCR 930 - distinguished.
Case Law Reference
1984 (1) SCR 347 relied on Para 13 G
2002 (5) Suppl. SCR 698 relied on Para 18
(2005)190 ELT 3 relied on Para 19
2006(193) ELT 16 relied on Para 20
2008 (7) SCR 512 relied on Para 21
59 ELT 220 Bombay (1992) disapproved Para 22
1984 (3) SCR 930 distinguished Para 24 H
892 SUPREME COURT REPORTS [2015] 6 S.C.R.
A CIVILAPPELLATE JURISDICTION: Civil Appeal Nos.
9049-9051 of 2003.
From the Judgment and Order dated 22.04.2003 of
the Customs, Excise and Gold (Control) Appellate Tribunal,
B Chennai in Appeal Nos. E/1852/99, E/685/2000 and E/160/
2000.
WITH
C. A. Nos. 4645-4646, 6166-6168 & 7495 of 2004.
c
Rupesh Kumar, Binu Tamta, Rashmi Malhotra, B.
Krishna Prasad, Jitin Singhal for the Appellant.
S. K. Bagaria, V. Lakshmikumaran, M. P. Devanath,
D Vivek Sharma, L. Charanaya, Aditya Bhattacharya, R.
Ramachandran, Hemant Bajaj, Ambarish Pandey, Rajesh
Kumar, Anandh K., Rakesh K. Sharma, Parul Shukla,
Mahesh Agarwal, Rishi Agrawala, E. C. Agrawala, Ankur
Saigal, Jiten Mehra, K. Ajit Singh, Vivek Sharma,
E Shanthakumar V. Maha le, Rajesh Maha le, Amith J. Sharma
for the Respondents.
The Judgment of the Court was delivered by
R. F. NARI MAN, J. 1. These four sets of appeals relate
F to the correct construction of Section 4(1 )(a) proviso (iii) and
Section 4(4)(c) of the Central Excise and Salt Act as they
stood prior to the 2000 amendment of Section 4. In short,
these appeals deal with the definition of "related person"
G and the price at which valuation is to take place if sales are
made to "related persons" in the course of wholesale trade.
2. It is important to note that the assessee, Mis
Detergents India Limited, is the same in all the appeals, which
H arise out of different show cause notices for periods ranging
COMMISSIONER OF CENTRAL EXCISE, HYDERABAD 893
v. M/S. DETERGENTS INDIA LTD. [R. F. NARIMAN, J.]
from 1.3.1992 to September 1997. Detergents India Limited A
later changed its name to Henkel Marketing India Limited.
3. The facts of Civil Appeal Nos.9049-9051 of 2003
are as follows:
B
A show cause notice dated 8.12.1995 was issued
demanding an amount of Rs.3,21,450/- for the period
20.7.1995 to 30.7.1995. The d'emand made under this notice
was dropped vide order dated 11.3.1997 by the Deputy
Commissioner, Hyderabad. An appeal against this order c
was dismissed by the Commissioner (Appeals), Hyderabad,
by an order dated 5.1.2000. The appeal filed before CEGAT
was also dismissed by the impugned judgment dated
22.4.2003.
D
4. By a separate show cause notice dated 26.3.1997
for the period 1.3.1992 to 31.3.1995, the Commissioner by
an order dated 31.8.1999 confirmed a demand of
Rs.1, 12,42,499/- and also confiscated land, building, plant
and machinery, and further ordered redemption of the same E
in lieu of confiscation on payment of a fine of Rs.5,00,000/-
Penalties of Rs.5,00,000/- each were imposed on the
assessee, namely, OIL and on its holding company Shaw
Wallace Company Limited. An appeal was filed against the
order dated 31.8.1999 py the assessee and by its holding F
company Shaw Wallace. Three judgments were delivered
by CEGAT in the aforesaid appeals. The learned Technical
Member on a consideration of the facts came to the
conclusion that during search operations goods from the
subsidiary company were cleared from the factory premises G
to. the depot of Shaw Wallace at a much lower price as
compared to the price at which these goods were sold by
the assessee in the market to wholesale purchaser Hindustan
Lever and another. The Technical Member, therefore,
remanded the matter for a proper adjudication on facts. The H
894 SUPREME COURT REPORTS (2015] 6 S.C.R.
A Legal Member, on the other hand, found in favour of the
assessee finding that the issue in the present appeals was
covered by the judgment of Union of India v. Atic, (1984) 3
SCC 575 and Raliwolf Limited v. Union of India, 59 ELT
220 Bombay (1992). In view of the difference of opinion
B between the members, the points of difference were placed
before a third Member, who then decided in favour of the
assessee in the following terms:
"6. Having thoroughly compared the facts of the
c present case with that of the above case, I am of the
view that the ratio of the Apex Court's decision can
squarely be followed in the instant case. Accordingly,
it has to be held that the price at which the goods were
sold by OIL to SWCL should be the basis for
0 determination of the assessable value of the goods,
and not the price charged by the latter to their dealers.
SWCL cannot be said to be "related" to OIL within the
meaning of this expression as used in Section 4(1 )(a)
as no "mutuality of interest" between the two companies
E has b(ilen established in this case. None of the
"commonalities" suggested by the Ld. SOR in his bid
to set up a "relation" between the two companies would,
individually or collectively, amount to "mutuality of
interest" expounded by the Apex Court. The decisions
F cited by him are easily distinguishable. On the other
hand, the decisions cited by the counsel are largely
supportive of the assessee's stand in this case. I do
not think it necessary to elaborate this aspect as a
G detailed discussion has already been made in this
behalf by Ld. Member (J). I am in full agreement with
him on the issue.
7. As OIL and SWCL have already been found not to
be "related persons", it cannot be said that the former
H
COMMISSIONER OF CENTRAL EXCISE, HYDERABAD 895
v. MIS. DETERGENTS INDIA LTD. [R. F. NARIMAN, J.]
suppressed (in their price lists filed with the department) A
any "relationship" before the department with an intent
to evade payment of duty. The fact is that there was
no mutuality of interest between OIL and SWCL and
hence they were not "related persons" within the
meaning of Section 4(1 )(a) of the Act. The fact alleged B
by the department in the show cause notice did not
exist at all to be suppressed by the notice. Therefore,
the extended period of limitation was not invocable in
this case. I agree with Ld. Member (J) on this score
also. c
8. In the result, the appeals filed by OIL and SWCL
have to be allowed and the Revenue's appeal to be
rejected."
D
It is this impugned judgment that has mere!y been
followed in the other appeals.
5. The facts further show that Detergents !ndia Limited,
now Henkel Marketing India Limited, was at the relevant time E
a subsidiary of Shaw Wallace and Company Limited. Both
were public limited companies. Shaw Wallace's subsidiary
companies held 57% of the paid up share capital of
Detergents India Limited, making Detergents India Limited
a subsidiary of Shaw Wallace as understood by the definition F
of "holding company" and "subsidiary company" contained
in the Companies Act, 1956. 90% of the manufacturing
capacity of Detergents India Limited was to manufacture
various products for Hindustan Lever Limited which were
then branded with Hindustan Lever names in small packs. A G
p~ocessing charge was paid by Hindustan Lever Limited for
this job work, and it is clear that different processing charges
were paid depending upon the size of the product and the
product itself. The excess 10% capacity which was not
mopped up by Hindustan Lever was sold to Shaw Wallace, H
896 SUPREME COURT REPORTS (2015] 6 S.C.R.
A its holding Company. Various other manufacturers/sellers
also sold the same and similar products to Shaw Wallace
and Company. A large number of these manufacturers were
not subsidiary companies of Shaw Wallace and indeed had
no business relationship with Shaw Wallace other than the
B sale of these products. It was pleaded as a fact that the
price paid by Shaw Wallace and Company for the purchase
of the same/similar products from the other firms/companies
was less than the price paid to Detergents India Limited.
This can be found as a fact in the Commissioner's order
C dated 7.11.2000 in Civil Appeal Nos.6166-6168 of 2004 in
which the following fact was pleaded before the learned
Commissioner:-
• "SWC procures only a part of its requirement from OIL
D and there are various other independent manufacturers
like M/s Deepti Chemicals, Kanpur, M/s Geeta
Chemicals, Unnao, M/s Kari Detergents,
Muzaffarnagar, M/s Standard Surfactants, Kanpur, M/
s Jaina detergents, Kanpur, M/s Sara Soaps, Kanpur,
E M/s Venkteshwar Detergents (P) Limited, Hyderabad
and M/s Varuna Detergents, Kanpur. There is no
allegation that any of these companies are related to
SWC. In fact, the price charged by these independent
manufacturers to SWC is lower than the price charged
F
by OIL. As held in 1989 (43) ELT 401 (Born) in Dawn
Apparels Limited, the price charged by the subsidiary
company to the holding company is not rejectable
merely on the ground of such relationship of sub~1diary
G and principal in the absence of any evidence of low
price having been charged or any favourable treatment
accorded. In the present case, the Department has
not produced any material to show that their price to
SWC is not the normal price."
H
COMMISSIONER OF CENTRAL EXCISE, HYDERABAD 897
v. MIS. DETERGENTS INDIA LTD. [R. F. NARI MAN, J.]
6. It was also pleaded that processing charges of A
different products were different. This is to be found in the
very show cause notice dated 26.3.1997 with which we are
concerned as follows:-
"3.6 File bearing Nos. 45 and 71 seized from the factory B
at Kodur on 16.5.1995 were shown to him and he was
asked to explain in detail about the audit reports of Ml
s. SWC available in that file. He explained that he had
seen the internal audit report of Mis. SWC dated
2.4.1993 from page No.37 to 58 in file No.45 and added c
that Mis. SWC were periodically conducting audit (Ml
s. SWC being the holding company) of the functioning
of Mis. DIL, Kodur which was its subsidiary to control
and monitor the activities of its subsidiaries. When
enquired he stated that the processing charges paid D
by Mis. HLL to Mis. DIL is Rs.1,200 per MT upto 1994
and later Mis. HLL reduced the processing charges to
Rs.1125 per MT: that for the goods supplied to Mis.
SWC, Mis. DIL used to file the price list with the Central
Excise Department after mutually agreeing with Mis. E
SWC taking into account the raw material landed cost
and the processing charges; that every month Mis. DIL
were sending landed cost of raw material and packing
material monthwise to Mis. SWC; that the processing
F
charges was mutually agreed to be Rs.800 per MT
during 1992 and 1993 and it was Rs. 900 per MT during
1994, Rs.950 per MT during 1995, Rs.1125 per MT
during 1996 for detergent cakes; that the processing
charges for Hand Mix Check Powder to Mis SWC was G
Rs.400 per MT, Rs.1850 for Spray dried powder during
1992 to 1996; that the processing charges charged to
M/s. HLL for spray dried sunlight detergent powder was
Rs.2, 100 per MT; that the processing charges for both
Chek detergent powder and sunlight detergent powder H
898 SUPREME COURT REPORTS [2015] 6 S.C.R.
A are similar; that the packing style for Sunlight detergent
powder varies from packing of Chek detergent powder,
the difference being Chek Powder was packed in bulk
quantities more and in the case of Sunlight powder the
entire packing was in 500 Gms. Only; that in respect of
B detergent cakes made for M/s. SWC and M/s. HLL,
the processing is similar and the size of the cake was
given according to the requirement; that however, in
the agreement with M/s. HLL for processing on job work
basis there was no mention about the size of the
c detergent cake or powder."
It is on these facts that the present appeals have to be
decided.
o 7. Learned counsel on behalf of the Revenue argued
that there can be no doubt, in view of a number of factors,
that Shaw Wallace and OIL are related persons within the
meaning of Section 4(4)(c) of the Act and stated that some
of these factors are that advertisement expenses of OIL
E brands had been borne by the holding Company Shaw
Wallace; processing charges paid by Shaw Wallace to OIL
is less than processing charges paid to Hindustan Lever;
employees of Shaw Wallace and its subsidiaries were freely
transferred from one company to another; depots of Shaw
F Wallace and OIL were in the same premises; OIL sends
monthly newsletters to Shaw Wallace showing production,
despatches, purpose, technical problems, quality problems,
details of power consumption etc. - and Shaw Wallace fixes
the price of OIL products; and unsecured loans of
G approximately Rs.55 lakhs were given by Shaw Wallace to
its subsidiary OIL. It is argued that all these facts would
show that Shaw Wallace and OIL were related persons and
that the price paid by Shaw Wallace to OIL was a depressed
H price and would, therefore fall within proviso (iii) of Section
COMMISSIONER OF CENTRAL EXCISE, HYDERABAD 899
v. M/S. DETERGENTS INDIA LTD. [R. F. NARIMAN, J.]
4(1 )(a) as it stood prior to 2000. Learned counsel for the A
Revenue also argued that the moment there is a holding/
subsidiary company relationship, the definition of "related
person" under Section 4(4)(c) gets attracted and proviso (iii)
to Section 4(1 )(a) in turn gets attracted and therefore it is
the price at which Shaw Wallace and Company sells the B
self same goods to its customers that is the price that is to
be taken into account on the facts of the present case.
8. Shri Lakshmikumaran, learned counsel for the
appellants has argued that even though Shaw Wallace and C
. OIL may be holding and subsidiary companies, yet on a true
construction of Section 4(4 )( c) they are not related persons
within the meaning of the definition clause. Further, he
argued that on a true construction of proviso (iii) to Section
4(1)(a), it is necessary that the assessee must first enter D
into an arrangement with the related person, which
arrangement leads to a price being charged which is lower
than the normal price. Further, the proviso only gets attracted
when such arrangement is predominantly a sale to or through
a related person. According to him, on the facts of the present E
case, there is no arrangement between Shaw Wallace and
OIL which has led to any depression in the normal price at
which such goods are sold. Also, since only 10% of the
production of OIL is sold to Shaw Wallace, the goods are F
not "generally" sold to Shaw Wallace.
9. To appreciate the aforesaid controversy, it is
necessary to set out Section 4 as it existed before its
amendment in 1973. Section 4 then read:
G
"4. Determination of value for the purposes of duly.-
Where, under this Act, any article is chargeable with
duty at a rate dependent on the value of the article,
such value shall be deemed to be-
H
900 SUPREME COURT REPORTS [2015] 6 S.C.R.
A (a) the wholesale cash price for which an article of the
like kind and quality is sold or is capable of being sold
at the time of the removal of the article chargeable with
duty from the factory or any other premises of
manufacture or production for delivery at the place of
B manufacture or production, or if a wholesale market
does not exist for such article at such place, at the
nearest place where such market exists, or
(b) where such price is not ascertainable, the price at
C which an article of the like kind and quality is sold or is
capable of being sold by the manufacturer or producer,
or his agent, at the time of the removal of the article
chargeable with duty from such factory or other
premises for delivery at the place of manufacture or
D production, or if such article is not sold or is not capable
of being sold at such place, at any other place nearest
thereto.
Explanation.-ln determining the price of any article
E under this section, no abatement or deduction shall be
allowed except in respect of trade discount and the
amount of duty payable at the time of the removal of
the article chargeable with duty from the factory or other
premises aforesaid."
F
The period involved in the present appeals being 1992
to 1997, we would have to advert to Section 4 as it stood
after the Amendment Act of 1973 but before the Amendment
Act of 2000. Section 4 reads as follows:-
G
"4. Valuation of excisable goods for purposes of
charging of duty of excise.-(1) Where under this Act,
the duty of excise is chargeable on any excisable goods
with reference to value, such value shall, subject to
H the other provisions of this section, be deemed to be-
COMMISSIONER OF CENTRAL EXCISE, HYDERABAD 901
v. MIS. DETERGENTS INDIA LTD. [R. F. NARIMAN, J.]
(a) the normal price thereof, that is to say, the price at A
which such 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, where the buyer is
not a related person and the price is the sole
consideration for the sale: B
Provided that-
(i) where, in accordance with the normal practice of
the wholesale trade in such goods, such goods are c
sold by the assessee at different prices•to different
classes of buyers (not being related persons) each such
price shall, subject to the existence of the other
circumstances specified in clause (a), be deemed to
be the normal price of such goods in relation to each D
such class of buyers;
(ii) where such goods are sold by the assessee in the
course of wholesale trade for delivery at the time and
place of removal at a price fixed under any law for the E
time being in force or at a price, being the maximum,
fixed under any such Jaw, then, notwithstanding
anything contained in clause (iii) of this proviso, the
price or the maximum price, as the case may be, so
fixed, shall, in relation to the goods so sold, be deemed F
to be the normal price thereof;
(iii) where the assessee so arranges that the goods
are generally not sold by him in the course of wholesale
trade except to or through a related person, the normal G
price of the goods sold by the assessee to or through
such related person shall be deemed to be the price at
which they are ordinarily sold by the related person in
the course of wholesale trade at the time of removal,
to dealers (not being related persons) or where such H
902 SUPREME COURT REPORTS [2015] 6 S.C.R.
A goods are not sold to such dealers, to dealers (being
related persons) who sell such goods in retail;
{b) where the normal price of such goods is not
ascertainable for the reason that such goods ·are not
B sold or for any other reason, the nearest ascertainable
equivalent thereof determined in such manner as may
be prescribed.
(2) Where, in relation to any excisable goods the price
c thereof for delivery at the place of removal is not known
and the value thereof is determined with reference to
the price for delivery at a place other than the place of
removal, the cost of transportation from the place of
removal to the place of deiivery shall be excluded from
D such price.
(3) The provisions of this section shall not apply in
respect of any excisable goods for which a tariff value
has been fixed under sub-section (2) of Section 3.
E (4) For the purposes of this section,-
{a) 'assessee' means the person who is liable to pay
the duty of excise under this Act and includes his agent;
F {b) 'place of removal' means-
(1) a factory or any other place or premises of production
or manufacture of the excisable goods; or
(i1) a warehouse or any other place or premises wherein
G the excisable goods have been permitted to be
deposited without payment of duty,
from where such goods are removed;
H (c) 'related person' means a person who i:: so
COMMISSIONER OF CENTRAL EXCISE, HYDERABAD 903
v. MIS. DETERGENTS INDIA LTD. [R. F. NARIMAN, J.]
associated with the assessee that they have interest, A
directly or indirectly, in the business 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.
B
Explanation.-ln this clause 'holding company',
'subsidiary company' and 'relative' have the same
meanings as in the Companies Act, 1956;
(d) 'value' in relation to any excisable goods,- c
(t) where the goods are delivered at the time of removal
in a packed condition, includes the cost of such packing
except the cost of the packing which is of a durable
nature and is returnable by the buyer to the assessee.
D
Explanation.-ln this sub-clause "packing" means the
wrapper, container, bobbin, pirn, spool, reel or warp
beam or any other thing in which or on which the
excisable goods are wrapped, contained or wound;
E
(it) does not include the amount of the duty of excise,
sales tax and other taxes, if any, payable on such goods
and, subject to such rules as may be made, the trade
discount (such discount not being refundable on any
account whatsoever) allowed in accordance with the F
normal practice of the wholesale trade at the time of
removal in respect of such goods sold or contracted
for sale;
(e) 'wholesale trade' means sales to dealers, industrial G
consumers. Government, local authorities and other
buyers, who or which purchase their requirements
otherwise than in retail."
The first thing that one notices on a reading of Section H
904 SUPREME COURT REPORTS (2015] 6 S.C.R.
A 4(1 )(a), as it then stood, is that a duty of excise is chargeable
with reference to "normal price", that is to say the price at
which such goods are ordinarily sold by the assessee to a
buyer in the course of wholesale trade. The price should be
the sole consideration for the sale. If the buyer is a related
B person, there is a presumption that a sale to a related person
would be at a price which is not the sole consideration for
the sale.
10. Proviso (iii) then deals with the price that is to be
C taken into consideration in case sales are made to related
persons. Three basic ingredients are necessary before
proviso (iii) gets attracted. The first ingredient is that the
assessee must "arrange" that goods are sold by him in a
particular manner. The second ingredient is that such
D arrangement must be such that the goods are "generally"
sold by the assessee in the course of wholesale trade to or
through a related person. And thirdly, such sale need not be
to the related person - it can even be through the related
E person.
11. We are of the view that the "arrangement" spoken
of in the proviso must be something by which the assessee
and the related person "arrange" that the goods are sold at
something below the normal price, so that tax is either
F avoided or evaded by such arrangement. Secondly, the
expression "generally" also shows that such goods must
predominantly be sold by the assessee to or through the
related person - in mathematical terms, sales that are to or
through a related person must consist of at least 50% of the
G goods that are manufactured and sold. The expression "to
or through a related person" again goes back to the
"arrangement" and is another way of saying that such sale
can be effected directly to or indirectly through such related
H person. It is or.: 1 when all three consideratior.5 are
COMMISSIONER OF CENTRAL EXCISE, HYDERABAD 905
v. M/S. DETERGENTS INDIA LTD. [R. F. NARIMAN, J.]
cumulatively met that proviso (iii) can be said to be atlrai::ted. A
12. When we come to the definition of "related person"
the legislature has used a well known technique. It first
employs the expression "means" and states that persons
who are associated with the assessee so that they have a B
direct or indirect interest in the business of each other would
get covered. The definition then goes on to use the
expression "and includes" thereby indicating that the
legislature intends to extend the definition to also include
various persons that would not otherwise have so been C
included. These include a holding company, a subs!diary
company, a relative and a distributor of the assessee and
any sub-distributor of such distributor. The necessity for
including holding and subsidiary companies as defined under
the Companies Act, 1956 is to lift the corporate veil in order D
to get to the economic reaLities of the transaction.
13. Now to the case law. In Union of India v. Bombay
Tyre International Ltd., (1984) 1 SCC 467, Section 4 as
amended by the 1973 Ar:nendment Act was challenged E
before this Court. This Court repelled the challenge. It held
that even under Section 4 prior to the 1973 Amendment, the
wholesale cash price would consist of a sale by a
manufacturer in the course of wholesale trade to a wholesale
dealer, which sale would have to be at arm's length and in F
the usual course of business. The court held:
"32. It will be noticed that the basic scheme for
determination of the price in the new Section 4 is
characterised by the same dichotomy as that G
observable in the old Section 4. It was not the intention
of Parliament, when enacting the new Section 4 to
create a scheme materially different from that embodied
in the superseded Section 4. The object and purpose
remained the same, and so did the central principle at H
906 SUPREME COURT REPORTS [2015] 6 S.C.R.
A the heart of the scheme. The new scheme was merely
more comprehensive and the language employed more
precise and definite. As in the old Section 4, the terms
in which the value was defined remained the price
charged by the assessee in the course of wholesale
B trade for delivery at the time and place of removal.
Under the new Section 4 the phrase "place of removal"
was defined by Section 4(b) not merely as "the factory
or any other place or premises of production or
manufacture of the excisable goods" from where such
c goods are removed but was extended to "a warehouse
or any place or premises wherein the excisable goods
have been permitted to be deposited without payment
of duty" and from where such goods are removed. The
judicial construction of the provisions of the old Section
D
4 had already declared that the price envisaged under
clauses (a) and (b) of that section was the price charged
by the manufacturer in a transaction at arm's length.
After referring to several cases, some of which have
E already been mentioned here earlier, this Court pointed
out in Voltas Limited [(1973) 3 SCC 503 : 1973 SCC
(Tax) 261 : AIR 1973 SC 225 : (1973) 2 SCR
1089] : (SCC p. 509 para 20)
"the 'wholesale cash price' has to be ascertained only
F
on the basis of transactions at arm's length. If there is
a special or favoured buyer to whom a specially low
price is charged because of extra-commercial
considerations, e.g., because he is a relative of the
G manufacturer, the price charged for those sales would
not be the 'wholesale cash price' for levying excise
under Section 4 (a) of the Act. A sole distributor might
or might not be a favoured buyer according as terms
of the agreement with him are fair and reasonable and
H were arrived at on purely commercial basis."
COMMISSIONER OF CENTRAL EXCISE, HYDERABAD 907
v. M/S. DETERGENTS INDIALTD. [R. F. NARIMAN, J.]
33. That was also the view taken in Atic Industries A
Ltd. [(1975) 1 sec 499 : 1975 sec (Tax) 135 : AIR
1975 SC 960 : (1975) 3 SCR 563] The new Section 4
makes express provision in that behalf. Under the new
Section 4 also, it is necessary to take the price charged
by the manufacturer as one which is unaffected by any B
. concessional or manipulative considerations, and
therefore the "normal price" mentioned in the new
Section 4(1)(a) speaks of a price "where the buyer is
not the related person and the price is the sole
consideration for the sale". The expression "related c
person" has been specifically defined in the new Section
4(4)(c), and transactions in which a "related person" is
involved are covered by the third proviso of Section 4
(1)(a)."
D
14. These observations have a vital bearing on the
construction of Section 4(1 )(a). Section 4, before the
amendment of 1973, did not contain the expression "where
the buyer is not a related person and the price is the sole
consideration for the sale". The pre-amended Section 4 was E
understood in Voltas's case by this Court to mean that the
wholesale cash price can only be ascertained on the basis
of arm's length transactions. If there is a special or favoured
buyer like a relative of the manufacturer to whom a specially F
low price is charged because of extra commercial
considerations, such price cannot be the price referred to in
Section 4(1 )(a). Taking a cue from the fact that the post-
amendment Section 4 makes no change in the law laid down
in Voltas's case, as far as arm's length transactions are G
·concerned, it is clear that where the price is the sole
consideration for the sale and is not a specially low price
because of extra commercial considerations, even where a
buyer is a related person, the normal price mentioned in
Section 4(1 )(a) post the 1973 amendment would apply. Read H
908 SUPREME COURT REPORTS [2015) 6 S.C.R.
A in accordance with the object of the pre-amended Section 4
as explained in Voltas's case it is clear that the expression
"where the buyer is not a related person and the price is the
sole consideration for the sale" is to be read conjunctively
as meaning that because the buyer is a related person, the
B price usually ceases to be the sole consideration for the sale.
This merely raises a rebuttable presumption. Once the
presumption is rebutted and it is shown that even in the case
of a buyer who is a related person, the price is the sole
consideration for the sale and is not a specially low price
C because of extra commercial considerations, such price
would fall within Section 4(1 )(a) as the price of the taxable
goods to be taken into consideration for arriving at "normal
price". Of course, where the three pre-requisites for the
application of proviso (iii) to Section 4(1 )(a) all apply, an
0
irrebuttable presumption is raised so that it is not necessary
thereafter to go to any other facts.
15. On a reading of the aforesaid judgment, it becomes
clear that the object of enacting Section 4 is that transactions
E at arm's length between manufacturer and wholesale
purchaser which yield the price which is the sole
consideration for the sale alone is contemplated. Any
concessional or manipulative considerations which depress
F price below the normal price are, therefore, not to be taken
into consideration. Judged at from this premise, it is clear
that arrangements with related persons which yield a price
below the normal price because of concessional or
manipulative considerations cannot ever be equated to
G normal price. But at the same time, it must be remembered
that absent concessional or manipulative considerations,
where a sale is between a manufacturer and a related person
in the course of wholesale trade, the transaction being a
transaction where it is proved by evidence that price is the
H sole consideration for the sale, then such price must form
COMMISSIONER OF CENTRAL EXCISE, HYDERABAD 909
v. MIS. DETERGENTS INDIA LTD. [R. F. NARIMAN, J.]
the basis for valuation as the "normal price" of the goods. A A t
literal reading of the Section would otherwise lead to an
absurdity. Where it is proved that the same price is paid by
related persons as well as arm's length purchasers (who
are unrelated) forthe same goods, in the case of the former
the higher price paid by purchasers from the related person B
would be the price on which excise duty would be calculated
which would be more than the "normal price" under Section
4(1)(a). Such a result is not contemplated by the amended
Section 4(1 )(a), which must therefore be read in the manner
indicated above. C
16. So far as "related persons" are concerned, the Court
in the Bombay Tyre International Limited case stated:
"43. Learned counsel for the assessees contends that D
the provisions regarding related persons are wholly
unnecessary because to counteract evasion or
avoidance any artificially arranged price between the
manufacturer and his wholesale buyer can be rejected
in any case under Section 4, and we are referred to E
the observations of this Court in Voltas Limited[(1973)
3 sec 503: 1973 sec (Tax) 261 : AIR 1973 sc 225:
(1973) 2 SCR 1089) and A tic Industries Ltd. [(1975) 1
sec 499: 1975 sec (Tax) 135: AIR 1975 sc 960:
(1975) 3 SCR 563] It is true, we think, that the new F
Section 4(1) contains inherently within it the power to
determine the true value of the excisable article, after
taking into account any concession shown to a special
or favoured buyer because of extra-commercial
considerations, in order that the price be ascertained G
only on the basis that it is a transaction at arm's length.
That requirement is emphasised by the provision in
the new Section 4(1 )(a) that the price should be the
sole consideration for the sale. In every such case, it
H
910 SUPREME COURT REPORTS [2015) 6 S.C.R.
A will be for the Revenue to determine on the evidence
before it whether the transaction is one where extra-
commercial considerations have entered and, if so,
what should be the price to be taken as the value of
the excisable article for the purpose of excise duty.
B Nonetheless, it was open to Parliament to incorporate
provisions in the section declaring that certain specified
categories of transactions fall within the tainted class,
in which case an irrebuttable presumption will arise that
transactions belonging to those categories are
c transactions which cannot be dealt with under the usual
meaning of the expression "normal price" set forth in
the new Section 4(1)(a). They are cases where it will
not be necessary for the Revenue to examine the entire
gamut of evidence in order to determine whether the
D
transaction is one prompted by extra-commercial
considerations. It will be open to the Revenue, on being
satisfied that the third proviso to the new Section4(1 )(a)
read with the definition of "related person" in Section
E 4(4)(c) is attracted, to proceed to determine the "value"
in accordance with the terms of the third proviso.
44. It is urged on behalf of the assessee that the
provisions are whimsical and arbitrary, and cannot be
said to be reasonably calculated to deal with the issue
F
of evasion or avoidance of excise. It is said that the
assessment on the manufacturer by reference to the
sale price charged by his distributor is "wholly
incompatible with the nature of excise", and we are
G referred to Atic Industries Ltd. [(1975) 1 SCC 499: 1975
sec (Tax) 135: AIR 1975 SC 960: (1975) 3 SCR 563]
Now, it is a well known legislative practice to enact
provisions in certain limited cases where an assessee
may be taxed in respect of the income or property truly
H belonging to another. They are cases where the
COMMISSIONER OF CENTRAL EXCISE, HYDERABAD 911
v. M/S. DETERGENTS INDIA LTD. [R. F. NARIMAN, J.]
•
Legislature intervenes to prevent the circumvention of A
the tax obligation by taxpayers seeking to avoid or
reduce their tax liability through modes resulting in the
income or property arising to another. The provisions
of the law may indeed be so enacted that the actual
existence of such motive may be wholly immaterial, B
and what has been done by the assessee may even
proceed from wholly bona fide intention. With the aid
of legal fiction, the Legislature fastens the liability on
the assessee. When the Legislature employs such a
device, and the liability is attached without qualification, c
it is reasonable to infer that an irrebuttable presumption
has been created by law. Such provisions have been
held to be within the legislative competence of the
Legislature and as falling within its power of taxation,
D
and reference may be made to Balaji v. /TO [AIR 1962
SC 123 : (1962) 2 SCR 983 : (1961) 43 ITR 393]
; Navnit/al C. Javeri v. CIT [AIR 1965 SC 1375: (1965)
1 SCR 909: (1965) 56 ITR 198] and Punjab Distilling
Industries Ltd. v. CIT. [AIR 1965 SC 1862 : (1965) 3 E
SCR 1 : (1965) 57 ITR 1 : 35 Com Cas 541]
45. It is contended for the assessees that the definition
of the expression "related person" is so arbitrary that it
includes within that expression a distributor of the
F
assessee. It is urged that the provision falls outside
the ambit of Entry 84 of List I of the Seventh Schedule
to the Constitution inasmuch as it is wholly inconsistent
with the levy of excise, and if it is attempted to seek
support for the provision from the residuary Entry 97 of G
List I as a non-descript tax the attempt must fail because
there is no charging section in the Central Excises and
Salt Act empowering the levy of such non-descript tax
nor any machinery provision in the Act for collecting
such a tax. The charging provision and the machinery H
912 SUPREME COURT REPORTS [2015) 6 S.C.R.
A provisions of the Act, it is pointed out, deal exclusively
with excise duty and not with any other tax. The validity
of the provision is assailed also on the ground that it
violates Articles 14 and 19 of the Constitution. The
challenge made on behalf of the assessees is powerful
B and far-reaching. But it seems to us unnecessary to
enter into that question because we are satisfied that
the provision in the definition of "related person" relating
to a distributor can be legitimately read down and its
validity thus upheld. In our opinion, the definition of
c related person should be so read that the words "a
relative and a distributor of the assessee" should be
understood to mean a distributor who is a relative of
the assessee. It will be noticed that the Explanation
provides that the expression "relative" has the same
D
meaning as in the Companies Act, 1956. As regards
the other provisions of the definition of"related person",
that is to say, "a person who is so associated with the
assessee that they have interest, directly or indirectly,
E in the business of each other and includes a holding
company, a subsidiary company... ", we think that the
provision shows a sufficiently restricted basis for
employing the legal fiction. Here again, regard must
be had to the Explanation which provides that the
F expression "holding company and subsidiary" have the
same meanings as in the Companies Act, 1956.
Reference in this connection may be made to Tata
Engineering and Locomotive Co. Ltd. v. Stat., of
Bihar[AIR 1965 SC 40: (1964) 6 SCR 885: 34 Com
G Cas 458] where the principle was approved by this
Court that the corporate veil could be lifted where the
companies shared the relationship of a holding
company and a subsidiary company, and to Juggi Lal
Kam/apatv.C.l.T. [AIR 1969 SC 932: (1969) 1 SCR
H
COMMISSIONER OF CENTRAL EXCISE, HYDERABAD 913
v. M/S. DETERGENTS INDIA LTD. [R. F. NARIMAN, J.]
988: (1969) 73 ITR 702] where this Court held that the A
veil of corporate entity could be lifted to pay regard to
the economic realities behind the legal facade, for
example, where the corporate entity was used for tax
evasion or to circumvent tax obligation."
B
17. On a reading of the aforesaid paragraphs, it is Clear
that proviso (iii) would be referable only to tainted
transactions. Only such cases would raise an irrebuttable
presumption which will then be governed by the said proviso.
It is also interesting to note that the definition of "related C
person" was read down by this Court to make the distributor
covered by it to be a relative of the assessee. When "holding
company" and "subsidiary company" was spoken of, the
Court held again that the idea of including these two types
of companies within the definition of related person is only D
so that the corporate veil of such companies can be lifted so
that economic realities behind the legal fac;;ade can be looked
at so that tax is not evaded or avoided.
18. Some other decisions may be taken note of at this E
stage. In Flash Laboratories Limited v. Collector of
Central Excise, New Delhi, (2003) 2 SCC 86, the appellant
was a subsidiary company of M/s Parle Products Limited.
M/s Parle Biscuits Limited is also a subsidiary company of
M/s Parle Products Limited. What was in question in that F
case was the relationship between two subsidiary companies.
It is clear that the relationship between a subsidiary company
and another subsidiary company would not be governed by
the second part of Section 4(4)(c). In order that the second
part of Section 4(4)(c) be attracted, it must be shown that G
the related person must either be a holding company or a
subsidiary company of the assessee. In the facts of that
case, the related person, namely, Mis Parle Biscuits Limited
was neither a holding company nor a subsidiary company of H
914 SUPREME COURT REPORTS (2015] 6 S.C.R.
A the assessee i.e. Mis Flash Laboratories Limited. This being
the case, this Court held:
"7. Having regard to the above decision and the plain
meaning of the definition of "related person", it is to be
B noticed that the appellant is a subsidiary company of
Messrs Parle Products Limited and Messrs Parle
Biscuits Limited is also a subsidiary company of Messrs
Parle Products Limited. Therefore, the relationship
between the appellant and Messrs Parle Biscuits
c Limited, though indirect, they have mutual interest in
the business of each other. The facts and
circumstances of the case show that there is mutuality
of interest between the three companies as sixty per
cent of the products of the appellant are sold to Messrs
D Parle Products Limited and the remaining forty per cent
of the total product of toothpaste is being sold to Messrs
Parle Biscuits Limited. Moreover, Messrs Parle
Products Limited are incurring the expenses for sales
promotion and advertisement for the sale of the
E appellant's product, namely, "Prudent toothpaste"."
This judgment, therefore, is an authority only for the
application of the first part of Section 4(4)(c). It is in this
context that the Court held in paragraph 5 that there must
F be mutuality of interest between two persons who are both
subsidiaries of a particular holding company.
19. In Commissioner of Central Excise
Bombay v. Universal Luggage Manufacturing Company
G Limited, (2005)190 ELT 3, this Court found as a matter of
fact that the assessee (holding company) was selling its
products through its wholly owned subsidiary at the same
price at which it was selling the same goods to other buyers
at arm's length, in which the subsidiary company had no
H
COMMISSIONER OF CENTRAL EXCISE, HYDERABAD 915
v. MIS. DETERGENTS INDIA LTD. [R. F. NARIMAN, J.]
role to play. This being the case, this Court agreed with the A
Tribunal that the price at which sales have been effected
through the subsidiary, not being a depressed price, would
be the price that would be taken into consideration for
valuation under Section 4(1 )(a).
B
20. Similarly, in CCE, II, Chennai v. Beacon
Neyrpic Ltd., 2006(193) ELT 16, this Court in a short two
paragraph order held:
"1. Assuming that the assessee was related to its c
subsidiary company Le. Mis Best & Crompton Ltd.
(BCL), this by itself would not be sufficient for the
purpose of invoking the Central Excise (Valuation)
Rules, 1975 read with Section 4(1)(a) of the Central
· Excise Act, 1944. The Department would have to go D
further and show that the relationship has introduced
an element other than purely commercial consideration
in effecting the sale by the assessee to BCL. No such
evidence has been produced by the Revenue.
E
2. In the circumstances, the appeal is dismissed."
21. In Commissioner Central Excise, New Delhi v.
India ThervitCorporation, Ltd., (2008) 17 SCC 374,ATLa
subsidiary of ITCL, sold all goods manufactured by it to ITCL. F
Despite the fact that on factsATL and ITCL may be taken to
be related persons, (though this Court did not hold so), since
there is no under valuation as the price paid by the Railways
(an arm's length purchaser) was the same as the price paid
by ITCL, the price paid by the holding company to its G
subsidiary was taken to be a price on which excise duty would
be calculated.
22. Since the Tribunal in the judgment under appeal.has
referred to and relied upon Raliwolf v. UOI, 59 ELT 220 H
916 SUPREME COURT REPORTS (2015] 6 S.C.R.
A Bombay (1992), we must refer to the same. The Bombay
High Court in that judgment construed Section 4(4)(c) as
follows:
"31. We are not inclined to accept the contention of
B the Department as submitted by Mr. Sethna, the learned
counsel appearing for the respondents for the following
reasons:-
(a) that Section 4(4 )(c) is a defining section of the
c expression "related person" and the said section must
be read and seen in the context of third proviso to
Section 4(1)(a). If one, therefore, reads the entire
section, it is clear that three conditions are required to
be satisfied before invoking the third proviso :
D
Firstly, there should be mutuality of interest.
Secondly, the price charged should not be normal price
but the price lower to the normal price, and that extra-
commercial considerations have reduced the normal
E price.
Thirdly, the alleged related person should be related to
the assessed as defined in Section 4(4)(c) of the said
Act. It is only if the above three conditions are satisfied,
F then alone it can be said that the third proviso to Section
4(1 )(a) is applicable.
(b) The first part of the definition of related person as
mentioned in Section 4(4)(c) of the said Act lays down
G that a person who is sought to be branded as a related
person must be a person who is so associated with the
assessed, that they have interest directly or indirectly
in the business of each other. The inclusive part of the
definition is merely an extension of the first part. Both
H
COMMISSIONER OF CENTRAL EXCISE, HYDERABAD 917
v. M/S. DETERGENTS INDIA LTD. [R. F. NARIMAN, J.]
the parts must be read conjunctively. If the argument A
of the learned counsel for the respondent is accepted,
then the word "and" which joins the two parts of the
definition would be rendered meaningless. It is well-
settled rule of interpretation that the Legislative
mandate should be so read that no word used by the B
Parliament should be rendered nugatory. Reading the
section as a whole it is clear that merely because a
company is the subsidiary of holding company, ipso
facto, it cannot attract Section 4(4)(c). It must be further
established that each has interest in the business of c
the other. It must be further established that the
transaction in question is not based on principal to
principal and that extra-commercial considerations
have lowered the normal price. It is only then the third
D
proviso to Section 4(1)(a) is attracted. The view which
we have taken is also supported by the judgment of
the Supreme Court in the case of Atic Industries (supra)
as well as the judgment of the Supreme Court in the
case of Moped India Ltd. v. Collector of Central Excise E
reported in1986(23)ELT8(SC) ."
23. We find it difficult to agree with some of the
conclusions reached in the aforesaid paragraph. As has been
stated by us above, "means" "and includes" is a legislative F
device by which the "includes" part brings by way of extenc;ion
various persons, categories, or things which would not
otherwise have been included in the "means" part. If this is
so, obviously both parts cannot be read conjunctively. What
is in the "includes" part is relatable only to the subject that is G
to be defined and takes within its sweep persons, objects,
or things which are not included in the first part. We have
already pointed out that the reason for including holding and
subsidiary companies in the "includes" part is so that the
authorities may look behind the corporate veil. To say that H
918 SUPREME COURT REPORTS [2015] 6 S.C.R.
A the holding and subsidiary companies must in addition have
a mutual interest in the business of each other is wholly
incorrect. Further, the word "and" which joins the two parts
of the definition is not rendered meaningless. It is necessary
because it precedes the word "includes" and brings in to the
B definition clause persons, objects, or things that would not
otherwise be included within the "means" part.
24. The High Court is also wrong in saying that its view
is supported by the judgment of this Court in Union of India
C v. Atic Industries Ltd., (1984) 3 SCC 575. On facts, Atic's
case did not deal with holding and subsidiary companies.
Atul Products Limited held 50% of the share capital of Atic
Industries which would not enab!"' Ah 11 !"'~ducts to be called
the holding company of Atic Industries. Further, this Court
D held:-
"5. The second ground on which the assessee assailed
the validity of the demand made by the Assistant
Collector for differential duty related to the applicability
E of the definition of"related person" in clause (c) of sub-
section (4) of Section 4 of the amended Act. The
Assistant Collector took the view that the assessee on
the one hand and Atul Products Limited and Crescent
Dyes and Chemicals Limited on the other were related
F persons within the meaning of the first part of the
definition of the term "related person" and the
assessable value of the dyes manufactured by the
assessee for the purpose of excise duty was, therefore,
liable to be determined with reference to the price at
G which the dyes were ordinarily sold by Atul Products
Limited and Crescent Dyes and Chemicals Limited.
This view taken by the Assistant Collector was set aside
by the High Court on the ground that the assessee on
the one hand and Atul Products Limited and Crescent
H
COMMISSIONER OF CENTRAL EXCISE, HYDERABAD 919
v. M/S. DETERGENTS INDIA LTD. [R. F. NARIMAN, J.]
Dyes and Chemicals Limited on the other were not A
'related persons' and the wholesale cash price charged
by the assessee to Atul Products Limited and Crescent
Dyes and Chemicals Limited and not the price at which
the latter sold the dyes to the dealers or the consumers,
represented the true measure of the value of the dyes B
for the purpose of chargeability to excise duty. This
conclusion reached by the High Court was assailed
before us by the learned Attorney-General appearing
on behalf of the Revenue. He fairly conceded that the
only part of the definition of "related person" in clause c
(c) of sub-section (4) of Section 4 on which he could
rely was the first part which defines "related person" to
mean "a person who is so associated with the assessee
that they have interest directly or indirectly in the
D
business of each other". The second part of the
definition which adds an inclusive clause was admittedly
not applicable. because neither Atul Products Limited
nor Crescent Dyes and Chemicals Limited was a
holding company or a subsidiarv company nor was E
either of them a relative of the assessee, so as to fall
within the second part of the definition."
25. It is clear therefore that the Bombay High Court
judgment does not lay down the law correctly insofar as the F.
correct construction of Section 4(4)(c) of the Act is concerned.
26. Section 4(4)(c) is in two parts. The first part requires
the department to apply a de facto test, whereas the second
part requires the application of a de jure test. "Relative" in
the Companies Act, 1956 is defined as follows:- G
"6. Meaning of"relative".-A person shall be deemed
to be a relative of another if, and only if,-
(a) they are members of a Hindu undivided family; or
H
920 SUPREME COURT REPORTS [2015) 6 S.C.R.
A (b) they are husband and wife; or
(c) the one is related to the other in the manner indicated
in Schedule I-A."
"Schedule I-A.
B [See Section 6(c))
LIST OF RELATIVES
1. Father.
2. Mother (including step-mother).
c
3. Son (including step-son).
4. Son's wife.
5. Daughter (including step-d:::..:g:-.tcr).
6. Fa the r's father.
D
7. Father's mother.
8. Mother's mother.
9. Mother's father.
10. Son's son.
E 11. Son's son's wife.
12. Son's daughter.
13. Son's daughter's husband.
14. Daughter's husband.
F 15. Daughter's son
16. Daughter's son's wife.
17. Daughter's daughter.
18. Daughter's daughter's husband.
G 19. Brother (including step-brother).
20. Brother's wife.
21. Sister (including step-sister).
22. Sister's husband."
H
COMMISSIONER OF CENTRAL EXCISE, HYDERABAD 921
v. M/S. DETERGENTS INDIA LTD. [R. F. NARIMAN, J.]
A reading of the definition of "relative" would show that A
the relative need not be a person who is so associated with
the assessee that they have mutual interest in each other's
businesses. If that were the case, the expression "relative"
in the second part would be otiose inasmuch as a relative
would be subsumed within "person" in the first part. Thus, B
"relatives" would also be "persons" who are so associated
with the assessee that they have a mutual interest in each
other's businesses. The legislature by application of a de
jure test has extended the meaning of "related persons" to
include the entire list of relatives per se without more as C
related persons. Similarly, holding companies and subsidiary
companies by virtue of the exercise of control by a holding
company over a subsidiary company are similarly included
by application of a de jure test.
D
27. We have indicated that the assessee argued that
the price paid by Shaw Wallace and Company for the same/
similar products as was sold by unrelated entities to it was
even lower than the price paid by Shaw Wallace to
Detergents India Ltd. This being the case, it is clear that on E
facts here there is no "arrangement" between Shaw Wallace
and Detergents India Limited to depress a price which is
otherwise at arm's length. Though this fact is pleaded
expressly before the Commissioner as pointed out above, F
the Commissioner's order does not contain any finding based
on this fact. On the other hand, there are copious findings
as to how Shaw Wallace and Detergents India Limited are
related persons because of a multitude of factors pointed
out in the Commissioner's order. G
28. That Shaw Wallace and Detergents India Limited
are "related persons" is made out by their holding/subsidiary
relationship. However, from this, it does not follow that there
is any arrangement of tax avoidance or tax evasion on the H
922 SUPREME COURT REPORTS [2015] 6 S.C.R.
A facts of this case. This being the case, proviso (iii) to Section
4(1)(a) would not be applicable. Further, it would also not
be applicable for the reason that there is no predominance
of sales by Detergents India Limited to Shaw Wallace. As
has been pointed out above, only 10% of its manufacturing
B capacity has been sold to Shaw Wallace, 90% being sold to
Hindustan Lever Limited. For this reason also, proviso (iii)
does not get attracted. This being the case, on facts here
Section 4(1 )(a) and not proviso (iii) is attracted inasmuch as
on facts the presumption of a transaction not being at arm's
C length has been rebutted. Revenue's comparison of price
paid by Hindustan Lever to OIL with price paid by Shaw
Wallace to OIL is unwarranted as the products sold and
processing charges are wholly different. The basis of the
Commissioner's orders thus goes. Further, the single most
0
relevant fact, namely, that Shaw Wallace paid for the same/
similar goods to unrelated suppliers at a price lower than
the price paid by Shaw Wallace to OIL, has not been adverted
to at all by the Commissioner.
E 29. Mr. Bagaria, learned counsel appearing on behalf
of Shaw Wallace, is aggrieved by penalties levied upon Shaw
Wallace by the orders of the Commissioner. These penalties
have been set aside by CEGAT. He pointed out to us that
F the ingredients necessary to attract Rule 209A were not
mentioned in any show cause notice against Shaw Wallace
and that the Commissioner's finding as a result thereof would
have to be held to be beyond the show cause notice. He
cited a number of judgments in support of this proposition.
G In view of the judgment delivered by us on merits, we do not
think it necessary to go into the contention raised by Shri
Bagaria. Suffice it to say that we are dismissing Revenue's
appeals. CEGAT's judgment itself set aside all penalties
imposed on Shaw Wallace as well as OIL. That part of
H CEGAT's judgment will remain undisturbed.
COMMISSIONER OF CENTRAL EXCISE, HYDERABAD 923
v. M/S. DETERGENTS INDIA LTD. [R. F. NARIMAN, J.]
30. The appeals by Revenue are devoid of merit and A
are accordingly dismissed. There shall be no order as to
costs.
Kalpana K. Tripathy Appea!s dismissed.
B
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